Below are brief explanations of some of the legal
terms you may come across in conjunction with insurance policies:
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ab initio |
A breach of a
condition may lead an insurer to treat a policy as
null and void, meaning from its inception. |
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adjustment |
The amount a loss
adjuster offers the policyholder for a claim after the
application of the various policy limits and the deduction of
any excess that may apply. |
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'all risks' insurance |
A type of insurance
designed to protect the policyholder against loss or damage
whatever the cause. Despite the name, there are, however,
usually some restrictions. |
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average clause |
A clause in an
insurance policy which provides that where, at the time of a
loss, the sum insured is less than the value of the property
insured, then the settlement will be scaled down in proportion
to the level of the underinsurance. |
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betterment |
Betterment occurs
where a policyholder takes the opportunity to replace
a lost or damaged item with a better item. The policyholder is
responsible for the betterment content of the total cost. |
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breach |
Failure to comply
with a policy condition e.g. a security condition. |
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excess |
The amount of each and every claim which is payable by the
policyholder i.e. deducted from the claim settlement. |
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ex gratia |
A
payment made where none is strictly due, under the terms of the
policy. |
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inception |
The date the policy commenced. |
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indemnity |
A
policyholder is indemnified in situations where he/she is
compensated in respect of a loss which they have sustained or is
protected from legal liabilities which they may have incurred.
An indemnity is provided when a claim is accepted under the
terms of a policy. Also means that
in the event of underinsurance, settlement under some policies
reverts to indemnity, which means that the insurer will pay the
replacement cost of damaged items, less an allowance for wear,
tear & depreciation. |
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index linking |
The automatic adjustment of the sum insured e.g. the House
Rebuilding Cost Index is used to calculate increases to the
buildings sum insured. |
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insured peril |
An
event which is covered by a particular policy. Fire is a
standard insured peril in most policies. |
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loss adjuster |
A
claims specialist employed by insurance companies to represent
their interests in investigating and adjusting claims. |
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loss assessor
(claims consultant) |
A
claims specialist employed by the policyholder to protect their interest.
Responsible for preparing, presenting, managing and negotiating
the claim to achieve maximum settlement. |
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misrepresentation |
Misrepresentation (miss-statement of facts) may entitle the
insurer to void the policy or refuse a claim. |
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non-disclosure |
An
important but previously undisclosed fact comes to the insurer's
attention which may give the insurer the right to void the
policy or reject the claim. |
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policy liability |
An
obligation to recompense the policyholder under the terms of the
insurance contract. |
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proximate cause |
The primary or dominant cause giving rise to any particular
loss. Not necessarily the first or the last cause in a chain of
events. |
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quantum |
The actual amount the insurer pays for any claim settlement. |
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salvage |
Items which formed part of the claim and for which the
policyholder has been paid. These damaged, lost or stolen items
then become the property of the insurer who is entitled to keep
the full proceeds of the sale of any such goods, provided that
the policyholder received the full value of the goods in
settlement of the claim. |
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subrogation |
Taking over the policyholder's right to seek recovery. The
recovery is pursued in the name of the policyholder, but the
insurer is responsible for any costs incurred in pursuing the
recovery e.g. if a negligent motorist damages a garden wall and
the household insurer meets the claim for the wall, the
household insurer then has subrogated rights of recovery against
the motorist. |
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sum insured |
The maximum amount payable to the policyholder under the terms
of the policy. |
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third party |
A
person directly involved in the event leading to the claim, but
who is not a party to the policy, e.g. a plumber responsible for
causing an escape of water in a property would be a third party
in the context of a claim. |
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underinsurance |
Occurs where the sum insured is less than the correct cost/value
of rebuilding or replacing the property insured. |
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underwriter |
A
person who decides whether or not a risk is insurable and if so
at what premium. |
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value at risk |
The full value of all property which could form the basis of a
claim under a policy. The basis of the value will vary according
to the type of cover e.g. if cover is on a new for old basis,
value at risk would normally be calculated on the same basis. |
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void |
Where a policy can be treated as though it never existed due,
for example, to a material non-disclosure. |
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warranty |
A
condition of a policy which must be complied with for cover to
operate. |
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without prejudice |
An
enquiry, proposal or offer of settlement made without admission
of liability. The words are used either verbally or in writing
to protect against an admission being implied. |
