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PROPERTY & PECUNIARY

INSURANCE

WEEK6
PROPERTY INSURANCE 1

ZULFIQAR ALI KHAN


THE SUM INSURED
 IT IS ESSENTIAL THAT SUM FOR WHICH THE
SUBJECT-MATTER IS INSURED REPRESENTS ITS
FULL VALUE AT THE TIME OF EFFECTING THE
INSURANCE & IS MAINTAINED AT THE FULL VLAUE
THROUGHOUT THE PERIOD OF INSURANCE
COVER.
 IF UNDER INSURANCE i.e. SUM INSURED IS

LESSER THAN VALUE OF SUBJECT MATTER


THEN AMOUNT OF PREMIUM IS LESSER
TOWARDS INSURER’S FUND.

ZULFIQAR ALI KHAN


THE SUM INSURED
 WHEN A LOSS OCCURS UNDER PROPERTY INSURANCE
POLICIES, THE SUM OR SUMS INSURED ARE REDUCED
BY THE AMOUNT PAID IN SETTLEMENT, FROM THE TIME
OF THE LOSS UNTIL THE NEXT RENEWAL DATE.
 IF THE AMOUNT INSURED IS TO BE RESTORED TO
THE NORMAL FIGURE, THE POLICY MUST BE
ENDORSED & AN APPROPRIATE ADDITIONAL
REMIUM PAID, SUCH ADDITIONAL PREMIUM BEING
CHARGED PRO RATA FROM THE DATE OF
REINSTATEMENT OF THE SUM INSURED TO THE
NEXT RENEWAL DATE.
 AN EXCEPTION TO THIS RULE IS THE DECLARATION
POLICY: IN THIS POLICY WORDING PROVIDES THAT,
FOLLOWING A LOSS, THE SUM INSURED IS
AUTOMATICALLY RESTORED, THE INSURED
UNDERTAKING TO PAY THE NECESSARY
ADDITIONAL PREMIUM.

ZULFIQAR ALI KHAN


THE CALCULATION OF VALUE
 THE VALUE OF SUBJECT-MATTER OF THE
INSURANCE IS ITS VALUE:
1. AT THE TIME OF LOSS;

2. AT THE PLACE OF LOSS;


 & VALUE MEANS ITS REAL OR INTRINSIC VALUE,
NO ADDITION BEING MADE FOR ANY
SENTIMENTAL VALUE. NO ALLOWANCE MAY BE
MADE FOR LOSS OF PROSPECTIVE PROFIT OR
OTHER CONSEQUENTIAL LOSS.
 COST OF REINSTATEMENT IS THE USUAL
BASIS OF SETTLEMENT FOR BUILDINGS; FOR
OTHER PROPERTY THE MARKET VALUE IS
THE CUSTOMARY GUIDE.

ZULFIQAR ALI KHAN


BUILDINGS
 NORMAL BASIS FOR BUILDINGS IS THE COST OF
REPAIR OR REINSTATEMENT.
 ADJUSTMENT NECESSARY TO COMPENSATE FOR
‘BETTERMENT’. THIS BETTERMENT CAN ARISE:
1. ADDITIONS OR IMPROVEMENTS MAY BE MADE
DURING THE REBUILDING; &
2. THE ORIGINAL STRUCTURE MAY HAVE
DETERIORATED, SO THAT REBUILDING WILL GIVE
NEW FOR OLD.
 ALLOWANCES FOR ADDITIONS & IMPROVEMENTS ARE
DEDUCTED, & WHERE REBUILDING GIVES NEW FOR
OLD THE INSURED MAY HAVE TO CONTRIBUTE TO THE
COST.
 IF INSURED ASK FOR OVERTIME TO CONSTRUCTOR TO
SAVE HIS CONSEQUENTIAL LOSS IT WILL BE MET
UNDER CONSEQUENTIAL LOSS POLICY.

ZULFIQAR ALI KHAN


BUILDINGS
 WHEN A MANSION OR OLD-FASHIONED
PRIVATE HOUSE IS AFFECTED THE COST OF
RESTORING IT TO ITS PRE-FIRE CONDIITON
MAY BE UNECONOMIC.
 THEN REASONABLE INDEMNITY WOULD BE THE
MARKET VALUE OF A HOUSE.

ZULFIQAR ALI KHAN


OBSOLETE BUILDINGS
 OTHER THAN FARM OR HISTORIC OR IRREPLACEABLE
BUILDINGS, THE INDUSTRIAL & COMMERCIAL
BUILDINGS WHICH ARE DEEMED ‘OBSOLETE’ – MEANS
GENERALLY BUILDINGS AT LEAST FIFTY YEARS OLD,
THE DESIGN & CONSTRUCTION OF WHICH IS SUCH
THAT IT WOULD BE IMPRACTICABLE FOR THE INSURED
TO REBUILD IN THE ORIGINAL MANNER. THE BASIS
ARE:
1. THE COST OF PURCHASING A SIMILAR BUILDING
TO THE INSURED BUILDING PLUS, IF INSURED, AN
ALLOWANCE FOR REMOVAL OF DEBRIS COSTS; OR
2. THE COST OF ERECTING MODERN BUILDING
PROVIDING COMPARABLE FACILITIES TO THE
INSURED BUILDING PLUS, IF INSURED, AN
ALLOWANCE FOR PROFESSIONAL FEES, REMOVAL
OF DEBRIS COSTS & THE ADDITIONAL
EXPENDITURE WHICH MIGHT ARISE OUT OF LOCAL
AUTHORITIES’ REQUIREMENT.
ZULFIQAR ALI KHAN
OBSOLETE BUILDINGS
 FOR THIS BASIS TO APPLY IT IS NECESSARY FOR THE
INSURED TO GIVE A WRITTEN UNDERTAKING STATING
THAT, IN THE EVENT OF A ‘SUBSTANTIAL’ LOSS, HE WILL
REPLACE THE DESTROYED OR DAMAGED BUILDING BY
ONE CONSTRUCTED IN MODERN STYLE & MATERIAL, OR
BY PURCHASE OF ANOTHER BUILDING, IN EIHTER CASE
PROVIDING COMPARABLE FACILITIES AT A LOWER COST
THAN REBUILDING IN THE ORIGNINAL FORM.
 THE INSURERS THEN CONFIRM THE AGREEMENT BY
SENDING A LETTER OF INTENT (INTENTION) TO THE
INSURED, & THIS MAY BE MODIFIED TO ALLOW FOR
REINSTATEMENT FOR PARTIAL LOSS WHICH FALL
SHORT OF THE CONTEMPLATED (TO SEE
SERIOUSLY) ‘SUBSTANTIAL’ LOSS WITHIN THE
TERMS OF THE REINSTATEMENT MEMORANDOM.

ZULFIQAR ALI KHAN


MACHINERY
 WHERE REPAIR OF MACHINERY IS POSSIBLE, THE
BASIS OF INDEMNITY IS THE COST OF RESTORING IT
TO ITS PREVIOUS CONDITION.
 IF THE MACHINERY IS DAMAGED BEYOND ECONOMIC
REPAIR, THE FAIREST RECOMPENSE IS THE COST OF
REPLACING IT BY SECOND-HAND MACHINERY OF THE
SAME AGE, TYPE, CAPACITY, & CONDITION. ITS NOT
PRACTICABLE SO BOUGHT NEW MACHINERY BUT HAVE
TO MADE DEDUCTION BECAUSE:
1. THE ORIGINAL MACHINERY IS NOT NOW
MANUFACTURED & REPLACEMENT WILL HAVE TO
BE BY BETTER MACHINERY; OR
2. REPLACEMENT CAN BE BY THE SAME TYPE OF
MACHINERY BUT MUST BE NEW FOR OLD, &
DEPRECIATION MUST BE TAKEN INTO ACCOUNT.

ZULFIQAR ALI KHAN


COMPUTERS & COMPUTER
RECORDS
 COMPUTERS ARE GENERALLY INSURED UNDER A
SPECIAL FORM OF POLICY WHICH NOT ONLY COVERS
LOSS OR DAMAGE RESULTING FROM ANY EXTERNAL
CAUSE SUCH AS FIRE, EXPLOSION, THEFT, STORM OR
FLOOD, BUT ALSO CIVERS THE RISK OF ALMOST ANY
FORM OF ELECTRICAL OR MECHANCIAL BREAKDOWN
WHILE THE EQUIPMENT IS IN USE.
 MATERAIL DAMAGE & CONSEQUNETIAL LOSS ARE
OFTEN COVERED UNDER SEPARATE SECTIONS OF
THE SAME POLICY.
 COVER IS GENERALLY PROVIDED UNDER THE
MATERIAL DAMAGE SECTION FOR THE COMPLETE
COST OF REPAIR OR REPLACEMENT OF THE
COMPUTER & ITS RELATED EQUIPMENT AT
CURRENT PRICES.

ZULFIQAR ALI KHAN


COMPUTERS & COMPUTER
RECORDS
 COMPUTER SYSTEMS RECORDS ARE COMMONLY
COVERED UNDER THE ‘ALL OTHER CONTENTS’ BUT
ONLY COVERED:
 ONLY FOR THE VALUE OF THE MATERAILS
TOGETHER WITH THE COST OF CLERICAL LABOUR &
COMPUTER TIME EXPENDED IN REPRODUCING
SUCH RECORDS (EXCLUDING ANY EXPENSES IN
CONNECTION WITH THE PRODUCTION OF
INFORMATION TO BE RECORDED THEREIN) & NOT
FOR THE VALUE TO THE INSURED OF THE
INFORMATION CONTAINED THEREIN FOR AN
AMOUNT NOT EXCEEDING X (POUNDS).
 INTANGIBLE LOSS & COST OF COLLECTING THE
DATA REQUIRED FOR THE RECREATION OF RECORD
IS COVERED UNDER CONSEQUENTIAL LOSS COVER
OF COMPUTER POLICY.

ZULFIQAR ALI KHAN


RETAILER’S STOCK
 INDEMNITY BASED ON WHOLSALE PRICE PAID BY THE
INSURED, NOT THE SELLING PRICE (INCLUDE PROFITS).
 COST PRICE IS TAKEN FROM THE WHOLESALERS’
INVOICES & ALL DISCOUNTS RETAILER HAVE
DEDUCTED FROM THIS PRICE.
 DEDUCTION MAY HAVE TO BE MADE FOR
DEPRECIATION OF STOCK THROUGH AGE,
PARTICULARLY FOR GOODS WHICH HAVE BECOME
OLD-FASHIONED.
 SOMETIMES WHOLSALE PRICE IS HIGHER AT THE
TIME OF REPLACEMENT THAN THE ORIGINALLY PAID
BY THE INSURED BECAUSE OF INFLATION OR OF
OTHER REASONS THEN AN EQUITABLE
SETTLEMENT IS MADE DEPENDING ADEQUACY OF
SUM INSURED.

ZULFIQAR ALI KHAN


MANUFACTURER’S STOCK
 IF CLAIM OF FINISHED GOODS THEN INDEMNITY
IS GENERALLY BASED ON THE COST OF
PRODUCTION WHICH INCLUDES THE COSTS OF
RAW MATERIALS, LABOUR, FACTORY
OVERHEADS & ADMINISTRATIVE COSTS BUT
EXCLUDES PROFITS OR MARKET VALUE OF THE
GOODS WHICH EVER IS LESS.
 WHERE GOODS ARE ‘IN PROCESS’ AT THE TIME
OF LOSS, THE BASIS OF LOSS SETTLEMENT IS
THE COST OF THE RAW MATERIALS ALREADY
INCORPORATED PLUS THE MANUFACTURING
COSTS INCURRED UP TO THE TIME OF FIRE.

ZULFIQAR ALI KHAN


CONTRACT PRICE CLAUSE
 LOSS SETTLEMENTS RELATING STOCK GENERALLY
EXCLUDE ANY ELEMENT OF PROFIT. HOWEVER AGAISNT
THE POSSIBLE CANCELLATION OF A CONTRACT OF
SALE BY REASON OF A FIRE, THE FOLLOWING CLAUSE
IS COMMONLY USED:
 IT IS HEREBY AGREED & DECLARED THAT IN
RESPECT ONLY OF GOODS SOLD BUT NOT
DELIVERED FOR WHICH THE INSURED IS
RESPONSIBLE & WITH REGARD TO WHICH UNDER
THE CONDITIONS OF THE SALE THE SALE
CONTRACT IS CANCELLED BY REASON OF THE FIRE
OR ANY OTHER PERIL HEREBY INSURED AGAINST,
EITHER WHOLLY OR TO THE EXTENT OF THE LOSS
OR DAMAGE, THE LIABILITY OF THE COMPANY
SHALL BE BASED ON THE CONTRACT PRICE, & FOR
THE PURPOSE OF AVERAGE THE VALUE OF ALL
GOODS TO WHICH THIS CLAUSE WOULD IN THE
EVENT OF LOSS OR DAMAGE BY APPLICABLE SHALL
BE ASCERTAINED ON THE SAME BASIS. ZULFIQAR ALI KHAN
FARM PRODUCE
 FOR GROWING CROPS THE BASIS IS THE PRICE AT
THE NEAREST MARKET LESS THE COST OF
COMBINING OR CUTTING & THRESHING &
TRANSPORT. FOR CORN IN STACKS, THRESHING
IS DEDUCTED. FOR HAY & STRAW IN STACKS THE
BASIS IS MARKET PRICE AT THE FARM, BUT
WHERE HAY (GRASS etc.) & STRAW (DRIED STACKS
OF CORN) ARE GROWN FOR FARM USE ONLY & IT
IS NECESSARY TO REPLACE THEM THE BASIS IS
THE PRICE FOR REPLACEMENT AT THE FARM.

ZULFIQAR ALI KHAN


FARM IMPLEMENTS
 THE MEASURE OF INDEMNITY FOR
FARM IMPLEMENTS IS THE VALUE AT
THE TIME OF THE LOSS OR DAMAGE
BASED ON THE COST OF
REPLACEMENT LESS AN ALLOWANCE
FOR WEAR & TEAR.

ZULFIQAR ALI KHAN


LIVESTOCK
 BASIS OF SETTLEMENT IS MARKET VALUE AT
THE PLACE WHERE & THE TIME WHEN LOSS
OCCURRED.
 CLAIMS USUALLY ARISE FROM:
 LIGHTNING, & ARE SUPPORTED BY
VETERINARY SURGEONS’ CERTIFICATES
WHICH SHOW THE CAUSE OF INJURY OR
DEATH & THE VALUE OF THE ANIMAL.
 IF THERE IS ANY RESIDUAL VALUE IN A

CARCASE (DEAD BODY) OR HIDE (SKIN OF AN


ANIMAL) A SUITABLE ALLOWANCE MUST BE
MADE FOR IT.

ZULFIQAR ALI KHAN


ENGINEERING POLICIES
 VALUATION IN THIS CASE IS DIFFERENT THAN OTHER
INSURANCES BECAUSE OF SCOPE OF THIS INSURANCE
LIKE:
 FOR BOILER POLICY THE SUM MUST COVER NOT
ONLY THE VALUE OF THE BOILER & INSTALLATION
COSTS BUT ALSO THE COST POSSIBLE DAMAGE TO
SURROUNDING PROPERTY, BOTH BELONGING TO
THE INSURED & BELONGING TO OTHER PEOPLE. IT
MUST ALSO INCLUDE LIABILITY FOR INJURY TO
PERSONS NOT IN THE EMPLOYMENT OF THE
INSURED.
 IT IS THEREFORE NECESSARY TO CONSIDER THE
VALUE & PROXIMITY OF PROPERTY SURROUNDING
THE PLANT & THE NUMBER OF THIRD PARTIES
LIKELY TO BE IN THE VICINITY.

ZULFIQAR ALI KHAN


ENGINEERING POLICIES
 ALTERNATIVE TO PLACING AN INDEMNITY AGAINST
EACH ITEM ON AN ENGINEERING POLICY, IT IS
POSSIBLE TO HAVE A SINGLE AMOUNT TO COVER
TWO OR MORE ITEMS AT ONE LOCATION,
THEREBY EFFECTING A REDUCTION IN PREMIUM.
 THIS IS KNOWN AS A GROUP INDEMNITY, & ITS

PRINCIPAL APPLICATION IS IN CONNECTION


WITH BOILER PLANT.
 A GROUP INDEMNITY, HOWEVER, CAN ONLY

APPLY TO ITEMS USED IN CONNECTION WITH


EACH OTHER AT THE ONE STATION.

ZULFIQAR ALI KHAN


SPECIAL CLASSES – COTTON &
TOBACCO
 BASIS OF LOSS SETTLEMENT FOR MOST MERCHANDISE
IS ITS MARKET VALUE IMMEDIATELY BEFORE THE FIRE.
 IN CASES OF CERTAIN RAW MATERIALS LIKE

COTTON & TOBACCO WHERE FIRE DAMGE CAUSES


AN APPRECIABLE SHORATGE IN THE QUANITITY
AVAILABLE THIS MAY RISE IN THE PREVAILING
PRICE. IN THESE CASES INSURERS HAVE AGREED
WITH THE RESPECTIVE TRADES SPECIAL BASES OF
LOSS SETTLEMENT WHICH CAN BE INCORPORATED
IN POLICIES TO REPLACE THE MARKET VALUE
CLAUSE, PARTICULARLY IN CONNECTION WITH THE
INSURANCE OF STOCKS IN PUBLIC MERCANTILE
WAREHOUSES.

ZULFIQAR ALI KHAN


SPECIAL CLASSES – COTTON &
TOBACCO
 THE CLAUSE IN RESPECT OF TOBACCO READS:
 … THE BASIS OF SETTLEMENT SHALL BE THE COST
PRICE OF THE TOBACCO (INCLUDING CIGARETTES &
CIGARS) DELIVERED INTO WAREHOUSE ON THIS
SIDE WITH A FURTHER SUM TO COVER ALL
SUBSEQUENT CHARGES, INTEREST, APPRECIATION
IN VLAUE & EXTRA COST OF REPLACEMENT, NOT
BEING MORE ALTOGETHER THAN THE COST AT
WHICH THE DESTROYED OR DAMAGED TOBACCO
(INCLUDING CIGARETTES & CIGARS) IF CAPABLE OF
REPLACEMENT CAN BE REPLACED WITHIN 30 DAYS
AFTER THE DATE OF THE FIRE OR OF THE
COMMENCEMENT OF ANY DESTRUCTION OF OR
DAMAGE TO SUCH PROPERTY BY ANY OTHER PERIL
HEREBY INSURED AGAINST…

ZULFIQAR ALI KHAN


SPECIAL CLASSES – COTTON &
TOBACCO
 THE BASIS ADOPTED FOR COTTON IS THE MARKET
VALUE OF LIKE COTTON IMMEDIATELY AFTER THE
FIRE.
 IT IS ALSO CUSTOMARY TO ALLOW INTEREST

ON COTTON IF PAYMENT OF LOSS IS NOT


MADE WITHIN TEN DAYS OF THE FIRE. TO
AVOID HEAVY INTEREST CHARGES THE
OFFICES USUALLY MAKE PAYMENTS ON
ACCOUNT WHEN THEIR ADJUSTERS CERTIFY
SUCH PAYMENTS.

ZULFIQAR ALI KHAN


REINSTATEMENT
 REINSTATEMENT MEANS THE RESTORATION OF THE
PROPERTY INSURED TO THE CONDITION IN WHICH IT
WAS IMMEDIATELY BEFORE THE FIRE/LOSS.
 IN THE EVENT OF A TOTAL LOSS IT IS EFFECTED BY

REBUILDING THE PREMISES OR REPLACING THE


GOODS BY SIMILAR GOODS; WHERE THERE IS A
PARTIAL LOSS REINSTATEMENT IS MADE BY
EXECUTING THE NECESSARY REPAIRS.
 IF INSURANCE POLICY IS EVIDENCE OF A CONTRACT

TO PAY MONEY, & MONEY ONLY IN SETTLEMENT OF


A CLAIM. THE INSURED CANNOT DEMAND THAT THE
INSURERS REINSTATE THE PROPERTY.

ZULFIQAR ALI KHAN


REINSTATEMENT
 REINSTATEMENT MAY TAKE PLACE IN THE
FOLLOWING CIRCUMSTANCES:
 REINSTATEMENT BY THE INSURERS UNDER THE
TERMS OF THE POLICY;
 REINSTATEMENT BY THE INSURERS UNDER
STATUTE;
 REINSTATEMENT BY THE INSURED UNDER
STATUTE OR CONTRACT.

ZULFIQAR ALI KHAN


REINSTATEMENT BY THE INSURERS
UNDER THE TERMS OF THE POLICY
 REINSTATEMENT CONDITION IN STANDARD FIRE
POLICY READS AS FOLLOWS:
 IF THE COMPNAY ELECTS OR BECOMES BOUND TO
REINSTATE OR REPLACE ANY PROPERTY THE INSURED
SHALL AT HIS OWN EXPENSE PRODUCE & GIVE TO THE
COMPANY ALL SUCH PLANS, DOCUMENTS, BOOKS, &
INFORMATION AS THE COMPANY MAY REASONABLY
REQUIRE. THE COMPANY SHALL NOT BE BOUND TO
REINSTATE EXACTLY OR COMPLETELY, BUT ONLY AS
CIRCUMSTANCES PERMIT & IN REASONABLY
SUFFICIENT MANNER & SHALL NOT IN ANY CASE BE
BOUND TO EXPEND IN RESPECT OF ANY ONE OF THE
ITEMS INSURED MORE THAN THE SUM INSURED
THEREON.

ZULFIQAR ALI KHAN


REINSTATEMENT BY THE INSURERS
UNDER THE TERMS OF THE POLICY
 THE OPERATIVE CLAUSE OF THE POLICY GIVES
THE INSURERS THE OPTION TO REINSTATE, & THIS
CONDITION ESTABLISHES THE RIGHTS THEY WILL
HAVE IF THEY EXERCISE THAT OPTION.
 UNLESS & UNTIL THE INSURERS DO DECIDE TO
REINSTATE, HOWEVER, THE CONTRACT REMAINS
ONE TO PAY MONEY. THE INSURED CANNOT
REFUSE TO ACCEPT A MONEY PAYMENT, &
DEMAND REINSTATEMENT. EQUALLY HE CANNOT
REFUSE TO ACCEPT REINSTATEMENT IF THE
INSURERS ELECT TO REINSTATE.

ZULFIQAR ALI KHAN


REINSTATEMENT BY THE
INSURERS UNDER STATUTE
 THE FIRE PREVENTION (METROPOLIS) ACT 1774, S.83,
PROVIDES AS FOLLOWS:
 AND IN ORDER TO DETER (PREVENT) & HINDER (TO
STOP) ILL-MINDED PERSONS FROM WILFULLY
SETTING THEIR HOUSE OR HOUSES OR OTHER
BUILDINGS ON FIRE, WITH A VIEW OF GAINING TO
THEMSELVES THE INSURANCE MONEY, WHEREBY
THE LIVES & FORTUNES OF MANY FAMILIES MAY BE
LOST OR ENDANGERED; BE IT FURTHER ENACTED
BY THE AUTHORITY AFORESAID, THAT IT SHALL &
MAY BE LAWFUL TO & FOR THE RESPECTIVE
GOVERNORS OR DIRECTORS OF THE SEVERAL
INSURANCE OFFICES FOR INSURING HOUSES OR
OTHER BUILDINGS AGAINST LOSS BY FIRE, & THEY
ARE HEREBY AUTHORISED & REQUIRED, UPON THE
REQUEST OF ANY PERSON OR PERSONS
INTERESTED IN OR ENTITLED UNTO ANY HOUSE OR
HOUSES, OR …
ZULFIQAR ALI KHAN
REINSTATEMENT BY THE
INSURERS UNDER STATUTE
 … OR OTHER BUILDINGS WHICH MAY HEREAFTER
BE BURNT DOWN, DEMOLISHED, OR DAMAGED BY
FIRE, OR UPON ANY GROUNDS OF SUSPICION THAT
THE OWNER OR OWNERS, OCCUPIER OR
OCCUPIERS, OR OTHER PERSON OR PERSONS,
WHO SHALL HAVE INSURED SUCH HOUSE OR
HOUSES, OR OTHER BUILDINGS, HAVE BEEN GUILTY
OF FRAUD, OR OF WILFULLY SETTING THEIR HOUSE
OR HOUSESS OR OTHER BUILDINGS ON FIRE, TO
CAUSE THE INSURANCE MONEY TO BE LAID OUT &
EXPENDED, AS FAR AS THE SAME WILL GO,
TOWARDS REBUILDING, REINSTATEING OR
REPAIRING SUCH HOUSE OR HOUSES OR OTHER
BUILDINGS SO BURNT DOWN, DEMOLISHED, OR
DAMAGEED BY FIRE, UNLESS THE PARTY OR
PARTIES CLAIMING SUCH INSURANCE MONEY SHALL
WITHIN SIXTY DAYS NEXT AFTER HIS,…

ZULFIQAR ALI KHAN


REINSTATEMENT BY THE
INSURERS UNDER STATUTE
 … HER OR THEIR CLAIM IS ADJUSTED, GIVE A
SUFFICIENT SECURITY TO THE GOVERNORS
OR DIRECTORS OF THE INSURANCE OFFICE
WHERE SUCH HOUSE OR HOUSES OR OTHER
BUILDINGS ARE INSURED THAT THE SAME
INSURANCE MONEY SHALL BE LAID OUT &
EXPENDED AS AFORESAID OR UNLESS THE
SAID INSURANCE MONEY SHALL BE IN THAT
TIME SETTLED & DISPOSED OF TO & AMONGST
ALL THE CONTENDING PARTIES TO THE
SATISFACTION & APPROBATION (APPROVAL)
OF SUCH GOVERNORS OR DIRECTORS OF
SUCH INSURANCE OFFICE RESPECTIVELY.

ZULFIQAR ALI KHAN


REINSTATEMENT BY THE
INSURERS UNDER STATUTE
 ACT APPLIES TO HOUSES & BUILDINGS ONLY, &
THAT INSURERS MAY BE REQUIRED TO CAUSE
THE INSURANCE MONEY TO BE EXPENDED (TO
SPEND), AS FAR AS IT WILL GO, IN REBUILDING,
OR REPAIRING SUCH PREMISES IN THE
FOLLOWING CIRCUMSTANCES:
a. WHEN THERE IS REASON TO BELIEVE THAT
THE INSURED OR ANY PERSON ACTING ON
HIS BEHALF, OR IN COLLUSION WITH HIM, HAS
FRAUDULENTLY SET FIRE TO THE PROPERTY
WITH THE OBJECT OF OBTAINING THE
INSURANCE MONEY.

ZULFIQAR ALI KHAN


REINSTATEMENT BY THE
INSURERS UNDER STATUTE
a. WHEN REQUESTED TO DO SO BY ANY PERSON OR
PERSONS INTERESTED IN OR ENTITLED TO THE
PROPERTY, FOR EXAMPLE:
- OWNERS OR PURCHASERS;
- LESSORS OR LESSEES;
- MORTGAGORSORS OR MORTGAGEES;
- REMAINDERMEN (OWNER) & TENANTS FOR LIFE;
- TENANTS FROM YEAR TO YEAR.
 THE FOLLOWING FEATURES SHOULD BE NOTED:
1. THE RIGHT TO REINSTATEMENT UNDER THE ACT DOES
NOT ARISE UNTIL A DISTINCT REQUEST TO REINSTATE
THE PROPERTY HAS BEEN MADE TO THE INSURERS. IT IS
NOT NECESSARY THAT THE PERSON LODGING THE
REQUEST SHOULD BE ONE WHOSE INTEREST IN THE
PROPERTY HAS BEEN PREVIOUSLY ACKNOWLEDGEDBY
THE INSURERS, AS LONG IN THE PROPERTY HAS BEEN
PREVIOUSLY ACKNOWLEDGED BY THE INSURERS, AS
LONG AS HE IS , BY VIRTUE OF HIS RELATION TO THE
PROPERTY , ENTITLED TO THE BENEFIT OF THE ACT.

ZULFIQAR ALI KHAN


REINSTATEMENT BY THE
INSURERS UNDER STATUTE
1. THE REQUEST MUST BE MADE BEFORE PAYMENT OF THE
LOSS. IN THE EVENT OF THE INSURERS FAILING TO
COMPLY WITH THE REQUEST, THE PERSON CLAIMING
THE BENEFIT OF THE ACT MAY APPLY TO THE COURTS
FOR AN INJUNCTION TO RESTRAIN THE INSURERS FROM
PAYING THE INSURANCE MONEY TO THE INSURED.
2. THE INSURERS ARE NOT THEMSELVES OBLIGED TO
APPLY THE LOSS MONEY TO REINSTATEMENT IF THE
CLAIMANT PROVIDES, WITHIN SIXTY DAYS AFTER THE
ADJUSTMENT OF THE LOSS, SUFFICIENT SECURITY TO
ENSURE THAT HE WILL LAY THE MONEY OUT IN
REINSTATEMENT.
3. THE INSURERS CANNOT BE COMPELLED TO EXPEND
UPON REINSTATEMENT MORE THAN THE AMOUNTOF THE
INSURANCE.
4. THE INSURED MUST BE ENTITLED TO MAINTAIN A CLAIM
UNDER THE POLICY.
5. DESPITE ITS TITLE, THE ACT APPLIES TO THE WHOLE OF
ENGLAND & WALES.

ZULFIQAR ALI KHAN


REINSTATEMENT BY THE INSURED
UNDER CONTRACT OR STATUTE
 THE 1774 ACT DOES NOT COMPEL THE INSURERS
THEMSELVES TO REINSTATE. AN INSURED MAY
BECOMPELLED TO REINSTATE IN THE
FOLLOWING CIRCUMSTANCES:
1. WHERE HE HAS ENTERED INTO A CONTRACT
TO DO SO. THE CONTRACT MUST CLEARLY
STATE THE DUTY OF THE INSURED TO
REINSTATE FIRE DAMAGE, AS, FOR EXAMPLE,
WILL THE INSURED’S COVENANT (MUTUAL
AGREEMENT) IN A LEASE TO REINSTATE FIRE
DAMAGE OUT OF THE PROCEEDS FOR A FIRE
POLICY.
2. WHERE REINSTATEMENT IS IMPOSED ON HIM
BY STATUTE. THIS DUTY IS EXPRESSLY
CREATED AS FOLLOWS:

ZULFIQAR ALI KHAN


REINSTATEMENT BY THE INSURED
UNDER CONTRACT OR STATUTE

a. IN A TRUST OF SETTLEMENT. PROCEEDS OF


INSURANCE ON ANY PROPERTY SUBJECT TO
A TRUST OR SETTLEMENT MAY BE APPLIED
BY THE TRUSTEES IN REINSTATEMENT,
SUBJECT TO THE PROVISIONS OF THE
TRUSTEE ACT, 1925.
b. IN A MORTGAGE. WHERE A MORTGAGE DEED
THE MORTGAGOR MUST APPLY POLICY
MONEY IN REINSTATEMENT IF THE
MORTGAGEE SO REQUIRES (LAW OF
PROPERTY ACT 1925).

ZULFIQAR ALI KHAN


THE REINSTATEMENT
MEMORANDUM
 THIS IS A POLICY EXTENSION WHICH MAY BE GRANTED
AT THE REQUEST OF THE INSURED WHEREBY IN
CERTAIN CIRCUMSTANCES THE INSURERS WILL BEAR
THE COST OF REINSTATEMENT IN FULL WITHOUT ANY
DEDUCTION FOR WEAR & TEAR. IT MAY BE APPLIED TO
INSURANCES COVERING BUILDINGS, MACHINERY &
OTHER PROPERTY BUT NOT STOCK.
 UNDER THE REINSTATEMENT MEMORANDUM,THE
PAYMENT TO BE MADE IS THE COST OF
REINSTATEMENT TO A CONDITION EQUAL TO, BUT NOT
BETTER OR MORE EXTENSIVE THAN THAT OF THE
PROPERTY WHEN IT WAS NEW, ON THE SAME OR
ANOTHER SITE, & IN ANY MANNER SUITABLE TO THE
REQUIREMENTS OF THE INSURED, PROVIDED THE
LIABILITY OF THE INSURER IS NOT THEREBY
INCREASED. THE FOLLOWING LIMITATIONS APPLY:

ZULFIQAR ALI KHAN


THE REINSTATEMENT
MEMORANDUM
a. THE COST OF REINSTATEMENT MUST HAVE BEEN
INCURRED IF THE BENEFIT OF THE EXTENSION IS TO BE
OBTAINED. THIS DOES NOT MEAN THAT IT MUST HAVE
BEEN PAID. IF THE INSURED GIVES AN IRREVOCABLE
ORDER FOR A REPLACEMENT MACHINE THE INSURERS
WOULD GENERALLY ACCEPT THIS AS AN INCURRED
COST SUBJECT (b).
b. THE WORK OF REINSTATEMENT MUST BE CARRIED OUT
WITH REASONSABLE DESPATCH (SPEED).
c. WHERE THERE IS PARTIAL DESTRUCTION ONLY, THE
MAXIMUM LIABILITY OF THE INSURER IS THE ESTIMATED
COST OF REINSTATEMENT IF THE WHOLE OF THE
PROPERTY INSURED HAD BEEN DESTROYED.
d. AVERAGE APPLIES IF THE SUM INSURED IS LESS THAN
85% OF THE FULL REINSTATEMENT VALUE OF THE
INSURED PROPERTY AT THE TIME OF REINSTATEMENT.

ZULFIQAR ALI KHAN


REINSTATEMENT & INFLATION
 WHEN BUILDINGS OR MACHINERY ARE INSURED
ON AN INDEMNITY BASIS (i.e. WITHOUT THE
APPLICATION OF THE REINSTATEMENT
MEMORANDUM) PROVISION CAN BE MADE FOR
INFLATION BY SELECTING A FIGURE FOR THE SUM
INSURED WHICH WILL PROVE ADEQUATE EVEN IF
A FIRE SHOULD OCCUR ON THE LAST DAY OF THE
POLICY PERIOD.
 THE FIGURE MUST TEND TO BE GENEROUS IF
THE ADVERSE EFFECT OF AVERAGE IS TO BE
AVOIDED, BUT AT THE TIME OF EFFECTING THE
INSURANCE THE CURRENT RATE OF INFLATION
WILL BE KNOWN SO THAT A WORKABLE
APPROXIMATION CAN BE MADE.

ZULFIQAR ALI KHAN


REINSTATEMENT & INFLATION
 WHEN INSURANCE IS ARRANGED ON A REINSTATEMENT
BASIS, IT BECOMESIMPORTANT TO MAKE PROVISION IN
THE SUM INSURED FOR THE FUTURE INFLATION RATE,
NOT ONLY DURING THE ANNUAL CURRENCY OF THE
POLICY BUT ALSO THROUGHOUT THE ESTIMATED
SUBSEQUENT REBUILDING PERIOD (WHICH MAY BE TWO
YEARSOR MORE FOR EXTENSIVE PREMISES), & IT IS
HERE THAT DIFFICULTY ISENCOUNTERED.
 TO OVERCOME DIFFICULTY OF INFLATION RATE
CALCULATION FOLLOWING THREE SCHEMES WERE
INTRODUCED:
 THE VALUTION LINKED SCHEME (VLS)

 THE ADJUSTABLE PREMIUM POLICY (APP)

 THE NOTIONAL REINSTATEMENT VALUE SCHEME


(NRV)

ZULFIQAR ALI KHAN


THE VALUATION LINKED
SCHEME
 THIS IS A METHOD WHEREBY AN INSURED IS ENABLED
TO MAKE PROVISION FOR ANTICIPATED INFLATION IN
REPLACEMENTVALUES (BUILDINGS & MACHINERY) BOTH
DURING THE POLICY TERM & ALSO DURING THE
ESTIMATED MAXIMUM REINSTATEMENT PERIOD.
 ALTHOUGH THE SUM INSURED IS SHOWN IN THE
POLICY AS A SINGLE FIGURE, IT IS IN FACT MADE UP
OF TWO ELEMENTS KNOWN RESPECTIVELY AS THE
BASE VALUE & THE INFLATION PROVISION.
 IF AN INSURED ANTICIPATES AN INFLATION RATE OF
20% DURING THE POLICY YEAR, & INFLATION RATES
OF 30% & 15% RESPECTIVELY DURING THE TWO
FOLLOWING YEAR YEARS, HIS TOTAL SUM INSURED,
ASSUMING A BASIC VALUE OF 100,000 (POUNDS),
WOULD BE CALCULATED AS FOLLOWS:

ZULFIQAR ALI KHAN


THE VALUATION LINKED
SCHEME
 BASIC VALUE = 100,000 (POUNDS)
 INFLATION PROVISION FOR POLICY YEAR (20% OF
BASIC VALUE) = 20,000 (POUNDS)
 INFLATION PROVISION FOR NEXT YEAR (30% OF
(BASIC VALUE + 20,000 (POUNDS))) = 36,000
(POUNDS)
 INFLATION PROVISION FOR NEXT YEAR (15% OF
(BASIC VALUE + 20,000 + 36,000 (POUNDS))) =
23,400 (POUNDS)
 TOTAL INFLATION PROVISION = 79,400 (POUNDS)
 SUM INSURED HENCE = 179,400 (POUNDS)

ZULFIQAR ALI KHAN


THE VALUATION LINKED
SCHEME
 ITS USE IS RESTRICTED TO THOSE INSURED WHOSE BASE
VALUES ARE DERIVEDFROM AN OPINION GIVEN IN WRITING
BY A QUALIFIED MEMBER OF ONE OF THE FOLLOWING:
 ROYAL INSTITUTION OF CHARTERED SURVEYORS,
 INSTITUTE OF QUANTITY SURVEYORS,
 INCORPORATED SOCIETY OF VALUERS & AUCTIONEERS.
 THIS OPINION MUST BE UPDATED PRIOR TO EACH
RENEWAL ON A BASIS ADVISED TO THE INSURER, A FULL
REVALUATION IS ONLY REQUIRED EVERY FOUR YEARS.
 THE SCHEME APPLIES TO BUILDINGS &/OR CONTENTS
(EXCLUDING STOCK) & IT IS NOT POSSIBLE TO
INCORPORATEAN ESCALATOR CLAUSE.
 FULL AVERAGE APPLIES ON THE BASIS OF THE
REINSTATEMENT COST AT THE TIME OF REINSTATEMENT.

ZULFIQAR ALI KHAN


THE ADJUSTABLE PREMIUM
POLICY SCHEME
 IT WAS DEVISED TO ENCOURAGE AN INSURED TO EFFECT
ADEQUATE SUMS INSURED BY APPLYING SPECIAL RATING
DISOUNTS & THEN PROVIDING FOR A RETURN OF PREMIUM IN
THE EVENT OF AN OVERESTIMATE FOR THE RATE OF
INFLATION. IT IS APPLICABLE ONLY TO BUILDINGS (OR
BUILDING COMPLEXES) INSURED ON AREINSTATEMENT BASIS
FOR A COVER OF AT LEAST 1,000,000 (POUNDS) & WHICH IT IS
ESTIMATED WOULD REQUIRE AT LEAST TWO YEARS FOR
REBUILDING.
 THE BASE VALUE HAVING BEEN DECIDED,THE INSURED
MUST ESTIMATE THE RATE OF INFLATION NOT ONLY FOR
THE CURRENT INSURANCE YEAR BUT FOR EACH
SUCCEEDING YEAR DURING WHICH REBUILDING MIGHT
TAKE PLACE.
 e.g. REBUILDIGN IS ESTIMATED TO TAKE TWO YEARS, THE
INSURED MUST TAKE INTO ACCOUNT NOT ONLY
ANTICIPATED INFLATION DURING THE INSURANCE YEAR
BUT ALSO DURING THE TWO FOLLOWING YEARS –
REFERRED TO AS THE 2ND & 3RD PROJECTED YEARS. THE
SUM INSURED IS COMPUTED SIMILARLY AS IN VALUATION
LINK SCHEME.

ZULFIQAR ALI KHAN


THE ADJUSTABLE PREMIUM
POLICY SCHEME
 THE INSURED SHOULD EMPLOY QUALIFIED
PROFESSIONALPERSONS TO PROVIDE RELIABLE VALUATIONS. AT
EACH RENEWAL THE INSURED MUST PROVIDE ACERTIFICATE
FROM SUCH PERSONS SETTING OUT THE REVISED BASE VALUE
FOR THE COMING YEAR & THE REVISED INFLATION RATES TO BE
ADOPTED.
 A SPECIAL FEATURE OF THIS POLICY IS THAT THE PREMIUM IS
ADJUSTABLE RETROSPECTIVELY AT EACH RENEWAL. IF THE
PREMIUM ACTUALLY PAID FOR THE COVER OF THE PREVIOUS
YEAR PROVES TO HAVE BEEN GREATER THAN WAS JUSTIFIED
(IN THE LIGHT OF FIGURES SUPPLIED & CERTIFIED BY THE
INSURED’S QUALIFIED PROFESSIONAL ADVISERS) THEN A
RETURN OF PREMIUM WILL BE ALLOWED, CALCULATED ON A
BASIS DETAILED IN THE POLICY BUT SUBJECT TO A LIMIT OF
50% OF THE PREMIUM PAID ON THE INFLATIONARY CONTENT
OF THE SUM INSURED. BY THIS MEANS THE INSURED IS
ENCOURAGED TO BE GENEROUS IN FIXING HIS SUM INSURED,
KNOWING THAT, WITHIN LIMITS, HE WILL BE REIMBURSED FOR
AN OVERPAYMENT OF PREMIUM.
 IN THE EVENT OF LOSS, AVERAGE IS APPLIED ON THE BASIS
OF THE POLICYSUM INSURED (i.e. THE BASIC VALUE PLUS THE
FULL INFLATIONARY FACTOR) REGARDLESS OF WHEN
REINSTATEMENT IS COMPLETED.

ZULFIQAR ALI KHAN


THE NOTIONAL REINSTATEMENT
VALUE SCHEME
 THE DECLARED VALUE IS THE INSURED’S ASSESSMENT
OF THE NOTIONAL REINSTATEMENT VALUE (i.e., THE
COST OF REINSTATEMENT OF THE PROPERTY ARRIVED
AT IN ACCORDANC WITH THE REINSTATEMENT
MEMORANDUM BUT AT THE LEVEL OF COSTS APPLYING
AT THE INCEPTIONOF THE PERIOD OF INSURANCE),
TOGETHER WITH ALLOWANCE FOR:
a. THE ADDITIONAL COST OF REINSTATEMENT TO
COMPLY WITH PUBLIC AUTHORITY REQUIREMENTS;
b. PROFESSIONAL FEES;
c. REMOVALOF DEBRIS COSTS.
 THE INFLATION AMOUNT IS AN AMOUNT SELECTED BY
THE INSURED TO PROVIDE FOR THE ESTIMATED EFFECTS
OF INFLATION DURING BOTH THE PERIOD OF INSURANCE
& THE PERIOD NECESSARY FOR REINSTATEMENT
FOLLOWING LOSS OR DAMAGE.

ZULFIQAR ALI KHAN


THE NOTIONAL REINSTATEMENT
VALUE SCHEME
 THE DECLARED VALUE IS SHOWN IN THE POLICY
SPECIFICATION IN BRACKETS BELOW EACH SUM
INSURED, & A MEMORANDUM IS INCLUDED
EXPLAINING THAT THE BRACKETED FIGURES
‘REPRESENT THE DECLARED VALUE OF EACH OF
THE ITEMS SUBJECT TO THE NOTIONAL
REINSTATEMENT VALUE CONDITIONS
HEREINAFTER STATED’.
 TO THE DECLARED VALUE CALCULATED AS

ABOVE IS APPLIED THE NORMAL RATE PER


CENT INCREASED BY A LOADING ON THE
FOLLOWING SCALE:

ZULFIQAR ALI KHAN


THE NOTIONAL REINSTATEMENT
VALUE SCHEME

SUM INSURED AS A PERCENTAGE OF PERCENTAGE

THE DECLARED VALUE UP TO LOADING

125 12.5

140 15

150 17.5

160 20

170 25

180 30

ZULFIQAR ALI KHAN


THE NOTIONAL REINSTATEMENT
VALUE SCHEME
 THE RESULTANT PREMIUM IS PROVISIONAL IN THAT IT IS
TO BE ADJUSTED ON THE EXPIRY OF EACH PERIOD OF
INSURANCE (OR AT THE PRIOR TERMINATION OF THE
INSURANCE) IN ACCORDANCE WITH A FORMULA SET OUT
IN THE NRV MEMORANDUM.
 TWO POINTS SHOULD BE SPECIALLY NOTED:
 THE INSURED IS REQUIRED TO SUPPLY TO THE
INSURERS AT THE INCEPTION OF EACH PERIOD OF
INSURANCE THE DECLARED VALUE OF THE PROPERTY
INSURED BY EACH ITEM OF THE POLICY FALLING
WITHIN THE SCHEME. IN THE ABSENCE OF SUCH A
DECLARATION, THE LAST AMOUNT DECLARED BY THE
INSURED IS TAKEN AS THE DECLARED VALUE FOR THE
ENSUING PERIOD OF INSURANCE.
 THE ADJUSTMENT CAN ONLY RESULT IN AN
ADDITIONAL PREMIUM. NO RETURN OF PREMIUM IS
PROVIDED FOR.

ZULFIQAR ALI KHAN


THE NOTIONAL REINSTATEMENT
VALUE SCHEME
 THE NOTIONAL REINSTATEMENT VALUE SCHEME DIFFERS
FROM THE VALUATION LINKED SCHEME IN THE
FOLLOWING RESPECTS:
a. A PROFESSIONAL CERTIFICATE REGARDING THE
DECLARED VALUE (WHICH BROADLY CORRESPONDS
TO THE BASE VALUE) IS NOT REQUIRED. ALL THAT IS
NECESSARY IS THE ‘INSURED’S ASSESSMENT’
(ALTHOUGH HE WILL DOUBTLESS SEEK
PROFESSIONAL ADVICE PRIVATELY).
b. THE PREMIUM IS ADJUSTABLE WITHIN THE
PRESCRIBED LIMITS.
c. THE SCHEME MAY ONLY BE APPLIED TO AN
INSURANCE AT ITS INCEPTION OR AT ITS ANNUAL
RENEWAL DATE.
d. PROVISION FOR CAPITAL ADDITIONS IS ONLY
PERMITTED IN ACCORDANCE WITH THE TERMS SET
OUT IN THE NRV MEMORANDUM.

ZULFIQAR ALI KHAN


THE NOTIONAL REINSTATEMENT
VALUE SCHEME
 IT IS NOT PERMISSIBLE UNDER EITHER THE VLS
OR THE NRV SCHEME FOR AN ESCALATOR
CLAUSE TO BE INSERTED IN THE POLICY.
 EACH SCHEME IS, IN EFFECT, SUBJECT TO FULL
AVERAGE (i.e., NOT 85%). SO FAR AS THE NRV
SCHEME IS CONCERNED, AVERAGE IS
INTRODUCED BY A CLAUSE WHICH APPEARS IN
THE NRV MEMORANDUM.

ZULFIQAR ALI KHAN


‘DAY-ONE’ BASIS OF
REINSTATEMENT COVER
 THE EFFECT OF APPLYING FULL AVERAGE TO EACH OF THE
SCHEMES ALREADY DESCRIBED (VLS, APP & NRV) IS TO PUT
THE INSURED IN THE POSITION OF HAVING TO ASSESS FUTURE
INFLATION TRENDS. IF HE UNDERESTIMATES HE MIGHT FIND
HIMSELF UNDERINSURED IN THE POSITION OF HAVING TO
ASSESS FUTURE INFLATION TRENDS. IF HE UNDERESTIMATES
HE MIGHT FIND HIMSELF UNDERINSURED WHEREAS IF HE
OVERESTIMATES HE WILL HAVE PAID EXCESSIVE PREMIUM.
 AS IN THE PREVIOUS SWCHEME THE SUM INSURED IS
CALCULATED IN TWO PARTS. THE FIRST PART IS
DESCRIBED AS THE ‘DECLARED VALUE’ WHICH
REPRESENTS THE COST OF REINSTATEMENT APPLYING AT
THE INCEPTION OF THE PERIOD OF INSURANCE,
PROVIDING FOR THE ADDITIONAL COST OF
REINSTATEMENT TO COMPLY WITH PUBLIC AUTHORITIES’
REQUIREMENTS, PROFESSIONAL FEES & DEBRIS
REMOVALCOSTS BUT WITHOUT PROVISION FOR INFLATION
WHICH MAY OPERATE SUBSEQUENTLY. THIS ‘DECLARED
VALUE’ MUST BE NOTIFIED TO THE INSURERS AT THE
COMMENCEMENT OF THE INSURANCE & AT EACH
SUBSEQUENT RENEWAL.

ZULFIQAR ALI KHAN


‘DAY-ONE’ BASIS OF
REINSTATEMENT COVER
 THE SECOND PART OF THE SUM INSURED IS AN ADDED
PROVISION FOR INFLATION NOT NORMALLY EXCEEDING 50% OF
THE ’DECLARED VALUE’. IF THE INSURANCE IS WRITTEN ON A
FLOATING BASIS (WHICH MEANS THAT SEVERAL BUILDIGN &/OR
MACHINERY ITEMS ARE COVERED IN A SINGLE AMOUNT) THE
POLICY MUST INCLUDE A LIMIT OF LIABILITY, WHICH SHOULD
NORMALLY NOT EXCEED 150% OF THE ‘DECLARED VALUE’ FOR
ANY ONE LOCATION. AVERAGE APPLIES ONLY TO THE
‘DECLARED VALUE’. IT IS THEREFORE ESSENTIAL THAT THIS
ADEQUATELY COVERS THE COST OF REINSTATEMENT AT THE
COMMENCEMENT DATE OR SUBSEQUENT RENEWAL DATE
SINCE THE PROVISION FOR INFLATION WILL NOT MAKE GOOD
ANY INITIAL UNDERINSURANCE. AVERAGE IS INCORPORATED IN
THE FOLLOWING TERMS:
 IF AT THE TIME OF LOSS THE DECLARED VALUE OF THE
PROPERTY COVERED BE LESS THAN THE COST OF
REINSTATEMENT … (AS DEFINED) … AT THE INCEPTION OF
THE PERIOD OF INSURANCE THEN THE INSURERS’
LIABILITY FOR ANY LOSS INSURED HEREBY SHALL BE
LIMITED TO THE PROPORTION THEREOF WHICH THE
DECLARED VALUE BEARS TO THE COST OF
REINSTATEMENT …

ZULFIQAR ALI KHAN


‘DAY-ONE’ BASIS OF
REINSTATEMENT COVER
 THERE ARE TWO METHODS OF CALCULATING THE
PREMIUM. IT MAY BE ON A NON-ADJUSTABLE BASIS IN
WHICH EVENT IT IS CALCULATED BY APPLYING TO THE
‘DECLARED VALUE’ NORMAL TERMS LOADED BY 15%.
ALTERNATIVELY, THE INSURED MAY ELECT TO ARRANGE
THE INSURANCE ON ANADJUSTABLE BASIS UNDER WHICH A
PROVISIONALPREMIUM IS CHARGED CALCULATED BY
APPLYING TO THE ‘DECLARED VALUE’ NORMAL TERMS
LOADED BY 7 ½%. ON THE EXPIRY OF THE PERIOD OF
INSURANCE THE PROVISIONAL PREMIUM IS ADJUSTED BY
50% OF THE DIFFERENCE BETWEEN THE PROVISIONAL
PREMIUM FOR THE SUBSEQUENT PERIOD OF INSURANCE
CALCULATED AT THE TERMS WHICH HAVE APPLIEDDURING
THE PERIODUNDER ADJUSTMENT, ALLOWANCES BEING
MADE FOR ANY CHANGES IN COVER OR CLAIMS INCURRED
DURING THE ADJUSTMENT PERIOD.

ZULFIQAR ALI KHAN


‘DAY-ONE’ BASIS OF
REINSTATEMENT COVER
 THE ADJUSTMENT WILL NORMALLY RESULT IN THE
PAYMENT OF AN ADDITIONAL PREMIUM SINCE
DURING A PERIOD OF INFLATION THE ‘DECLARED
VALUE’ FOR ANY RENEWAL PERIOD MUST
INEVITABLY BE GREATER THAN THAT ON WHICH
THE PROVISONAL PREMIUM FOR THE PREVIOUS
YEAR WAS BASED. IF THE ‘DECLARED VLAUE’ IS
NOT NOTIFIED TO THE INSURERS BECAUSE OF
CANCELLATION OR NON-RENEWAL AN ADDITIONAL
PREMIUM OF 7 ½% OF THE PROVISIONAL
PREMIUM BECOMES PAYABLE.
 IT IS NOT PERMISSIBLE FOR AN INSURANCE ON
THE ‘DAY-ONE’ BASIS TO BE SUBJECT TO AN
ESCALATOR CLAUSE.

ZULFIQAR ALI KHAN


REINSTATEMENT ANCILLARY
CLAUSES
 IN CALCULATING THE DECLARED VALUE FOR THE
PURPOSES OF THE NRV SCHEME, ALLOWANCE
SHOULD BE MADE FOR:
a. THE ADDITIONAL COST OF REINSTATEMENT TO
COMPLY WITH PUBLIC AUTHORITY
REQUIREMENTS;
b. PROFESSIOANL FEES; &
c. REMOVAL OF DEBRIS COSTS.
 THERE ARE, HOWEVER, FACTORS WHICH SHOULD BE
TAKEN INTO ACCOUNT IN CONNECTION WITH ALL
REINSTATEMENT INSURANCES IF A FULL INDEMNITY IS
TO BE RECEIVED. EACH MUST BE INCORPORATED
INTO POLICY BY A SPECIFIC CLAUSE, THE IMPORT OF
WHICH FOLLWS.

ZULFIQAR ALI KHAN


PUBLIC AUTHORITIES CLAUSE
 THE WORDING COMMONLY USED READS:
 THE INSURANCE BY (ITEM No(S) … OF) THIS

POLICY EXTENDS TO INCLUDE SUCH


ADDITIONAL COST OF REINSTATEMENT OF THE
DESTROYED OR DAMAGED PROPERTY
THEREBY INSURED AS MAY BE INCURRED
SOLELY BY REASON OF THE NECESSITY TO
COMPLY WITH BUILDING OR OTHER
REGULATIONS UNDER OR FRAMED IN
PURSUANCE OF ANY ACT OF PARLIAMENT OR
WITH BYE-LAWS OF ANY MUNICIPAL OR LOCAL
AUTHORITY.

ZULFIQAR ALI KHAN


PUBLIC AUTHORITIES CLAUSE
 THE EXTENTION WOULD OPERATE, e.g., WHERE AN OWNER
OF A BUILDING DAMAGED OR DESTROYED BY FIRE WAS
COMPELLED TO REBUILD ON ANOTHER SITE, OR TO
REBUILD IN A DIFFERENT WAY, IF REQUESTED BY A LOCAL
AUTHORITY WHICH WAS EMPOWERED TO DO SO. STREET
WIDENING, DEVEOPMENT PLANS, AND CLEARANCE OF
BUILDINGS ARE OTHER CIRCUMSTANCES WHERE THE
EXTENSION MAY OPERATE. THE CLAUSE SPECIFICALLY
EXCLUDES LIABILITY FOR THE ADDITIONAL COST OF
COMPLIANCE WITH THE REGULATIONS:
1. FOR DAMAGE DONE BEFORE THE EXTENSION WAS
GIVEN,
2. WHERE NOTICE HAS BEEN SERVED UPON THE
INSURED BEFORE THE DAMAGE OCCURS, &
3. FOR UNDAMAGED PROPERTY OR PORTIONS OF
PROPERTY.

ZULFIQAR ALI KHAN


PUBLIC AUTHORITIES CLAUSE
 IT FURTHER EXLCUDES LIABILITY FOR ANY
CHARGE OR ASSESSMENT ARISING OUT OF
CAPITAL APPRECIATION FOLLOWING
REINSTATEMENT, & IT IS A REQUIREMENT THAT
THE WORK MUST BE CARRIED OUT WITHIN
TWELVE MONTHS OF THE DAMAGE UNLESS THE
INSURERS GRANT AN EXTENSION IN WRITING.

ZULFIQAR ALI KHAN


PROFESSIONAL FEES CLAUSE
 UNDER THIS CLAUSE THE INSURERS ACCEPT LIABILITY
FOR ARCHITECTS’, SURVEYORS’ & CONSULTING
ENGINEERS’ FEES NECESSARILY INCURRED IN
REINSTATING OR REPAIRING THE DAMAGE. FEES FOR
PREPARING CLAIMS ARE NOT COVERED. FEES MAY BE
INSURED BY A SEPARTE POLICY ITEM FOR A SPECIFIC SUM
INSURED OR MAY BE INCLUDED IN THE ITEMS ON
BUILDINGS & CONTENTS (EXCLUDING STOCK), & ARE
REQUIRED TO BE IN ACCORDANCE WITH THE CURRENT
SCALES OF CHARGES OF THE APPROPRIATE
PROFESSIONAL BODIES SUCH AS THE ROYAL INSTITUTE OF
BRITISH ARCHITECTS, THE ROYAL INSTITUTION OF
CHARTERED SURVEYORS OR THE ASSOCIATION OF
CONSULTING ENGINEERS. SUCH FEES ARE NOT
AUTOMATICALLY COVERED UNDER A FIRE POLICY; THERE
MUST BE A SPECIFIC CLAUSE SUITABLY EXTENDIGN THE
POLICY, & THE SUM OR SUMS INSURED MUST BE
ADEQUATE TO INCLUDE THEM.

ZULFIQAR ALI KHAN


DEBRIS REMOVAL CLAUSE
 FOLLOWING A SERIOUS FIRE IT IS NECESSARY TO CLEAR
DEBRIS FROM THE SITE BEFORE THE WORK OF REPAIR OR
REINSTATEMENT CAN BE CARRIED OUT, & IN NORMAL
CIRCUMSTANCES THE COST INVOLVED IS INCLUDED IN THE
COST OF REBUILDING. IT IS THEREFORE PAID BY THE
INSURERS AS PART OF THE BUILDING CLAIM, SUBJECT TO
THE ADEQUACY OF THE SUM INSURED.
 THERE ARE, HOWEVER, INSTANCES WHERE THE REMOVAL
OF DEBRIS WOULD NOT BE COVERED BY THE FIRE POLICY.
 e.g.,, THE DEBRIS MIGHT HAVE FALLEN ONTO AN

ADJACENT ROADWAY OR INTO A RIVER, OR, IN THE


CASE OF STOCK SUCH AS METALS, WAXES OR
PLASTICS, IT MIGHT HAVE MELTED DURING THE FIRE &
SUBSEQUENTLY SOLIDIFIED. THE EXTRA COSTS MAY
BE INSURED EITHER BY EXTENDING THE POLICY ITEMS
CONCERNED OR BY THE ADDITION OF A SEPARATE
ITEM.
ZULFIQAR ALI KHAN
DEBRIS REMOVAL CLAUSE
 A SEPARATE ITEM IS ALWAYS NECESSARY IN THE
CASE OF STOCK. THE FOLLOWING WORDING WOULD
BE EMPLOYED TO EXTEND ITEMS COVERING
BUILDINGS & CONTENTS (OTHER THAN STOCK):
 IT IS UNDERSTOOD THAT THE INSURANCE BY
ITEMS Nos … OF THIS POLICY EXTENDS TO
INCLUDE COSTS & EXPENSES NECESSARILY
INCURRED BY THE INSURED WITH THE CONSENT
OF THE COMPANY IN –
2. REMOVING DEBRIS,
3. DISMANTLING &/OR DEMOLISHING,
4. SHORING UP OR PROPPING
 OF THE PORTION OR PORTIONS OF THE
PROPERTY INSURED BY THE SAID ITEMS
DESTROYED OR DAMAGED BY FIRE OR BY ANY
OTHER PERIL HEREBY INSURED AGAINST.

ZULFIQAR ALI KHAN


DEBRIS REMOVAL CLAUSE
 A SEPARATE ITEM APPLICABLE ONLY TO STOCK
WOULD READ –
 ON COSTS & EXPENSES NECESSARILY
INCURRED BY THE INSURED WITH THE
CONSENT OF THE COMPANY IN REMOVING
DEBRIS OF THE PORTION OR PORTIONS OF
THE PROPERTY INSURED BY ITEMS Nos … OF
THIS POLICY DESTROYED OR DAMAGED BY
FIRE OR ANY OTHER PERIL HEREBY INSURED
AGAINST … (POUNDS).

ZULFIQAR ALI KHAN


REINSTATEMENT IN ENGINEERING
INSURANCE
 THE FOLLOWING IS AN EXAMPLE OF AN
ENDORSEMENT TO INTRODUCE REINSTATEMENT
INSURANCE INTO AN ENGINEERING POLICY:
 IT IS HEREBY DECLARED & AGREED THAT IN
CONSIDERATION OF THE INCREASED PREMIUM
AT WHICH THIS POLICY IS ISSUED IN THE EVENT
OF DESTRUCTION OF OR DAMAGE TO ANY PLANT
DESCRIBED IN THE SCHEDULE OR OTHER
PROPERTY BELONGING TO THE INSURED FOR
WHICH A CLAIM IS ADMITTED UNDER THIS
POLICY THE BASIS UPON WHICH THE AMOUNT
PAYABLE UNDER THE POLICY IS TO BE
CALCULATED SHALL BE THE REINSTATEMET OF
THE PLANT OR PROPERTY DESTROYED OR
DAMAGED.

ZULFIQAR ALI KHAN


REINSTATEMENT IN ENGINEERING
INSURANCE
 ‘REINSTATEMENT’ SHALL MEAN –
2. WHERE THE SAID PLANT OR PROPERTY IS
DESTROYED
 IF A BUILDING THE RE-BUILDING OF THE
PROPERTY.
 IF NOT A BUILDING ITS REPACEMENT FOR
SIMILAR PLANT OR PROPERTY.
 IN EITHER CASE IN A CONDITION EQUAL TO BUT
NOT BETTER OR MORE EXTENSIVE THAN ITS
CONDITION WHEN NEW.
3. WHEN THE SAID PROPERTY IS DAMAGED THE REPAIR
OF THE DAMAGE & THE RESTORATION OF THE
DAMAGED PORTION OF THE PROPERTY TO A
CONDITION SUBSTANTIALLY THE SAME AS BUT NOT
BETTER OR MORE EXTENSIVE THAN ITS CONDITION
WHEN NEW

ZULFIQAR ALI KHAN


REINSTATEMENT IN ENGINEERING
INSURANCE
 THE TERM ‘PROPERTY’ IN 1 & 2 ABOVE SHALL
NOT INCLUDE STOCK IN TRADE OR GOODS IN
PROCESS OF MANUFACTURE.
1. WHERE THE SAID PALNT IS DAMAGED THE REPAIR
OF THE DAMAGED ITEM SO THAT ITS WORKING
CONDITON IS SUBSTANTIALLY THE SAME AS THAT
IMMEDIATELY BEFORE THE ACCIDENT.
 UNDER THE STATNDARD POLICY OF BOILER
POLICY, INDEMNITY IN RESPECT OF THE
INSURED’S PLANT OR PROPERTY IS LIMITED TO
THE COST OF REINSTATEMENT IN A CONDITION
EQUAL TO BUT NOT BETTER THAN THAT
IMMEDIATELY PRIOR TO THE ACCIDENT.

ZULFIQAR ALI KHAN


REINSTATEMENT IN ENGINEERING
INSURANCE
 THIS MAY PRESENT A PROBLEM SINCE IT IS
OBVIOUSLY IMPOSSIBLE IN MANY INSTANCES TO
REPLACE PLANT OR PROPERTY IN EXACTLY THE
SAME CONDITION. THUS, IN THE EVENT OF AN
ACCIDENT, IT IS POSSIBLE FOR THE INSURED TO
HAVE TO FIND A SUBSTANTIAL SUM OVER & ABOVE
THAT PROVIDED BY THE POLICY IN ORDER TO
REBUILD HIS PROPERTY OR REPLACE HIS PLANT.
THE ABOVE CLAUSE IS INTENDED TO DEAL WITH THIS
SITUATION & IT AFFORDS A WIDER COVER SIMILAR
TO THAT OFFERED IN CONNECTION WITH A FIRE
POLICY. THE EXTRA COVER IS SUBJECT TO THE
LIMITS OF INDEMNITY SET AGAINST EACH ITEM OR
GROUP OF ITEMS IN THE SCHEDULE.

ZULFIQAR ALI KHAN


AVERAGE CONDITION
 IT IS METHOD BY WHICH INSURERS SEEK TO DEFEAT
UNDER-INSURANCE & ITS ADVERSE EFFECTS UPON BOTH
INSURED & INSURER. AVERAGE IN EFFECT MAKES THE
INSURED A CO-INSURER WHEN UNDER-INSURANCE EXISTS,
SINCE THE INSURER UNDER A POLICY WHICH IS
DECLARED TO BE ‘SUBJECT TO AVERAGE’ PAYS ONLY THAT
PROPORTION OF ANY LOSS WHICH THE SUM INSURED
BEARS TO THE VALUE OF THE PROPERTY INSURED AT THE
TIME OF THE LOSS. IT MUST BE STRESSED, HOWEVER,
THAT AVERAGE ONLY OPERATES WHEN THE POLICY
CONTAINS A CLAUSE SPECIFICALLY STATING THAT THE
SUM INSURED IS ‘SUBJECT TO AVERAGE’ OR TO ONE OF
THE THREE FOLLOWING CONDITIONS.
1. PRO RATA CONDITION OF AVERAGE;
2. SPECIAL CONDITION OF AVERAGE;
3. THE TWO CONDITIONS OF AVERAGE.

ZULFIQAR ALI KHAN


PRO RATA CONDITION OF
AVERAGE
 THIS IS THE CONDITION IN MOST COMMON USE &
READS:
 WHENEVER A SUM INSURED IS DECLARED TO BE
SUBJECT TO AVERAGE, IF THE PROPERTY
COVERED THEREBY SHALL AT THE BREAKING
OUT OF ANY FIRE OR AT THE COMMENCEMENT
OF ANY DESTRUCTION OF OR DAMAGE TO SUCH
PROPERTY BY ANY OTHER PERIL HERE BY
INSURED AGAINST BE COLLECTIVELY OF
GREATER VALUE THAN SUCH SUM INSURED,
THEN THE INSURED SHALL BE CONSIDERED AS
BEING HIS OWN INSURER FOR THE DIFFERENCE
& SHALL BEAR A RATEABLE SHARE OF THE LOSS
ACCORDINGLY.

ZULFIQAR ALI KHAN


PRO RATA CONDITION OF
AVERAGE
 BY ITS USE THE INSURERS PAY ONLY THAT
PROPORTION OF A LOSS WHICH IS
COMMENSURATE WITH THE PREMIUM THEY
HAVE RECEIVED.
 THUS IF THE PROPERTY CONCERNED IS INSURED
FOR 2,000 (POUNDS) BUT ITS VALUE AT THE TIME
OF THE LOSS IS 3,000 (POUNDS) THEN THE
INSURERS WILL PAY ONLY 2/3RDS OF THE
AMOUNT OF THE LOSS. IT IS, OF COURSE
POSSIBLE FOR THE FULL SUM INSURED (2,000
(POUNDS)) TO BE PAID IN THE EVENT OF A TOTAL
LOSS BUT THIS LEAVES THE INSURED A CO-
INSURER FOR THE REMAINING 1,000 (POUNDS).

ZULFIQAR ALI KHAN


SPECIAL CONDITION OF
AVERAGE
 THIS IS ALSO KNOWN AS THE 75% CONDITION OF
AVERAGE & APPLIES ONLY TO AGRICULTURAL
PRODUCE AT FARMS. IT READS:
 WHENEVER A SUM INSURED IS DECLARED TO BE SUBJECT
TO THE SPECIAL CONDITION OF AVERAGE, THEN, IF SUCH
SUM SHALL AT THE BREAKING OUT OF ANY FIRE OR AT THE
COMMENCEMENT OF ANY DESTRUCTION OF OR DAMAGE
TO THE PROPERTY BY ANY OTHER PERIL HEREBY
INSURED AGAINST, BE LESS THAN THREE-FOURTHS OF
THE VALUE OF THE PROPERTY INSURED IN THAT AMOUNT
THE INSURED SHALL BE CONSIDERED AS BEING HIS OWN
INSURER FOR THE DIFFERENCE BETWEEN THE SUM
INSURED & THE FULL VALUE OF THE PROPERTY INSURED
AT THE TIME OF SUCH FIRE OR AT THE COMMENCEMENT
OF SUCH DESTRUCTION OR DAMAGE & SHALL BEAR A
RATEABLE SHARE OF THE LOSS ACCORDINGLY.

ZULFIQAR ALI KHAN


SPECIAL CONDITION OF
AVERAGE
 THIS CONDITION COMES INTO OPERATION ONLY IF
THE SUM INSURED IS LESS THAN THREE-
FOURTHES OF THE VALUE, WHEN PRO RATA
AVERAGE IS APPLICABLE & THE INSURERES ARE
LIABLE ONLY FOR THAT PROPORTION OF THE
LOSS THAT THE SUM INSURED BEARS TO THE
VALUE.
 WHERE THE SUM INSURED REPRESENTS 75%

OR MORE OF THE VALUE, INSURERS ARE


LIABLE FOR THE FULL AMOUNT OF THE LOSS
UP TO THE SUM INSURED, & AVERAGE IS NOT
APPLICABLE.

ZULFIQAR ALI KHAN


SPECIAL CONDITION OF
AVERAGE
 EXAMPLES:
 SUM INSURED = 600 (POUNDS) SUBJECT
TO THE SCA
VALUE = 1,000 (POUNDS)
LOSS = 300 (POUNDS)
THE SUM INSURED IS LESS THAN 3/4TH OF
THE VALUE, THEREFORE AVERAGE IS
APPLICABLE THE
POLICY PAYS 600/1,000 * 300 = 180
(POUNDS)

ZULFIQAR ALI KHAN


SPECIAL CONDITION OF
AVERAGE
 SUM INSURED = 750 (POUNDS) SUBJECT
TO THE SCA
VALUE = 1,000 (POUNDS)
LOSS = 300 (POUNDS)
THE SUM INSURED IS EQUAL TO 3/4TH OF
THE VALUE, THEREFORE AVERAGE IS
NOT APPLICABLE.
THE POLICY PAYS 300 (POUNDS).

ZULFIQAR ALI KHAN


SPECIAL CONDITION OF
AVERAGE
SUM INSURED = 800 (POUNDS) SUBJECT TO
 THE
SCA
VALUE = 1,000 (POUNDS)
LOSS = 900 (POUNDS)
THE SUM INSURED IS GREATER THAN 3/4TH OF THE
VALUE, THEREFORE AVERAGE IS NOT APPLICABLE,
BUT THE INSURERS’ LIABILITY CANNOT EXCEED THE
SUM INSURED; CONSEQUENTLY THE POLICY PAYS
800 (POUNDS/ IT SHOULD BE NOTED THAT
LIVESTOCK INSURANCE IS SUBJECT TO AVERAGE, &
IT IS USUAL TO IMPOSE A LIMIT OF 1,000 (POUNDS)
PER ANIMAL (UNLESS AN ANIMAL IS INSURED
INDIVIDUALLY BY A SEPARATE ITEM).

ZULFIQAR ALI KHAN


THE TWO CONDITIONS OF
AVERAGE
1. WHENEVER A SUM INSURED IS DECLARED TO
BE SUBJECT TO AVERAGE, IF THE PROPERTY
COVERED THEREBY SHALL AT THE BREAKING
OUT OF ANY FIRE OR AT THE COMMENCEMENT
OF ANY DESTRUCTION OF OR DAMAGE TO
SUCH PROPERTY BY ANY OTHER PERIL
HEREBY INSURED AGAINST BE COLLECTIVELY
OF GREATER VALUE THAN SUCH SUM INSURED,
THEN THE INSURED SHALL BE CONSIDERED AS
BEING HIS OWN INSURER FOR THE
DIFFERENCE & SHALL BEAR A RATEABLE
SHARE OF THE LOSS ACCORDINGLY.

ZULFIQAR ALI KHAN


THE TWO CONDITIONS OF
AVERAGE
1. BUT IF ANY OF THE PROPERTY INCLUDED IN SUCH
AVERAGE SHALL, AT THE BREAKING OUT OF ANY FIRE OR
AT THE COMMENCEMENT OF ANY DESTRUCTION OR
DAMAGE TO SUCH PROPERTY BY ANY OTHER PERIL
HEREBY INSURED AGAINST, BE ALSO COVERED BY ANY
OTHER MORE SPECIFIC INSUREANCE, i.e., BY AN
INSURANCE WHICH AT THE TIME OF SUCH FIRE OR AT THE
COMMENCEMENT OF SUCH DESTRUCTION OR DAMAGE
APPLIES TO PART ONLY OF THE PROPERTY ACTUALLY AT
RISK & PROTECTED BY THIS INSURANCE & TO NO OTHER
PROPERTY WHATSOEVER, THEN THIS POLICY SHALL NOT
INSURE THE SAME EXCEPT ONLY AS REGARDS ANY
EXCESS OF VALUE BEYOND THE AMOUNT OF SUCH MORE
SPECIFIC INSURANCE OR INSURANCES, WHICH SIAD
EXCESS IS DECLARED TO BE UNDER THE PROTECTION OF
THIS POLICY & SUBJECT TO AVERAGE AS AFORESAID.
ZULFIQAR ALI KHAN
THE TWO CONDITIONS OF
AVERAGE
EFFECTS OF THESE CONDITIONS ARE
 AS
FOLLOWS:
a. IN A POLICY COVERING WHAT ARE TERMED
‘MERCANTILE’ RISKS, i.e., GOODS AT DOCKS OR AT
PUBLIC WHARVES (PORTS) OR WAREHOUSES.
b. IN A POLICY WHERE THERE ARE SPECIFIC ITEMS
COVERING THE CONTENTS OF INDIVIDUAL
BUILDINGS & A FLOATING ITEM COVERING
CONTENTS IN ALL BUILDIGNS. OFTEN SUCH AN
ARRANGEMENT IS REQUIRED WHERE THERE ARE
VARIATIONS IN THE DISTRIBUTION OF THE
PROPERTY COVERED & IT IS INTENDED THAT THE
FLOATING ITEM SHALL BE REQUIRED TO
CONTRIBUTE TO A LOSS ONLY AFTER THE
SPECIFIC ITEM HAS BEEN EXHAUSTED.

ZULFIQAR ALI KHAN


THE TWO CONDITIONS OF
AVERAGE
 EXAMPLE:
COL.1 COL.2
MINIMUM MAXIMUM
BUILDING X 5,000 (POUNDS) 10,000
(POUNDS)
BUILDING Y 5,000 (POUNDS) 15,000
(POUNDS)
BUILDING Z 10,000 25,000
(POUNDS) (POUNDS)
TOTAL 20,000 50,000
(POUNDS) (POUNDS)

ZULFIQAR ALI KHAN


THE TWO CONDITIONS OF
AVERAGE
IF THE PROPERTY IS TO BE INSURED FULLY IN

INDIVIDUAL BUILDINGS, A SUM INSURED OF
50,000 (POUNDS) IS NECESSARY, ALTHOUGH
THERE MAY NEVER BE MORE THAN, SAY, 35,000
(POUNDS) AT RISK AT ANY ONE TIME IN ALL
THREE BUILDINGS. TO INSURE FOR 50,000
(POUNDS) WOULD OBVIOUSLY INVOLVE THE
INSURED IN CONSIDERABLE & UNNECESSARY
EXPENSE, SO HE IS ALLOWED TO EFFECT
INSURANCE OF 20,000 (POUNDS) IN INDIVIDUAL
BUILDINGS AS IN COL.1 PLUS A FLOATER FOR
15,000 (POUNDS), SUBJECT TO THE TWO
CONDITIONS OF AVERAGE, THUS MAKING THE
MAXIMUM LIABILITY OF 35,000 (POUNDS).

ZULFIQAR ALI KHAN


THE TWO CONDITIONS OF
AVERAGE
 THE FIRST OF THE TWO CONDITIONS IS THE
PRO RATA ONE, & THE SECOND IS REALLY A
CONTRIBUTION CLAUSE. IT SEEKS TO
DETERMINE THE ORDER IN WHICH POLICIES
SHALL BE CALLED UPON TO MAKE GOOD A
LOSS BY STATING THAT IF THE PROPERTY IS
COVERED BY A MORE SPECIFIC POLICY
THEN THAT POLICY MUST BE THE FIRST TO
CONTRIBUTE TO THE LOSS, ANY BALANCE
OF LOSS NOT RECOVERED BEING DEALT
WITH BY THE POLICY,

ZULFIQAR ALI KHAN


THE TWO CONDITIONS OF
AVERAGE
ASSUME THERE ARE TWO POLICIES COVERING

SIMILAR GOODS. POLICY 1 COVERS GOODS IN
WAREHOUSE X WHEREAS POLICY 2 COVERS
GOODS IN WAREHOUSES X & Y. POLICY 1 IS
MORE SPECIFIC THAN POLICY 2 BECAUSE IT
APPLIES TO PART ONLY OF THE PROPERTY
COVERED BY POLICY 2 & TO NO OTHER
PROPERTY WHATSOEVER. POLICY 2 IS SAID TO
BE OF GREATER RANGE THAN POLICY 1. IN THE
EVENT OF LOSS AT WAREHOUSE X POLICY 1
MUST CONTRIBUTE FIRST TO THE LOSS & ONLY
WHEN POLICY 1 IS EXHAUSTED CAN POLICY 2 BE
CALLED UPON TO PAY A SHARE.

ZULFIQAR ALI KHAN


THE TWO CONDITIONS OF
AVERAGE
 IF POLICY 1 COVERS GOODS IN
WAREHOUSES A & B, & POLICY 2 COVERS
GOODS IN WAREHOUSES B & C THE SECOND
CONDITION DOES NOT APPLY. POLICY 1
CERTAINLY COVERS PART OF THE
PROPERTY COVERED BY POLICY 2 BUT IT
COVERS OTHER GOODS IN ADDITION. SUCH
INSURANCES ARE SAID TO BE OF
INDEPENDENT RANGE.

ZULFIQAR ALI KHAN


THE TWO CONDITIONS OF
AVERAGE
 EXAMPLE 1 SUM INSURED
POLICY 1 COVERS A 1,000 (POUNDS)
SUBJECT TO PRO RATA AVERAGE.
POLICY 2 COVERS A & B
1,000 (POUNDS)
SUBJECT TO THE 2 CONDITIONS
OF AVERAGE
THE LOSS IS 500 (POUNDS) IN A
VALUES ARE – A 1,000 (POUNDS)
VALUES ARE – B 1,500 (POUNDS)

ZULFIQAR ALI KHAN


THE TWO CONDITIONS OF
AVERAGE
 POLICY 2 IS OF GREATER RANGE THAN
POLICY 1 & THE LATTER MUST THEREFORE
FIRST MEET THE LOSS TO THE EXTENT OF
ITS LIABILITY. THE COVER IS SUBJECT TO
AVERAGE WHICH IS, HOWEVER,
INOPERATIVE SINCE THE SUM INSURED BY
POLICY 1 EQUALS THE VALUE IN A. POLICY 1
THEREFORE PAYS 500 (POUNDS) & POLICY 2
IS NOT BROUGHT INTO CONTRIBUTION.

ZULFIQAR ALI KHAN


THE TWO CONDITIONS OF
AVERAGE
EXAMPLE 2 SUM INSURED
POLICY 1 COVERS A 1,000 (POUNDS)
POLICY 2 COVERS A & B 1,000 (POUNDS)
AVERAGE AS IN 1.
THE LOSS IS 500 (POUNDS) IN B
VALUES ARE – A 1,000 (POUNDS)
VALUES ARE – B 1,500 (POUNDS)
POLICY 1 DOES NOT COVER B THEREFORE POLICY 2
ONLY CONTRIBUTE S TO THE LOSS, SUBJECT TO
AVERAGE. POLICY 1 IS ADEQUATE TO COVER A.
THEREFORE LIABILITY OF POLICY 2 IS:
SUM INSURED/NET VALUE PROTECTED * LOSS
(i.e. TOTAL VALUE 2,500 (POUNDS) LESS VALUE 1,000
(POUNDS) PROTECTED BY POLICY 1)
= 1,000/1,500 * 500 = 333.33 (POUNDS)
ZULFIQAR ALI KHAN
INSURED LOSES = 166.67 (POUNDS)
THE TWO CONDITIONS OF
AVERAGE
 EXAMPLE 3 SUM INSURED
POLICY 1 COVERS A 1,000 (POUNDS)
POLICY 2 COVERS A & B 3,000 (POUNDS)
AVEARAGE AS IN 1.
THE LOSS IS 500 (POUNDS) IN A
VALUES ARE – A 2,000 (POUNDS)
VALUES ARE – B 4,000 (POUNDS)
POLICY 1 MUST CONTRIBUTE FIRST TO THE
LOSS; THE LIABILITY IS SUBJECT TO
AVERAGE
THEREFORE POLICY 1 PAYS:
SUM ISNURED /VLAUE * LOSS
= 1,000/2,000 * 500 = 250 (POUNDS) ZULFIQAR ALI KHAN
THE TWO CONDITIONS OF
AVERAGE
POLICY 1 IS INSUFFICIENT TO MEET THE WHOLE

LOSS SO THE CONTRIBUTION OF 2 MUST NOW BE
ASCERTAINED.
POLICY 2 PROTECTS A (SUBJECT TO AVERAGE)
TO THE EXTENT OF ANY EXCESS OF VLAUE
BEYOND THE AMOUNT OF THE MORE SPECIFIC
INSURANCE POLICY 1 & ALSO B.
 THEREFORE POLICY 2 PAYS:
SUM INSURED /VALUE(LESS VALUE COVERED BY
THE MORE SPECIFIC POLICY) * BALANCE OF LOSS
= 3,000/6,000 – 1,000 * 250
= 3,000/5,000 * 250 = 150 (POUNDS)

ZULFIQAR ALI KHAN


THE TWO CONDITIONS OF
AVERAGE
 THEREFORE
 POLICY 1 PAYS 250 (POUNDS)
POLICY 2 PAYS 150 (POUNDS)
INSURED LOSS 100 (POUNDS)
TOTAL 500 (POUNDS)

ZULFIQAR ALI KHAN


AGREED VALUE
 A ‘VALUED POLICY’ IS ONE WHICH PROVIDES THAT IF
THE PROPERTY INSURED BECOMES A TOTAL LOSS BY
THE HAPPENING OF AN INSURED PERIL, THEN THE
AMOUNT APYABLE SHALL BE THE SUM INSURED
WHICH WAS AGREED BETWEEN INSURER & INSURED
AT THE TIME OF EFFECTING THE POLICY.
 THE VALUE IS AGREED & IT IS NOT NECESSARY FOR THE
INSURED TO PROVE THE EXTENT OF HIS LOSS; HE MUST
MERELY PROVE THAT THE LOSS HAS ACTUALLY
OCCURRED.
 NO ACCOUNT IS TAKEN OF ANY DEPRECIATION OR
APPRECIATION WHICH MAY HAVE AFFECTED THE TRUE
VALUE SINCE THE INCEPTION OF THE INSURANCE; IF A
TOTAL LOSS OCCURS THE AMOUNT PAYABLE IS THE
SUM INSURED.

ZULFIQAR ALI KHAN


AGREED VALUE
 VALUED POLICES ARE COMMONLY ISSUED
FOR ITEMS SUCH AS PAINTINGS,
SCULPTURES, & OTHER WORKS OF ART, OR
FOR ANTIQUES OR ITEMS OF JEWELLERY.
 INSURERS GRANT POLICIES COVERING
HOUSEHOLD CONTENTS ON A ‘NEW FOR
OLD’ BASIS.
 CERTAIN INSURERS RESTRICT THE ‘NEW FOR
OLD’ BASIS OF SETTLEMENT TO ARTICLES WHICH
ARE NOT MORE THAN THREE YEARS OLD AT THE
TIME OF THE LOSS OR DESTRUCTION.

ZULFIQAR ALI KHAN


FIRST – LOSS INSURANCE
 FIRST – LOSS POLICIES ARE SOMETIMES IN DEMAND
WHERE A PROPOSER FEELS THAT ANY LOSS HE MAY
SUSTAIN FROM A CERTAIN PERIL CANNOT AMOUNT
TO MORE THAN A FRACTION OF THE VALUE AT RISK.
UNDER SUCH POLICIES, WHEN A LOSS OCCURS THE
INSURERS WILL PAY UP TO THE SUM INSURED
WITHOUT CONSIDERATION OF THE TOTAL VALUE AT
RISK. INSURERS GENERALLY DO NTO FAVOUR
POLICIES BASED ON OTHER THAN FULL VALUES, BUT
WHEN THEY DO AGREE TO SUCH COVER THEY
COMMONLY CHARGE A COSIDERABLY HIGHER RATE
THAN THE NORMAL. THE CHANCE OF A TOTAL
PAYMENT IS MUCH GREATER, & THE INSURED MUST
EXPECT TO PAY AN INCREASED COST IN
CONSEQUENCE.

ZULFIQAR ALI KHAN


FIRST – LOSS INSURANCE
 FIRST – LOSS POLICIES ARE COMMON IN
THEFT INSURANCE BUT ARE SELDOM ISSUED
BY FIRE & SPECIAL PERILS.
 INSURERS ISSUE FIRST – LOSS POLICIES
FREELY IN RESPECT OF THEFT INSURANCE,
BECAUSE IN MANY CASES IT CAN
REASONABLY BE ARGUED THAT PARTICULAR
GOODS ARE TOO BULKY OR TOO HEAVY FOR A
THIEF TO TAKE AWAY MORE THAN A SMALL
PROPORTION GOODS ARE TOO BULKY OR TOO
HEAVY FOR A THIEF TO TAKE AWAY MORE
THAN A SMALL PROPORTION OF THE TOTAL
AT RISK.

ZULFIQAR ALI KHAN


LOSS SETTLEMENT & ADJUSTMENTS
 IN BIGGER CLAIMS, SETTLEMENT IS GENERALLY PLACED IN THE
HANDS OF QUALIFIED LOSS ADJUSTERS OTHERWISE CLAIM
DEPARTMENT OF INSURER ADJUST LOSS.
 THE CHARTERED INSTITUTE OF LOSS ADJUSTERS (CILA) PROVIDES
THAT A LOSS ADJUSTER MUST:
1. AT ALL TIMES RECOGNISE THE RESPONSIBILITY HE
OWES TO THE PROFESSION BY STRIVING TO MAINTAIN A
HIGH STANDARD IN ALL ASPECTS OF HIS WORK,
2. NOT SEEK TO OBTAIN ANY ADVANTAGE IN THE
CONDUCT OF HIS BUSINESS OTHERWISE THAN BY HIS
PROFESSIONAL ABILITY, &
3. AT ALL TIMES PRESERVE IMPARTIALITY. SHOULD THERE,
IN ANY PARTICULAR CASE, BE CIRCUMSTANCES WHICH
IN THE VIEW OF A REASONABLE MAN MIGHT BE
REGARDED AS IMPAIRING (WEAKING) OR LIKELY TO
IMPAIR HIS IMPARTIALITY THIS SHOULD BE DECLARED
TO HIS INSTRUCTING CLIENT BEFORE HE PROCEEDS
WITH THE ADJUSTMENT.

ZULFIQAR ALI KHAN


VALUE ADDED TAX (VAT) &
PROPERTY CLAIMS
 NEW BUILDING WORK IS ZERO RATED FOR
VAT. HOWEVER, REPAIR WORK &
ARCHITECTS’ & SURVEYORS’ FEES
CHARGEABLE ON ANY BUILDING WORK
ATTRACT VAT.
 IN OTHER WORDS, VAT IS PAYABLE ON
RECONSTRUCTION OR REINSTATEMENT WORK
UNLESS THE BUILDING IS TOTALLY DESTROYED.

ZULFIQAR ALI KHAN