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Insurance claim settlement – cash or reinstatement?

When you submit an insurance claim, you are normally required to submit a claim form with a couple of quotes and reports in support of the claim. A claim form is submitted to the insurer together with supporting documentation so that the insurer can properly assess the claim and if reasonable in its content, settle the claim based on the information provided.  Usually, two quotations and a report from the contractor or expert as to the amount of loss (cost to reinstate) and cause of the damage. If the claim is larger and it is financially worthwhile for the insurer, they will appoint a loss adjuster to see whether the claim costs can be reduced and adjust the claim.

In layman’s terms, the insurer needs to see the quotes and report. If reasonable, the insurer might settle without incurring the additional cost of a loss adjuster or claims assessor.

As it is widely known, insurance is defined by certain principles of insurance, one of which is The Principle of Indemnity: The insured is placed back into the same financial position as they were before the loss or damage occurred. The insurer (the insurance company) is obligated to put the insured (the community scheme) back in the same financial position they were before the incident.

In other words, make sure that the body corporate or HOA are put back the way they were at least in monetary terms.

The contract of insurance usually stipulates that the insurer may, at their discretion:

  1. Rebuild, replace, restore or repair the damage
  2. Settle in cash
  3. Any combination of 1 and 2

In terms of the contract, the insurer will decide on whether the insurer will appoint a contractor to do the repair, whether to pay cash in lieu of repairs or a combination of cash and repairs.

The appointed loss adjuster will often appoint their preferred and trusted contractor, one whose workmanship is known by the insurer and takes responsibility for the workmanship. This will often occur despite the owner choosing their own contractor or obtaining quotes from two contactors. Everybody desires a happy outcome, therefore the loss adjuster will often negotiate with the owner and allow the owner to choose their own contractor. However, then with the responsibility and extra costs are for the account of the owner. The insurer can also insist on settling in cash where it may suit them, especially partially for specific finishes.

Remember, all cash settlements should be settled to the body corporate’s bank account. For more information, read our recent blog article: Settling of Claims – sectional title environment.

Paddocks press article on Dealing with Claims more generally.


Author: Mike Addison

Contact Addsure – The Leaders in Sectional Title Insurance – to get fit and proper advice from advisors who understand sectional title. Contact us in Johannesburg on (011) 704-3858; in Durban on (031) 459-1795 and in Cape Town on (021) 551-5069