Insurance is a contract between the insurer and the insured and as such is subject to numerous terms and conditions as contained in the policy wording. Beyond this contract there are a number of accepted principles and practices that determine how the insurer should respond to the insured and vice versa. In this blog, we examine some of these principles and how they are defined within the insurance industry.
The principle requires a person effecting insurance to have a legally recognized relationship to the subject matter of the insurance. Insurable interest is the legally recognized relationship between the insured and the financial loss that he suffers following a loss. You can insure only those things with which you have a legally recognized financial relationship.
Legally recognized relationships are:
- Owners and joint owners of property
- Baileys (those who legally hold other people’s property)
- Executors and trustee who can insure the property for which they are legally liable
- Marriage (husbands or wives have unlimited insurable interest in each other’s lives)
In terms of the above, for a person to insure property there must be a legally recognized relationship between them and the property to be insured. In other words, Joe Bloggs cannot take out an insurance policy on his next door neighbour’s house and then expect compensation from the policy when the building suffers an insurable financial loss.
In the context of sectional title, a tenant is not the owner of the property and therefore cannot expect the property insurance policy to compensate him when a claim for building damage is paid out. Compensation will always be made to the insured. Similarly, a member of the body corporate can only claim for compensation for damage to his section. Compensation for damage to common property is paid to the body corporate.
It is important to note that while the members of the body corporate own their section and an undivided share in the common property, the sectional title property insurance policy will be issued in the name of the body corporate. As such, when any claim is paid out, payment will almost always be made to the body corporate account and then by the body corporate to the relevant unit owner where necessary.
Author: Bruce Gibson
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