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Accidental damage and under insurance

The importance of insuring at proper replacement values was again emphasized by an event that took place recently. A handy man, employed by the body corporate, was given the task of painting the walls and ceiling of the squash court. The laminated floor of the court was replaced some days before the painting task was requested. Despite taking the necessary precautions with the erection of the scaffolding to perform the work, the handyman lost his balance when painting the ceiling and fell to the ground, taking two full tins of paint as well as other tools with him, badly damaging the new wooden floor.

The repair costs were quoted at around R92 000. The claim was submitted to the insurers in terms of the Accidental Damage section of the policy which afforded cover on a first loss basis of R 250 000. The insurers appointed a loss adjuster to adjust the claim. When the loss adjuster arrived at the premises it was clear to him that the building, including the common property, was under-insured and he called for a valuation of the property. The result was that the property was under insured by some 40%.  The insurers accepted that the entire property was under insured and that the average clause on the policy should apply to every section, including the common property, individually, unless proven otherwise and that the claim should be settled subject to the average clause. Were the insurers correct in their decision?

The trustees argued that the cover was for any accidental damage “up to an amount of R 250 000” and that the sum insured in terms of the buildings section should not have an effect on the cover under the Accidental Damage section of the policy. What the trustees did not realize was that this section of the policy also contains the average clause which states that if the property is under insured in terms of the building section of the policy, the average clause shall apply to the Accidental Damage section of the policy as well: “…the insured shall bear a ratable share of the first loss sum insured accordingly”; therefore, only 60% of the damage (up to R250 000) was authorized by the insurers for this claim.

It is therefore clear that under insurance can also affect other sections of the policy and it remains absolutely crucial that trustees must ensure that property are insured at full replacement values.


Author Rian Pienaaar

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