United Industries insured its factory assets as detailed below with Star General Insurance Company for the values given below under a Standard Fire Insurance and Special Perils Policy. The insurance was on market value (

CS Professional · Insurance - Law and Practice · PYQS · December 2017
United Industries insured its factory assets as detailed below with Star General Insurance Company for the values given below under a Standard Fire Insurance and Special Perils Policy. The insurance was on market value (indemnity) basis, Building ₹6,75,00,000 Machinery (Other than Boiler) ₹18,76,00,000 Boiler: ₹1,75,00,000 The boiler being subject to a loan agreement with National Bank was also insured by the bank under a separate Standard Fire and Special Perils Policy from Satellite Insurance Company for ₹2,75,00,000 which was the current replacement value of the boiler. This policy was also obtained on the market value basis only. The policy deductible in respect of any one claim was ₹25000/- under each of the two policies. In a major fire accident the insured factory was heavily affected. All the three assets namely Building, Machinery and Boiler were heavily damaged. The surveyor appointed by the Star General Insurance Company whose appointment was also concurred by the Satellite Insurance Company assessed the loss on indemnity basis as below after taking into account the applicable depreciation. Building Repairs: ₹1,25,00,000 Machinery Repairs and replacements: ₹2,50,00,000 Boiler Repairs: ₹75,00,000 As assessed by the surveyor the market value as on the date of loss of respective assets were as below: Building: ₹9,00,00,000 Machinery other than boiler: ₹26,80,00,000 Boiler: ₹2,75,00,000 Work out the recovery obtainable from each of the two insurers under their respective policies based on the assessment done by the surveyors as above.

Answer & Explanation:

Claims recoverable under the Star General Insurance Company's Policy (I) BUILDING If the declared sum insured is found to be less than the value of the property insured, then the claim amount is proportionately reduced. In Building this condition is applied so the losses assessed by the surveyors are reduced. Market value of the Building as on the date of loss : ₹9,00,00,000/- Sum insured under the policy : ₹6,75,00,000/- Under Insurance : ₹9,00,00,000/- (-) ₹6,75,00,000/- = ₹2,25,00,000/- Underinsurance percentage = (₹2,25,00,000 / ₹9,00,00,000) * 100 = 25% Building Repairs assessed by the surveyors = ₹1,25,00,000/- Net Claim before application of excess = ₹1,25,00,000 * 75% = ₹93,75,000/- (II) MACHINERY: Same above condition is applicable in Machinery also Market value of machineries as on the date of loss : ₹26,80,00,000/- Sum insured under the policy : ₹18,76,00,000/- Under Insurance : ₹26,80,00,000 - ₹18,76,00,000 = ₹8,04,00,000/- Underinsurance percentage = (₹8,04,00,000 / ₹26,80,00,000) * 100 = 30% Machinery repairs assessed by the surveyor : ₹2,50,00,000/- Net admissible claim before application of excess = ₹2,50,00,000 x 70% = ₹1,75,00,000/- (III) BOILER Market value of the Boiler as on the date of loss : ₹2,75,00,000/- There is no under insurance in the case of boiler as the total sum insured under both the policies put together is more than the market value. Boiler repairs as assessed by the surveyors = ₹75,00,000/- Net admissible claim for Boiler from Star General Insurance Company = (₹1,75,00,000 / ₹4,50,00,000) x ₹75,00,000 = ₹29,16,667/- Total claim recoverable from Star General Insurance Company before applying excess = ₹93,75,000 + ₹1,75,00,000 + ₹29,16,667 = ₹2,97,91,667/- Net claim from Star General Insurance Company after excess = ₹2,97,91,667 - ₹25,000 = ₹2,97,66,667/- Claim recoverable under Satellite Insurance Company's policy Admissible claim before excess = (₹2,75,00,000 / ₹4,50,00,000) x ₹75,00,000 = ₹4,583,333 Excess = ₹25,000 Net claim after excess = ₹4,583,333 - ₹25,000 = ₹4,558,333

Topics: Fire Insurance

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