ADNIC Training

10 – 11 June 2025
Consumer Claims

1. Understand the core principles of insurance in relation to

the entire lifecycle of claims processing.
 1. Who may claim 2. Requirements for
under the policy proving a loss.
In this
Unit 3. Determining if a
4. Duties of the
loss is covered by the
claimant
policy.

6. Effect of Good
5. Insurer’s duties Faith on both parties
under UAE Law

7. Application of 8. Application of the

indemnity for different corollaries of
types of claims indemnity.

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1. WHO MAY CLAIM UNDER AN INSURANCE POLICY

Understand the core principles of insurance 3

 Jason was the owner of a penthouse on the top floor of a a
Insurable interest block of 4 flats plus his penthouse. He was concerned that
if the lift was damaged, he would suffer considerably since
in property
he lived on the fifth floor, so he decided that he would
purchase insurance on the common parts including the lift.
Is he entitled to do so?
50 50
% %
1. Yes
2. No

Answer : ##

000 030
Understand the core principles of insurance 4
 • A fundamental requirement of
insurance is that the policyholder must
Requirement have an insurable interest in the
subject-matter that is insured.
for Insurable • This means that they must stand to
Interest suffer a financial loss from the
occurrence of the loss, damage or
expense covered under the policy.
• If a policyholder could collect money
from an insurance policy without
having suffered a financial loss, a
moral hazard would exist, and the
contract would be deemed contrary to
public policy.
• The doctrine of insurable interest is
necessary to prevent insurance from
becoming a gambling contract.
Understand the core principles of insurance 5
 • The subject-matter of insurance is
the thing, object, right or duty being
Subject insured. Castellain v Preston
• It can be any type of property or any (1883)
Matter of event which may result in a loss of What is it that is
Insurance legal right or the creation of a legal insured in a fire
policy?
liability. Not the bricks and
• Examples include materials used in
building the house, but
–the building, furniture and other contents, the interest of the
under a household policy insured in the
–the freedom from liability under a liability subject-matter of
policy insurance.
–the continued good health of the insured
under a private medical expenses policy
–the absence of disability under a personal
accident policy
–the life being assured under life Insurance
Understand the core principles of insurance 6
 • An insurable interest in exists when the
policyholder benefits if the event insured
Requirement does not occur and is likely to suffer INSURABLE
INTEREST DEFINED
for Insurable some loss or detriment if it does.
The legal right to
Interest • Such events can be: insure arising out of a
financial relationship
–Destruction or damage to property recognized at law,
–An accident giving rise to a liability to third between the insured
party and the subject-
matter of insurance.
–The death of a person
–Illness or accident requiring medical treatment
–Disability leading to loss of earnings
• The financial relationship between the
insured and the subject matter insured
must be one that is recognized at law.

Understand the core principles of insurance 7

 Give examples of Insurable Interest that exists
Think in consumer lines Insurance
• Ownership
• Joint or Part Ownership
• Liability to third parties as home-owner/occupier arising
from accidents on or about the property
• Liability to domestic workers
• Liability as tenant for damage to buildings
• Medical expenses incurred for family
• Emergency medical expenses while travelling
• Mortgagees in building and in the life of the borrower
• Life insurance – spouses
• Ownership of Motor Vehicles
• Third party liability as drivers of vehicles

Understand the core principles of insurance 8

2. REQUIREMENTS FOR PROVING A LOSS.

Understand the core principles of insurance 9

 999 999

1. What is the degree of proof required for a claimant to

prove their claim under an insurance policy ?
a) Beyond a reasonable doubt
b) On the balance of probabilities

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Understand the core principles of insurance 10
 •As in all civil cases and BALANCE OF
commercial cases, the test PROBABILITIES
Burden of that is required is “on the The burden of proving an
Proof balance of probabilities”. entitlement to indemnity
under an insurance contract
•The court weighs up the lies with the claimant.
evidence presented by each The degree of proof
party and decides which required is “on the balance
of probabilities.”
version is most probably true. The claimant must establish
that:
–the loss is covered by the
policy; and
–the amount of their financial
loss.

Understand the core principles of insurance 11

 PROPERTY ALL

Burden of
Loss is covered RISKS POLICY
• “…if any of
Proof - 1 by the policy the Property
Insured shall
suffer any
unforeseen
Named sudden and
All risks physical loss
perils destruction
policies
policy or damage
other than by
The claimant must If the insurer wants The claimant need Once again if the
an excluded
prove that the loss,
destruction, damage
to deny liability on
the basis of an
only prove that the
loss actually
insurer determines
that it is not liable
cause, at any
or expense was
caused by the
exclusion, then the
onus of proving this
occurred and was
“unforeseen and
for the loss, it must
prove that the loss time during
operation of an
insured peril
is shifts onto the
insurer. It is not up
sudden”. They do
not have to
occurred through
the operation of an the Period of
to the claimant to
disprove that an
exclusion does not
establish what
caused the loss.
excluded cause.
Insurance…..
apply.

Understand the core principles of insurance 12

 NOTE: In this context,
The amount the term “loss”
of the includes any loss,
Burden of claimant’s Claimant must prove not only the damage, destruction,
financial
Proof - 2 loss.
amount (i.e. repair costs and/or
replacement value and/or expenses
expense or legal
liability incurred by the
incurred) but also the extent of their
financial loss, i.e. their insurable claimant.
interest in the loss.
THE INSURED DOES NOT
NEED TO PROVIDE
ORIGINAL INVOICES OR
LIABILITY INSURANCE IS AN exception
to proving the amount of loss - PURCHASE RECEIPTS.
compensation is established by the EVIDENCE CAN BE IN
third-party claimant or by the courts. ANY FORM TO PROVE
OWNERSHIP OR OTHER
INTEREST AND THE
AMOUNT CAN BE
Insurer not bound to prove the EVIDENCED FROM
amount of the loss but only to make
sure that the amount claimed is MARKET VALUE OR
reasonable. COST OF REPAIRS OR
REPLACEMENT ETC.,

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3. DETERMINING IF A LOSS IS COVERED BY THE
POLICY.

Understand the core principles of insurance 14

 999 999 999 999
Which of these best describes an insured peril?
A B C D

A. A peril named in the policy.

B. A peril which is covered under the policy.
C. A peril which causes the loss.
D. A peril which is not in the list of exclusions in the policy.

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Understand the core principles of insurance 15
 •If the policy is on a named perils PROXIMATE CAUSE
basis, then the insured must
Proximate establish that the damage was Proximate cause
means the active,
proximately caused by one of the
Cause perils. AND
efficient cause that
sets in motion a
•There was no intervening cause train of events
which brings about
that came from an excluded a result, without the
source. intervention of any
•If the policy is on All Risks Basis force started and
working actively
(with exclusions) then it would be from a new and
up to the insurer to establish that independent
the whole loss (or part of it) was source.
caused by an excluded peril or that
the nature of the loss is excluded
(e.g. consequential loss)
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Active and It is important to
Efficient Rider went out for a ride A fox scared the horse
note that the
proximate cause
Cause need not be the
cause
immediately
before the loss or
damage occurs.
The last cause
could simply be a
Rider
Riderfell
fell off thehorse
off the horse Rider could not move due to injuries link in the chain
connecting the
event with the
proximate cause.

Rider caught pneumonia Rider died

Understand the core principles of insurance 17

Dominant
It was raining
hard and George
had to have a tea
break and smoke
Causation may not
Cause
inside the
The previous garage.
The previous
day’s rubbish
day’s rubbish
The cleaner did
not turn up for
necessarily be a
was ignited
was ignited by work because of straight line of events.
theby the
cigarette. the storm.
cigarette. Sometimes more
than one peril or

Think A slight breeze

as he was going
The garage floor
was not cleaned
circumstance are
present, and they all
contribute in some
out caused the
lighted cigarette
Fire from the rubbish
of the previous way to bring about
to fall on the

What is the the loss.

day.
floor.

In such cases we
dominant cause must consider the
dominant cause, i.e
of this loss? He did not
Meanwhile,
George’s
that which most
extinguish the
cigarette
daughter had a
small accident at
influenced the loss
properly. As George
lighted his
school. as the proximate
cigarette he
received an
cause of the loss.
urgent call on his
mobile about his
daughter and
rushed home.

Understand the core principles of insurance 18

 • In many cases, more than one peril could have
contributed to the loss.
• The insurer therefore needs to determine which part of a
More than one loss would be covered, if any.
• The rules are according to the following table.
cause

Rule I Excluded peril produces insured peril Not covered

Example: Earthquake Fire Not covered
Rule II Named peril produces a peril which is covered
neither excluded nor included
Example Fire Water damage by fire brigade covered

Rule III Neither named produces a named peril covered

nor excluded peril
Example Short circuit Fire covered

Rule IV Named peril produces excluded peril not covered

Example Fire Explosion not covered

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  Insurers use certain terms in their policies to
make their intention very clear of what they
Modification want to cover and what they want to exclude.
Such wordings in policies override the A ship was damaged
by policy common law position of proximate cause.
when it hit a derelict
wording “…..directly or indirectly caused mine many years
by…..”
after the war had
–In this case, even if the loss was in some
way influenced by the excluded peril, then ended.
there will be no claim even. The insurers declined
• Other wordings that modify the liability on the
doctrine of proximate cause include : grounds that the
• “….loss or damage reasonably damage was
attributable to…..” indirectly caused by
• ……loss or damage occasioned by…. war.
• “……solely caused by……..”

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4. DUTIES OF THE CLAIMANT

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 •IMPLIED DUTIES arise from
the duty of good faith that
Claimant’s the insurer and the insured • WHAT HAPPENS IF THE
owe each other for the INSURED DOES NOT
duties COMPLY?
duration of the contract. • If a loss which may give rise
to a claim arises, and the
•EXPRESSED DUTIES are insured breaches any one of
these duties, the insurer
further terms or conditions may be entitled to repudiate
liability for the ensuing claim
in the contract that or decrease the amount
payable.
expressly oblige the • In most jurisdictions insurers
are only allowed to repudiate
claimant to do something or liability if they can prove that
they suffered a loss as a
not do something in the result of the breach of duty
by the claimant.
event of a loss which may • Unless the non-compliance
give rise to a claim. was deliberate or reckless,
they may only have the right
to reduce the amount of the
claim.
Understand the core principles of insurance 22
 To take all reasonable steps to
minimise the loss
Implied
duties
To advise the appropriate authorities
where relevant in the event of loss or
damage.

Not to hinder the insurer in the claims

investigation process

To assist the insurer with recovery

rights through subrogation,
contribution or salvage rights.

Understand the core principles of insurance 23

 To provide prompt notification CLAIMS
to the insurer in the event of loss PROCEDURE/DUTIES
or damage which may give rise OF THE INSURED
to a claim. CONDITION
Unless required specifically in
Express duties writing verbal notification is These duties are not
sufficient. implied in the contract
and the insurer
therefore includes
To provide written evidence and
details of the loss within a certain such duties as
time. conditions precedent
This is normally by means of a to liability in the
claim form and relevant policy.
documents. If the loss is complex,
a loss adjuster will be appointed.

To forward promptly, to the

insurers, any claims from third
parties or summons (being called)
at a fatal injury enquiry.

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5. INSURER’S DUTIES

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 999 999 999 999
All the followings are functions of the claims
A B C D
department EXCEPT

A. to settle the claim quickly and fairly.

B. to identify signs of potential fraud in claims.
C. to assess the ultimate claims cost and set a
reserve.
D. to minimize payment to the insured as much as
possible.

000 030
Understand the core principles of insurance 26
 Give examples of the insurer’s duties Insurer’s
Think duty to validate the claim
The insurer has a
cover was in force at the time of the loss;
Insurer’s duty to the peril causing the loss is covered by the
duty to provide a
fair and efficient
validate the policy; claims service to
claim no exclusions apply; the claimant.
the nature of loss is not excluded; However, it also has
the claimant is the person entitled to indemnity a duty to its other
under the policy; policyholders (and
The claimant has taken reasonable steps to shareholders, if
minimise the loss (mitigation); appropriate), to
all policy conditions and warranties have been ensure that all
complied with; claims' payments
from the insurance
the principle of Good Faith has been complied
pool are fair.
with;
the amount claimed is reasonable and
validated.
Understand the core principles of insurance 27
6. EFFECT OF GOOD FAITH ON BOTH PARTIES
UNDER UAE LAW

Understand the core principles of insurance 28

 • Asymmetric Information: one party
has more or better decision-making
The nature of information than the other. UTMOST GOOD FAITH
(UBERRIMAE FIDES)
an insurance • With few exceptions, the proposer is In insurance Contracts,
contract regarded as the main supplier of the principle of Good
material facts. Faith is often described
as one of Utmost
• Neither party must misrepresent or Good Faith.
conceal facts to induce the other party This means that the
parties must not only
to enter into the contract of insurance. not be honest and not
• UGF imposes two duties on both make any
misrepresentation, but
parties to the contract: they also have a
–a duty not to make a misrepresentation positive duty,
when providing information to the other; voluntarily to
disclose, accurately
–a duty to voluntarily disclose all material and fully, all material
facts relating to the risk and to the contract. facts to the risk
whether requested or
not.

Understand the core principles of insurance 29

 1. Which is FALSE? A material fact is something that
will affect the judgement of a prudent insurer in

999 999 999 999

A. setting the terms on which the risk will be
accepted.
B. deciding whether to write the class of insurance.
A B C D C. fixing the premium.
D. determining whether to accept a risk.
Answer : ##

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Understand the core principles of insurance 30
 •Objective test MATERIAL CIRCUMSTANCE
A circumstance or
–The fact must be one which a prudent representation is material
insurer would have wanted to know if it would influence the
Material about and not the underwriter
judgement of a prudent
insurer in determining
Circumstances concerned in a particular case. whether to take the risk
and, if so, on what terms.
•Two tests Insurance Act 2015
(UK)
–Whether to accept the risk
–If yes, on what terms
•Accuracy
–“A material representation is
substantially correct if a prudent insurer
would not consider the difference
between what is represented and what
is actually correct to be material.”

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 •The UAE Civil Code article 246 (1) requires that all
UGF and and contracts in the UAE must be performed “in a
its manner consistent with the requirements of
good faith”.
application in
•Article 246 (2) goes on to add that it is implied in
UAE law
every contract that the parties must perform not only
what is expressly stated but also that which is
expected by the law, custom, and the nature of the
transaction.

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 Duty of Good Faith By the Insured
• AT INCEPTION UAE CIVIL CODE
–Under UAE Civil law, the duty of disclosure
starts when negotiations begin and ends UAE Civil Code Article 1032
when the contract is formed;
Statute Law • ON RENEWAL
Article 1032 of the UAE Civil
Code provides that an
–On the renewal of a policy, the duty of insured is obliged to
disclosure by the insured is revived for a pay the premium at the
short term (i.e. general insurance) business agreed time;
since this is effectively a new contract. disclose, at the time of
• THROUGHOUT THE PERIOD OF concluding the contract, all
INSURANCE (continuing requirement) information needed to be
known by the insurer to
–The insured is also obliged to notify the insurer enable it to estimate the risk
if a material circumstance has changed and for which it assumes liability;
leads to the risk being increased.
notify the insurer of whatever
–Sometimes policy wordings extend the duty occurs during the period of
to disclose any change or material the contract and which leads
circumstance in the risk to the insurers. In to the risk being increased.
this case the duty of disclosure is revived
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 • Examples of material circumstances MATERIAL FACT
–Special or unusual facts relating to the risk;
• the proposed insured member having been A circumstance or
Examples of diagnosed or received any treatment for certain representation is
illnesses and diseases. (Health Insurance)
Material Facts • Modifications in a vehicle making it more powerful
material if it would
influence the judgement
–any particular concerns which led the
of a prudent insurer in
applicant to seek insurance cover; for
example, determining whether to
• an applicant may feel certain symptoms and before
take the risk and, if so,
going for a diagnosis visits the insurance company on what terms.
to purchase PMI.
• A series of robberies in neighbouring properties
(home insurance)
–anything which the market generally agrees
that it is something that an insurer would want
to know about when considering the
application for insurance; for example,
• hereditary diseases is generally accepted to be
something that the insurer would want to know
about.
• Previous criminal convictions
Understand the core principles of insurance 34
 Give examples of facts that a proposer does
Think not need to disclose to the insurer
Facts of law
Facts that a
proposer does Facts of public knowledge
not need to
disclose Facts which lessen the risk

Facts where the insurer has waived information

Facts that a survey should have revealed

Facts that the insured does not know

Facts covered by policy terms.

Understand the core principles of insurance 35

 •The duty of good faith by the insurer
is laid out in the regulations of the
Duty of Good Insurance Authority. (See box) Board Resolution No.
3 of 2010 of the
Faith of the •Article 3, clause 2 of the Board Federal Insurance
Insurer Resolution requires an insurer to Authority entitled
Instructions
conduct its business in accordance Concerning the Code
of Conduct and Ethics
with the principle of utmost good to be Observed by
faith. Insurance Companies
Operating in the UAE
•An insurer is also required to deal
with customers and the insurance
market with full disclosure and
transparency particularly in all
documents, advertisements and
statements that it issues.
Understand the core principles of insurance 36
 Give examples of facts that a proposer does
Think not need to disclose to the insurer
The insurer must provide proper information to the customer about its products and how they
Insurer’s duty of match the customer’s needs to enable the customer to make an informed decision.

Utmost Good The insurer drafts all pre-sale material and policy wording. Therefore it must ensure that such material is
Faith clear, intelligible and easily understood by the audience for whom the product is intended.

Terms and conditions which restrict cover and/or reduce payment of claims must be transparent and
highlighted to the applicant when providing a quotation.

The insurer must ensure that the Insured receives clear instructions to protect their rights under the policy
and comply with the requirements to make a claim.

The Insurer must make sure to avoid misleading advertising, misrepresentation by the persons selling the
policy, and the giving of advice by staff who do not have the necessary skill and knowledge to deal with
health insurance.

The Insurer must not act unreasonably when dealing with claims leading to a decision not to pay a claim or in
an unnecessary delay in the payment of the claim.

The insurer must not engage in so called post-claim underwriting.

Understand the core principles of insurance 37

 • ARTICLE 6 OF IA BOARD RESOLUTION NO 3
• When designing the insurance application form, the insurer
must observe the following:
Requirement –questions shall be drafted in a clear and understandable language.
for proposal –to include questions relating material facts that are particularly
important for the Company in accepting the insurance cover of the risk,
form in setting the terms and conditions related to the cover or in pricing.
–warning regarding the legal consequences and effects on the Insured
rights as a result of not providing the information or providing false,
inaccurate and untrue information.
–Information may not be incorporated in the application form by any
employees of the insurance company.
–The form shall further contain a statement indicating that the provided
information has been inserted by or to the knowledge of the applicant
and that the signature affixed thereon is the signature of the applicant or
his legal representative.
–The form shall incorporate a recommendation to the applicant to keep
the documents and his/her correspondence with the Company.
–The Company shall provide the applicant with a copy of submitted
insurance application to keep it.

Understand the core principles of insurance 38

CONSEQUENCES OF BREACH OF GOOD FAITH
BY THE INSURED BY THE INSURER
• ARTICLE 1033 OF THE UAE CIVIL CODE • Article 1028 (1.c) of the Civil Code
gives the right to an insurer to apply to declares void any printed clause not
the courts to rescind the contract of shown conspicuously “…if it relates to
insurance if there is misrepresentation or any circumstance that may lead to
avoidance of the lapse of the right of
non-disclosure of material facts. the assured.”
• If it is proven that the insured was acting • Under the Civil Code and IA Directive,
in bad faith then the insurer may keep the insurer is also obliged to exercise
the premium. good faith in paying claims (Civil Code,
• If bad faith is disproved, the insurer may Articles 246 and 1034, and IA
still apply to the courts to rescind the Directive, Article 2). Therefore, it may
be possible for the insured to claim
contract, but must return the premiums damages from the insurer for breach of
paid by the insured or charge pro-rata this duty of good faith when adjusting
premium if the contract is terminated and settling claims.
mid-term. • An Insured may also rescind a contract
• Rescinding the contract has the effect of insurance and claim a refund of
that any claims paid by the insurer would premium if the insurer has breached its
have to be refunded by the insured to the duty of good faith.
insurer.
3
Understand the core principles of insurance
9
7. APPLICATION OF INDEMNITY FOR DIFFERENT
TYPES OF CONSUMER CLAIMS

Understand the core principles of insurance 40

 •The concept of indemnity implies
that the object of insurance is to
Definition of provide exact financial
Indemnity compensation for the insured INDEMNITY
•The insured should not be over-
Financial
compensated and should not compensation
‘make a profit’ from their loss. sufficient to place the
insured in the same
financial position after
a loss as they
enjoyed immediately
before the loss
occurred.

Understand the core principles of insurance 41

 Application of the principle of Indemnity
How it • Assessment of value of the subject-matter insured immediately
before the loss

Works
• If the subject-matter is totally lost or destroyed, the insurer will assess its market
value immediately before the loss.
• If replaced with a new item, the insurers they are entitled to deduct a percentage
from the price of the new item to reflect the age, depreciation and fair wear and tear
of the lost item.
• Betterment and “deductions new for old”
• If the subject-matter is repaired, this would probably include new parts and
improvements. The insurers are entitled to make a deduction in respect of the new
parts from the claim settlement otherwise the Insured would receive new parts
which is more than indemnity. This is known as “Deductions New For Old”.
• Sometimes the Insured ended up with a better version of the subject-matter (e.g.
due to increase area, improved specifications etc.). In such cases the insurers are
entitled to deduct an amount for betterment from the final claim settlement having
regard to the value before and after the repairs.
• Rights of recovery
Once the insurers settle a claim, the insurers take over the insured’s rights to recover all
or part of the amount they paid from
• the sale of what’s left of the property (salvage)
• another party who was at fault and caused the damage, (subrogation)
• another policy that may cover the loss at the same time. (contribution)
Understand the core principles of insurance 42
 • There is no financial value that one can place on one’s life or
Benefits one’s continued freedom from disability therefore the
Policies - principal of indemnity cannot be applied.
Exception to • Therefore, life and personal accident policies are not
contracts of indemnity, but they are called benefits policies.
Principle of • Although insurers would assess a life insurance proposal on
Indemnity the financial requirements of the insured (e.g., to cover a
mortgage) one cannot say that the insured's life is worth that
much.
• Similarly, an insurer would only provide disability insurance
based on the occupation of the insured and the expected
income from such an occupation.

Understand the core principles of insurance 43

 Reimbursement
• Cash payment against proof of the amount of loss that the insured suffered.
Methods •
•
This may be through an actual receipt for costs or a valuation.
Claims are adjusted on pure indemnity basis
of • No obligation on the insured to repair or replace lost or damaged property.
• Cash is nor a preferred method of settlement in consumer lines because of risk
providing of fraud.

indemnity
Repair
• Insurers may take the option of contracting directly with approved or
recommended repairers to effect repairs.
• The insured will have to pay for “new for old” where new parts have been used or
“betterment” where the property has been made better than it was before the
loss.
• The insurers gain volume discounts, save on recycled parts and reduce fraud.

Direct Billing (Medical Insurance)

• By arranging direct bolling method, the insurer contracts with the healthcare
provider to provide the medical services that the insured requires.
• Similar to repair, the insurer benefits from lower prices, and reduced opportunity
of fraud against them
• The insured also benefits from improved customer experience.

Understand the core principles of insurance 44

 Replacement (New for Old)
• Insurers nominate retailers to replace lost or damaged property with new items
of similar specifications.
Methods • Commonly used in household, glass insurance. jewellery
of • Insurers gain volume discounts, reduce fraud and economical cost of dealing
with claims.
providing • Enhanced customer service.

indemnity
Reinstatement
• Mostly used for buildings in the case of home insurance.
• Insurers will contract with contractors and pay for rebuilding or repair.
• No deductions for using new parts or materials will be made.

Third Party Claims

• Although there is no legal or contractual relationship between the insurer and the
third party, the insurer undertakes to deal directly with the TP to settle their claim
against the insured.
• This ensures control of claims and claims costs
• Provides the Insured with customer service in dealing with TP.

Understand the core principles of insurance 45

Modification
of indemnity Modification of indemnity by policy wording
by policy
Sum Insured
wording
Average (under insurance)
Limit of Indemnity
Agreed Value
Inner Limits
Excess
New for Old

Understand the core principles of insurance 46

 Sum Insured
• A sum insured (SI) is used in policies covering property that can be valued, for
example motor vehicles, buildings, and personal effects.
• Since the insurers are providing indemnity, then it follows that they require the
insured to fix a sum insured that is equal to the value of the property at time
of loss.
• Insurance premiums are generally calculated on the sum insured which should
represent the actual value exposed to the risk. In this way, insurers collect the
equitable contribution that they need to make the insurance pool work.

If the sum insured is less than the actual value at risk, then
If the property is totally lost or destroyed the maximum the insurers will
pay is the sum insured and therefore the insured will suffer the
difference.
If the property is partially damaged, then the insurers will apply the
average condition to the amount of the loss.
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 Average Condition (under insurance)
If the Sum Insured is less than the actual value at risk at time of loss, then it is
only fair that the insurers reduce the claim by the same proportion.
In this case the insured would bear a proportion of the loss equivalent to
the proportion that the sum insured bears to the amount at risk.
This is known as the condition of Average. It states that the claim amount
shall be adjusted as follows:

Sum Insured
Amount Loss
Payable
Value of
property at
risk at time
of loss

Understand the core principles of insurance 48

 Limit of Indemnity
• A limit of indemnity (LOI) applies where the amount of the loss cannot be known
before it has actually occurred and therefore the insurers will limit the amount
they are prepared to pay.
• LOI mainly applies in liability policies where the compensation cannot be
assessed until after the loss occurred.

Examples of consumer policies where limits of indemnity apply

• Third party Liability in liability
• In some property policy extensions, since insurers are covering
expenses that can only be known after a loss has occurred (such as
debris removal) they will grant a limit of indemnity in respect of such
expenses.
• Medical Expenses Insurance
• Travel Insurance
Understand the core principles of insurance 49
 Agreed value
• Where the value of property is difficult to determine, such as antiques, works of
art, vintage cars etc., to avoid any dispute on the actual value of the item, it is
fixed and agreed at the start of the policy.
• The SI is then expressed as a percentage of the Agreed Value. (100% or less).
The Insured may be a co-insurer.
• If the property is totally lost or destroyed insurers will pay the Sum Insured.

• In the case of damage that can be repaired the insurers will

pay for such repairs up to the maximum of the Sum Insured.
• Agreed value policies also operate on priceless objects
where the indemnity is effectively limited by the amount of
relative premium that the insured is prepared to pay.

Understand the core principles of insurance 50

 Inner limits or item limits
• These are limits that apply to types of losses or expenses which are incidental
to the main event insured.
• For example, following damage to a building, the insured may incur the cost of
removing the debris from the site after the incident. Although this is not part of the
value of the building, such costs may be included and a specific limit of how much
the insurers will pay applies.
• The insured may receive less than he actually spends.
Examples of such limits are:
• Loss of use in case of motor vehicles
• Rent on damage to the home
• Home contents insurance
• Limit in respect of total value of valuable in contents
• Limit in respect of single articles of valuables

Understand the core principles of insurance 51

 New for Old Replacement
• Some insurers offer new for old settlement.
• This is common in household contents where the insurers will replace durable
goods such as Audio-visual equipment, appliances and furniture with new
items.
• The specifications of such items will be as close as possible to the lost or
damaged items. If better, the insured may have to make a contribution.

• New for old does not apply to consumer goods and soft
furnishings such as curtains, bed linen etc.
• Insurers usually offer new for old by replacement through
retailers with whom they contract in order to gain volume
discounts.
• Under new for old policies, the insurers are effectively giving
more than indemnity to the insured.
Understand the core principles of insurance 52
 Excess or Deductible
• An excess, or deductible is the first amount of each and every loss which an insurer
would not be liable.
• Insurers apply excesses mainly for three reasons:
–To eliminate frequent losses up to a certain amount.
–To avoid the expenses of dealing with small claims
–To make the insured bear a portion of the loss and thus avoid moral hazard.
• Sometimes the term deductible is used interchangeably. It means the same thing.
• An excess may be applied overall to any claim under the policy or it may also be
applied for damage caused by a specific peril. For example, water damage in
household insurance while the home is unoccupied.
Voluntary excess: The insured receives discount on premium for
agreeing to carry the excess.
Compulsory excess: Excess applied in motor insurance for young
drivers.
An excess is applied to the calculation of the claim after all other
allowances have been made such as deductions for betterment,
deductions for consumables and the application of average
Understand the core principles of insurance 53
Applying Excess, deductions “new for old” and Average
 Peter holds a household policy with a Sum Insured of
$50,000 and an excess of $200 each and every loss. The
policy was not on new for old basis.
 He suffered a fire in his kitchen. The cost of the new kitchen
furniture and appliances was $20,000.
 When the loss adjuster made an estimate of the entire
household contents he estimated it to be valued at
$100,000.
 He also found that the kitchen furniture and appliances were
5 years old and estimated that a deduction of 25% “new for
old” should be made.
 How much will Peter receive?

Understand the core principles of insurance 54

8. APPLICATION OF THE COROLLARIES OF
INDEMNITY.

Understand the core principles of insurance 55

 Subrogation
• Where the insurer provides indemnity, such insurer has the right to recover SUBROGATION
against a third party who loss or damage.
• Article 1030 of the Civil Code forbids insurers to subrogate against the responsible
The illegal right of
party if “the person who caused the loss was an ascendant or descendant of the
insurers, having
assured, or his spouse, or somebody living in one household with him, or a person indemnified an insured, to
for whose acts the assured is responsible.” take over the rights of the
inured for the purpose of
The distribution of amounts recovered from third parties claiming indemnity from a
will depend on the deductible, excess or uninsured loss responsible third party for
the insured person has borne. a loss that they have paid.
co-insurance share, insured are considered as having
been their own insurer for that proportion of the loss.
They are entitled to receive the same percentage of the
proceeds as they bore of the loss due to the co-
insurance.
deductible or a co-payment, the insurers will first receive
their full pay-out from the recovered amount. If there are
sufficient funds left, then the insured is entitled to such
balance.
Understand the core principles of insurance 56
 Contribution
ARTICLE 1042 OF THE Two or more policies of indemnity

UAE CIVIL CODE •The policies must be on an indemnity basis.

•If one of the policies is a life or a PA policy, there will not be contribution because these are not policies of
Article 1042 of the Civil Code also indemnity.
•E.G A person may be insured under more than one life insurance or personal accident policies. He/she will
makes it incumbent upon any receive the full benefit of all the policies.
person who insures property or an
interest with more than one Common Insurable Interest
insurer to notify all of them of the
The policies must cover the same insurable interest.
other contracts of insurance, the •E.g. Policy 1: A camera is insured under the All Risks personal Effects section of a household policy. Policy 2:
amount of each of them, and the A repair shop insures against loss or damage to customers’ goods in its custody or control.
names of the other insurers. •If the camera is taken to a shop for repairs it is covered under both policies.
•BUT, whilst the shop covers its legal responsibility for the loss, the All Risks policy only covers the interest of the
Failure to so would be tantamount owner of the camera.
to bad faith and the insurers may
avoid payment of the claim or the
whole policy. Common Peril

•The peril that causes the damage must be covered under both policies. It is not necessary that the two
policies are of the same type.
•E.g. Theft is insured under an All Risks policy as well as under a travel policy but the policies are not of the
same type

Both policies are liable for the loss

Some policies may contain exclusions or warranties.

E.g. A motor policy may cover personal effects stolen from a vehicle but only if kept in a locked boot.
If the camera is stolen from the passenger compartment while the vehicle is unattended, it would not be
covered. On the other hand it may be covered by the All Risks policy.
In this case, the motor policy cannot be called into contribution.
Understand the core principles of insurance 57
Salvage
• Sometimes, the insurers become the owners Salvage is the right of
because the insured abandons the property to ownership of property
them after they paid a claim for total loss. after the insurer has
• Insurers are usually reluctant to do so because indemnified the insured
there may be some responsibilities with for its totl loss.
ownership that they would not want. Therefore
they prefer to allow the insured to keep the
salvage and pay the difference.
• The important difference between salvage and
subrogation is that the latter comes from rights
against third parties whilst the former arises from
rights in the property itself.
• This means that they are allowed to keep any
money they receive from subsequently selling the
salvage.

Understand the core principles of insurance 58

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