General Insurance Article: An Insurance Claim

An Insurance policy undertakes to indemnify the loss to the insured property by an insured peril. In other words, a loss sustained by an insured may not be an admissible claim under a policy.

For a claim to become admissible under an insurance policy shall depend upon:  the cause of loss, the perils covered under an insurance policy and the loss should fall within the terms, conditions and coverage including the policy period. In short,

  1. The loss should be to the insured property by an insured peril.
  2. The cause of loss should not fall in any of the exclusions of the policy.
  3. The occurrence of loss should be within the policy period.

Insurance covers uncertainties. Events which are sure to happen are generally not a part of insurance coverage.   A property which ought to be on fire is likely to be destroyed by fire and therefore can not be a subject matter of insurance under fire policy. In Life Insurance, we insure death because the timing of death is uncertain. The event of loss should be accidental/ fortuitous and not in connivance of insured. For example:

In case of Loss by Fire, there should be an actual ignition from an external source, under accidental circumstances to the property which ought not to be on fire (a peril covered under Standard Fire & Special perils policy). This is the reason that cables insured under fire policy are not a loss when damaged by internal heat generated by excess electric current. Similarly, spontaneous combustion and natural heating do not come under the definition of ‘Fire’.

In case of an Accident peril (as in case of Motor), occurrence should be by external, visible and violent means. The losses directly as a result of accident are covered and losses indirectly or consequential to the occurrence are not covered. The losses sustained during towing of a vehicle subsequent to an accident are covered.

The Amount Payable

The purpose of the Insurance is to put the insured in the same financial position as he was just prior to loss. Nothing more & nothing less. Also call, ‘Indemnification of the insured’. In case of total loss normally the Sum Insured is paid, if it does not exceeds the market value of the property at the time of loss. In partial losses:

  1. The maximum liability under an Insurance policy is Sum Insured. This is not an agreed value but the maximum amount payable, however the loss payable will depend up on market value.
  2. The property insurance generally in corporate a condition of average. Meaning by, if the value of the property is more than the sum insured at the time of loss, the insured shall be compensated in the same ration as the sum insured belongs to the value of property.
  3. Then, the policies are subject to deduction for depreciation on new parts allowed for old ones.
  4. The policies are subject compulsory excess, voluntary excess and/or franchise.

Therefore the amount of claim may not be the amount of loss sustained by an insured.

  • A loss causing occurrence.

By : Vipin Kumar Gupta, Deputy Manager, National Insurance Co Ltd, DO, Udaipur(Raj), Published in The Insurance Times, August, 2011