Policy Provisions Preventing Indemnity

Policy Provisions Preventing Indemnity

While policies in some classes of business promise to indemnify the
insured, this has to be done subject to the express terms of the policy, if any.
Some of these terms mean that something less than indemnity is payable. For
example:
(a) Average: Most non-marine property insurances are expressly subject to
average. This means that the insurer expects the insured property to be

insured for its full value. If it is not, in the event of a loss the amount
payable will be reduced in proportion to the under-insurance. For
example, if the actual value of the affected property at the time of a loss
was $4 million and it was only insured for $1 million, we may say that the
property was at the time of the loss only 25% insured. Therefore, by the
application of average, only 25% of the loss is payable.
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In view of this penalty for under-insurance, it is very important for
insurance intermediaries to do their best to ensure that their clients will
arrange full value insurance.
Note: In marine insurance, ‘average’ has a totally different meaning.
Here it means partial loss, a loss other than total loss. Average in
marine insurance is complex and beyond the needs of this present
study.
(b) Policy excess/deductible: An excess or deductible is a policy provision
whereby the insured is not covered for losses up to the specified amount,
which is always deducted from each claim.
Suppose a motor policy is comprehensive, with a $4,000 excess for
damage to the insured vehicle. If an accident occurs and the repair bill for
the car amounts to $14,000, the insurer is only liable for $10,000. On the
other hand, with a minor accident and repairs costing $3,000, the insurer
would have no liability more...