Average Clause. The Principle of Indemnity • This states that the insured cannot gain/make profit from making an insurance claim. • Because of this principle there is no point of insuring something for more than it is worth. The Principle of Indemnity Example – A house valued at €300,000 which is insured for €450,000 xxxxx down. – The insurer will only pay €300,000 because the loss incurred was only €300,000. – If €450,000 compensation is paid then the insured would gain €150,000 from the house burning down. The Principle of Contribution • This states that if a risk is insured by two or more insurance companies, any compensation payable will be shared between the companies. • Each company pays compensation in relation to the amount of risk it covered • Compensation paid by each insurance company is calculated by the following formula Sum insured with individual company X Loss Total sum insured The Principle of Contribution Example – A person insures a house valued at €300,000 with two insurance companies for €300,000 each. – The person will only receive €300,000 if the house xxxxx down. – Each insurer will only contribute €150,000 each. – If each paid €300,000, then the individual would gain from the house burning down; this goes against what principle? The Principle of Contribution Example – A house is worth €300,000 – It is insured with Company A for €125,000 – It is insured with Company B for €175,000 – The house is damaged by fire and the damage amounts to €42,000 • Company A would pay €17,500 compensation 125,000 X 42,000 = €17,500 300,000 • Company B would pay €24,500 compensation 175,000 X 42,000 = €24,500 300,000 The Principle of Subrogation • This passes on the legal right to recover any loss suffered from the insured over to the insurer • When the insurer pays out compensation, the insurer can claim from someone else who might have caused the loss. • After paying compensation for a loss suffered, the insurance company is entitled to take over any property.
Average Clause. If at the time of loss or damage The Property Insured is collectively of a greater value than the total sum insured, You shall be considered as being Your own insurer for the difference and bear a rateable share of the loss accordingly. Avoidance of Delay It is a condition of this insurance that You will act with reasonable dispatch in all circumstances within Your control.
Average Clause. An average clause in a fire insurance contract is applicable when there is under insurance and it is applied to discourage under insurance. The average clause limits the liability of the insurer to that proportion of actual amount of loss which the sum insured bears to the total value of stock affected by fire. Proforma of Memorandum Trading Account:- Dr Memorandum Trading A/c Up to _ _ Cr To, Opening Stock To, Purchases (Net) To, Wages To, Carriage inwards To, Manufacturing Expenses To, Any other direct Expenses To, Gross Profit (% on Sales) Rs xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx By, Sales (Net) By, Closing Stock on the date of fire (balancing figure) Rs xxxxx xxxxx XXXX XXXX
Average Clause. If closing stock is greater than the amount of policy Amount of Loss x Policy Amount of claim = Total closing stock
Average Clause. With respect to Special Property with Sub-limits of Insurance as described under Coverage C - Personal Property, the Average Clause applies:
