Chapter 9

Question 1

Where indemnity insurance gives the insured the amount for the loss, what does non indemnity insurance do?

Answer 1

Pays out a specified sum

Eg life insurance

Question 2

What does indemnity mean?

Answer 2

Save from loss or harm and protect against damage

Question 3

What’s an example of modification to the principle of indemnity?

Answer 3

Excess in insurance policies

Question 4

What is meant by unliquidated damages?

Answer 4

A policy of indemnity the claim is unliquidated because they don’t know how much it will cost in advance

Question 5

What’s the general rule for indemnity

Answer 5

The measure of indemnity for the loss of any property is determined by its value at the date of the loss and at the place of the loss

Question 6

For buildings what is the normal basis for indemnity?

Answer 6

The cost of repair or reconstruction with a deduction for betterment

Question 7

What are two examples of betterment

Answer 7

1- when a building is fixed part of it may then be new
2- when a building is fixed they may add extra floors or systems

Question 8

Indemnity for machinery and equipment

Answer 8

The cost of repair less wear and tear or

If repair is not possible the cost of replacement less wear and tear

Question 9

Indemnity for manufacturers stock

Answer 9

Manufacturers stock is raw materials, work in progress and finished stock

Indemnity is what it will cost them at the time and location of the stock

But for raw materials this is replacement cost plus delivery to site

Question 10

Indemnity for farming stock?

Answer 10

For livestock and produce the local market price is the normal basis

Sometimes government min prices come in.

Question 11

What is pecuniary insurance

Answer 11

Financial loss that contrasts with property.

Eg business interruption to cover loss of profit

Most contain a trends clause

Question 12

Measure of indemnity in liability insurance

Answer 12

The amount a court would award

Question 13

Indemnity in marine insurance

Answer 13

Valued and unvalued policies. Most are valued.

For unvalued it is the insurance value which is the value of the subject matter at the commencement of the risk.

For partial loss, if it cannot be repaired it is the amount the vessel devalues

Question 14

Average clause

Answer 14

Where under insurance takes place an average clause can work out the sun of indemnity under the policy.

(Sum insured at loss x amount of loss) /value at risk at loss

Question 15

What’s an excess or deductible

Answer 15

The insured must bear the first x amount

Question 16

What is a franchise

Answer 16

It’s similar to an excess in that there is no liability for loss in the franchise figure. But once the franchise is exceeded the loss is payable in full.

Eg excess £1000 claim £1045 insurer pays £45
Eg franchise £1000 claim £1045 insurer pays £45 but if under £1000 insured pays all

Question 17

Methods of providing indemnity

Answer 17

Money
Reinstatement (statutory reinstatement from the fires prevention act)
Repair
Replacement

Question 18

In marine insurance when total loss is claimed what is the insurer entitled to?

Answer 18

To claim for their own benefit anything that remains of the subject matter.

This is because the insured “abandons” their subject matter and the insurer taking is is known as “salvage”

Question 19

What is constructive total loss?

Answer 19

When the subject matter is damaged and the insured deprived of their loss but it’s not destroyed.

• cannot recover
• repair costs more that the value

This is not recognised outside of marine insurance

Question 20

What is successive partial loss

Answer 20

Where a policy grants a fixed amount of cover, the cover reduces for each claim and once user to the policy lapses. The cover is restored if extra premium is payed.

Question 21

Why are life insurance policies not indemnity contracts

Answer 21

Because you cannot value human life

Question 22

What is betterment

Answer 22

Two forms
1- repair gives new
2- new floors etc built in

Question 23

3 circumstances a person under a property policy may receive less than full indemnity

Answer 23

• inadequate sun insured
• another policy limit
• an average clause

Question 24

Is average an implied term?

Answer 24

Yes in marine insurance
Possibly in commercial property
Bit in household insurance

Question 25

Excess vs franchise

Answer 25

Excess where insured bears first of all risks

Franchise insured bears all cost if under x but insured pays all of it if breaches x

Question 26

What is a valued policy

Answer 26

A sun fixed at the outset is payed in the case of a loss

Question 27

Policies subject to the fires prevention act

Answer 27

Fire insurance of building in England and wales but not Lloyds policies

Question 28

Salvage and abandonment

Answer 28

Abandonment is giving up the subject matter

Salvage is the insurer taking that subject

Question 29

What is notice of abandonment

Answer 29

The insured must serve a notice if they want to claim total loss. If no notice then the insured is deemed to have suffered partial loss

Question 30

Effect of a policy when insurers pay a total loss

Answer 30

Cover will the. Usually terminate unless agreed otherwise