Some salient insurance clauses

There are some clauses which are ubiquitous and salient in most insurance policies. Incidentally these clauses have been the source of much suspicion of insurance professionals and dispute between the insurance industry professionals and the insuring public.

Usually, an insurance professional should draw the attention of his clients to clauses that can lead to dispute and explain the implications to guide the client in making informed decisions. Many registered insurance brokers and some underwriters do this. But what I have noticed among many marketers from underwriting companies is that they are target-driven. They just want to close one deal and move on to the other. This is one of the reasons why I have consistently encouraged the insuring public to place their businesses via registered insurance brokers (RIBs). As I have explained before, the broker is your agent and will look into the details of the insurance contract you are about to go into. Beyond that, we must continuously draw the attention of our clients to these clauses that can cause frictions and remind them of the implications.

The first one is inspection clause. Some policies will state that inspection of the subject matter of insurance is a pre-condition to accepting liability in the event of a loss, while some other policies will state that only a percentage of the sum insured will be paid in the event of a loss occurring before the inspection is carried out. The wording varies, depending on the class of insurance and risk involved, but basically, insurance companies want to verify the existence of the subject matter of insurance they are underwriting. Also, they want to be sure that the description of the subject matter given in the proposal form is accurate. Where the subject matter is fixed in a location, for instance, a factory or building, it is quite easy to carry out the inspection. But when it is mobile, for instance, a vessel or vehicle, it can be an issue. We have situations where vessels go onshore immediately the insurance certificate is out, before the inspection is carried out. We also have situations where policy holders travel with their vehicles once the insurance certificate is out, but before inspections.

This has led to disagreements where losses occurred before the inspection. On the one hand, clients and their brokers point to the fact that premium has been paid, while underwriters draw attention to the inspection clause. To avoid issues, brokers should ensure that inspection is carried out before their clients’ vehicles and vessels commence their trips/voyage. Where circumstances make this impossible, there should be a firm agreement with the underwriter on the application of this clause. Usually, I prefer documented rather than verbal agreements.

The second clause, which we have mentioned here before is Excess/ Deductible Clause which is present in all non-life and health insurance policies. Excess is the portion of each and every claim that a policy holder bears in the event of loss. It is usually expressed in figure or/and percentage of the claim and the policy holder pays whichever is higher. If for instance, a claim is N100,000 and the excess is N20,000 or 10 percent of the claim, the policy holder will bear N20,000 of the claim while the insurance company will only pay N80,000.

Excess and deductible are often used interchangeably, but deductible is usually defined as a large excess. In motor insurance, excess is the term normally used, while most marine policies use deductible. But the bottom line is that it is the proportion of the claim that the policy holder will bear in the event of a loss. The clause is inserted in insurance policies to encourage policy holders to take very good care of the subject matter of insurance, knowing that they will participate in claims payment in the event of a loss. However, excess can be bought back in motor insurance via the excess buyback clause with payment of additional premium, usually one percent of the sum insured.

Insurance professional, especially RIBs, really need to explain this clause to their clients because many of them cannot understand why they cannot get “full indemnity after paying full premium.”

Happily, they have an option of getting their “full indemnity” in motor insurance by buying back the excess. Incidentally, this option is not available in other classes of insurance. So good housekeeping must remain the watch word of policy holders to reduce negligence and ensure that events leading to claim are truly fortuitous.

The last clause we are dealing with today is Fidelity Guarantee Clause in Comprehensive Motor Insurance and Motor Insurance Third Party Fire and Theft. It is not available in Motor (Third Party) Insurance because it does not cover the vehicle in the first place. This clause simply states that if your driver or other domestic servant steals your vehicle or colludes with others to steal your vehicle, the insurance company is not liable. “What did you just say?” “I said the insurance company is not liable because of this clause.”

I have explained it here before; insurance is like a relay. Where one class of insurance stops, another takes off; one class of insurance’s excluded perils are another’s covered peril.

This particular risk is better covered under Fidelity Guarantee Insurance which takes care of the dishonesty of employees.

So, what should the policy holder do? Two options, take a combined Motor Insurance and Fidelity Guarantee insurance to cover both risks, or carry out due diligence to ensure that you employ staff who will not abscond with your vehicle. But the client should be well guided ab initio on his choices.