CHAPTER 12

FACTORS AFFECTING THE ADMISSIBILITY OF THE CLAIM

However small the quantum of loss, it is necessary that the admissibility of the claim is established and confirmed
first before the surveyor proceeds to assess the extent of liability. The surveyor must make sufficient investigation
of facts and circumstances relating to a loss to determine whether the insurer is liable under the policy. His
investigation must cover the question of liability at the time of loss, and the question of the insured's compliance
with the policy requirements in case of loss.
Factors affecting the admissibility of the claim:
The issues that a surveyor needs to examine, for confirmation of admissibility of the claim can broadly be
grouped as follows:
1. Verification of policy contents / intended coverage,
2. Verification of multiple coverage by different policies,
3. Insurable interest,
4. Proximate cause of loss,
5. Operation of exclusions,
6. Examination of warranties,
Examination of policy contents:
This part of examination of the policy focusses on finding answers during inspection of the losses at the place of
occurrence to simple questions like "Who" is covered? "What" is covered? "Where" is it located? Whether the
loss reported has taken place during the "period of cover"? The answers to these fundamental questions are
compared to the details furnished in the policy. Generally, though the insured also would have verified these
details prior to his serving the notice of loss, in rare occasions differences do crop up and therefore the surveyor
has to ascertain factual details.
A few typical cases encountered in practical survey work are given, to highlight the need for closer examination of
the issues involved.
i) In a fire policy, the name of the insured manufacturing unit was matching with the one found at the premises
but the locational address was entirely different.
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fi) The serial number of a laptop computer covered under special contingency policy for which a claim was
preferred did not find a mention in the policy. ili) The machinery policy described the equipment as "electrical
motor" below
50 HP, with no identification details furnished in the schedule of the policy.
The insured has 6 electric motors of ratings below 50 hp in operation out of which 1 had developed fault in its
windings.
iv) Damage to the consignment covered by Inland transit (rail / road) policy was observed and intimated after 3
months of discharge, whereas, under normal circumstances, the policy expires after 7 days of discharge.
v) Description of stock covered by the fire policy specifically mentioned the coverage for raw materials, work in
process and finished goods only, but the damaged items were packing material like cartons, cardboard boxes
etc. vi) Garment manufacturing was carried out in a block of building within the premises of Pharmaceuticals
Company, covered by the fire policy. The damage was confined only to the stocks of stitched garments in the
said block, calling for detailed examination of agreed nature of occupancy.
The variety and nature of anomalies that a surveyor would come across with regard to the details in the policy
and his observations during the inspection are varied and too many to be enumerated. In all such cases the
surveyor has to verify the details with the insurer, preferably by comparing the details furnished by the insured in
the proposal form. It is quite likely that in some cases the observed variations in details may be due to inadvertent
typing mistake, or in some cases the mistake may be failure of the insured to intimate the changes (like locational
change after the issue of the policy from the one stated) for issue of necessary endorsements.
The issue becomes serious, in cases of concealment and misrepresentation.
Concealment is always intentional while misrepresentations may be innocent and result of mistake. Insurance
may be obtained by concealing a material fact on hazards, location, description and ownership, mainly to save
premium or to induce the insurer to underwrite a risk which otherwise would be refused.
Technically, any differences noticed would vitiate the claim, but the surveyor should restrict himself to bring the
noticed anomalies to the insurer's notice. In some cases the insurer may decide if the case merits repudiation of
the claim, it may do so, and in some cases the claim is settled for lower amount as "ex-gratia" payment
depending on the business exigencies, and nature of anomalies observed.
Case settled on low amount Ex Garit9
Verification of multiple policies:
This verification is carried out to decide the appropriate coverage under respective policies, and thereby ascertain
the individual insurer's liability under
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each of the policies in force at the time of loss, rather than to decide the admissibility of the claim. The surveyor
should enquire from the insured the existence of any other policies covering the same subject matter which is
reported lost / damaged. This knowledge is useful in dealing with a claim involving the common subject matter
covered by the fire, marine and engineering policies, or by different insurers.
The relevant clause in the Standard Fire policy states that,
"this insurance does
not cover any loss or damage to property which, at the time of happening of such loss or damage, is insured by
or would, but for the existence of this policy, be insured by any marine policy or policies except in respect of any
excess beyond the amount which would have been payable under the marine policy or policies had this
insurance not been effected". Thus in cases where both the marine and fire policies cover the affected item, the
loss is first apportioned under marine policy to the extent of the sum insured under the policy and only the
balance, can be passed onto the fire policy liability.
Similarly the relevant clause in the engineering policy states that,
"If at any time
any claim arises under this policy there is any other insurance covering the same loss, damage or liability, the
company shall not be liable to pay or contribute more than its rateable proportion of such loss, damage or
liability". This issue is pertinent and significant if the affected item is covered by two policies issued by different
insurers, and if two separate surveyors are representing each of the insurer.
In view of such restrictive nature of clauses inserted in the policies, it is necessary for the surveyor to list out all
policies covering the loss, if such multiplicity exists, and familiarize with all details for taking appropriate decision
on the insurer's liability, for whom the surveyor is representing.
Insurable Interest:
cover such properties / assets by insurance. The competency of a person / corporate to effect a contract of
insurance is determined by (i) his legal capacity to contract and ii) insurable interest in the subject matter of
insurance.
Therefore, who can insure and who are entitled to receive claims are questions, very relevant to claims
settlement. Absolute owners, trustees holding legal interests, executors, administrators, receivers in bankruptcy,
banks and financial institutions granting loans on property, etc. are entitled to insure the subject.
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Generally speaking, insurable interest must exist during the currency of the policy, but in the case of marine
cargo policy, the insurable interest must exist at the time of loss. It is also worth noting that the transfer of
insurable interest (as in sale of goods, plant and machinery of a manufacturing unit etc.,) does not automatically
effect transfer of the policy to the transferee, as the insurance contract is personal in nature.
The following 2 cases would reveal the implications of the necessity of examining the insurable interest of the
insured, before admitting the claim:
1. A claim was preferred by the insured under the fire policy for substantial damage inflicted on the
building, especially on the front glass curtain wall, by the anti-social elements participating in a Bandh.
Though the damages are admissible under normal circumstances, malicious damages being covered by
the policy, on perusal of insurable interest of the insured in the building, it was found out that he was
only a tenant and on examination of the lease agreement it was confirmed that he was not liable to
make good any losses to the owner of the building who had taken a fire policy separately with another
insurer.
2. In another claim, under marine policy, the insured had taken a specific voyage policy for export of a
consignment of polished granite slabs and a claim was preferred for damages. On examination of all the
shipping documents, particularly contract of sale, it was confirmed that the slabs for export were
purchased from a third party on "Free on Board" (F.O.B.) basis, by the insured who had preferred a
claim under the policy and the damage had occurred en route to port of loading, due to the overturning
of the vehicle. Thus the damage having occurred prior to passing of the insurable interest from the third
party to the insured, in conformity with terms of sale, the insured had no insurable interest on the
consignment damaged, at the time of loss.
Proximate cause of loss:
The set of general insurance policies, for the purpose of ascertaining the admissibility of the claim based on the
proximate cause of loss, can broadly be grouped under the two following heads:
"All Risk" policies and
11)
"Named Risk" policies
Most Engineering policies (C.A.R., E.A.R. etc.), Marine I.C.C. "A" and All Risk on Jewellery etc. under
Miscellaneous class of insurances come under the first group and Standard Fire and Special Perils Policy, Motor,
Marine I.C.C. "B" and "C" and
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many policies under miscellaneous group fall under the second group. This is only a categorical classification for
cursory examination to determine the admissibility of claim, but a final decision on admissibility of the claim can
only be taken by referring to the conditions in fine print of the respective policy only and in consultation with the
insurer.
As a thumb rule, for an early formation of opinion for giving the feedback to the insurers, the admissibility of the
claim is decided by examining the following
i) In case of the "all risk" policies, the focus is to find out whether any of the exceptions stated in the policy has
come into operation, and has a bearing on the cause of loss. Thus the surveyor's efforts should be directed to
analyse the reported occurrence, against his observed facts on the occurrence, taking each of the stated
exception in the policy or endorsements thereon, for analysis one by one. If none of the exceptions is found
applicable for the reported occurrence it can reasonably be confirmed that the reported loss / damage is
admissible under the "all risks" policy.
ii) In case of the named perils policy, the focus is to analyse which of the named perils has caused the reported
loss / damage. If the reported loss is reasonably attributed to any of the named perils, (subject to exclusions /
exceptions stated in the policy or endorsements thereon) the reported loss / damage can be considered
admissible under the policy.
(Note: The exclusions under different types of policies have been mentioned in chapters 3 to 6; The rationale of
the exclusions has been explained in chapter 12)
A few practical examples, presented below, would prove the usefulness of the analysis suggested above:
i) Marine I.C.C. "A" is an "all risks" policy, and so far as external damages to the cargo is visible, the claim is
indemnifiable, unless there is reason to believe, that visible damage is attributed to any of the exclusions stated
in the policy, like inadequacy of packing, or inherent vice etc. The question of adequacy of packing is generally
decided with reference to the customary practice of packing, strong enough to withstand normal handling in
transit / transshipment. Insured had preferred a claim for damages to sensitive sinter bushes imported from
Japan. During the survey, it was observed that 20 bushes each weighing about 6 kgs. were packed loose in a 3
ply corrugated carton without any further primary packing or separators within the external carton. The external
carton was found torn and the sintered surfaces, of all the bushes (which was to act as a journal bearing) had a
lot of abrasion marks, caused by the rubbing and relative impact of the bushes in transit. In all
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probability due to the tearing of the external carton, a few bushes would have fallen to the ground also, which
appeared repacked. The damages, in this case is reasonably attributed to inadequacy of packing, which is an
exclusion in the policy.
ii) Similarly under Storage cum Erection policy, the main generator shaft of a hydropower station was stored on
receipt at the site of erection. For some reason the erection of the said shaft got delayed. When the shaft was
finally shifted to the place of erection, on closer examination, the part of the shaft where the journal bearings were
to be fitted, was found comprehensively rusted. Analysis of the exclusion of the policy revealed that "damages
attributable to gradual deterioration due to atmospheric conditions, rusting" is not admissible.
111) Marine (Inland Transit) "g" is a named peril policy and the following case would confirm the need to analyse
the cause of damage vis-à-vis, the list of perils in the policy. The insured had preferred a claim for damages to
household articles covered by Marine Inland Transit (Rail / Road) Clause "p" policy. The cover is restrictive in
nature and claim is admissible only if the damage is attributed to any of the following perils named in the policy -
Fire, Lightning, Breakage of Bridges, and Collision with or by the carrying vehicle, overturning of the carrying
vehicle or derailment or accidents of such nature to the carrying vehicle. The insured confirmed that the vehicle
had not met with any accident like overturning and collision etc., and hence it could reasonably by concluded that
the damages are not caused by the perils named in the policy, but in all probability due to bad packing and
negligent driving of the vehicle in rainy season.
Apart from the analysis of cause of loss, in cases of marine losses / damages, it is necessary to find the point of
origin of the damage. This is necessary to determine admissibility of the claim, which is dependent on whether
the damage occurred prior to loading, in stowage, or subsequent to discharge, in conformity with the "duration"
clause of the concerned policy.
As a general guideline to the surveyor, list of the most common types of causes, responsible for losses /
damages frequently encountered during surveys is given in Annexure I to this chapter.
Operation of Exclusions:
This area of examination of the reported loss / occurrence really calls for expertise, and the technical competency
of the surveyor would be put to test in cases, where the losses reported are high and losses / damages have
taken place under mysterious circumstances. The exclusions are typical "fine print"
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conditions of the policies, interpretation of which does require knowledge and experience of handling wide variety
of losses.
Before going into the technicalities of the "expected perils / exclusions and their implications",
, the surveyor should appreciate that the cardinal principle of
viewing a loss / damage is to confirm whether the reported loss or damages are attributed to "accidental or
fortuitous cause". In so far as property damages are concerned, loss which is certain to occur involves no "risk".
For example, property will inevitably wear out, deteriorate or if perishable will rot, sour and spoil. Depending on its
known inherent nature it may in some way change and become valueless, and such losses / damages are non-
admissible. Indeed, such losses are uninsurable. The purpose of the policy is to secure indemnity against
accidents which may happen and not against events which must happen, or which have been deliberately
brought about.
Each policy specifically lays down a list of exclusions, in some cases they are given under two separate heads -
general and special. In some policies while naming the perils covered, related exclusions are expressed
alongside, like in fire policies though "fire" is the peril named in the policy, damages caused by spontaneous
combustion and damages caused during any property undergoing heating or drying process are specifically
excluded. Surveyor, therefore has to carefully study these exclusions to understand their applicability.
A few exclusions commonly encountered are repeated below:
Standard Fire and Special Perils Policy:
i) Loss or Damage caused by its own fermentation, natural heating or spontaneous combustion, or during its
undergoing any heating or drying
ii) Damage to any electrical and / or electronic machine, apparatus, fixture or fitting (excluding fans and electric
wiring in dwelling) arising from or occasioned by over-running, excessive pressure, short circuiting, arcing, self-
heating or leakage of electricity from whatever clause (lightning included) is excluded. However there is a proviso
in the exception which reads: "provided that this exclusion shall apply only to the particular electrical machine,
apparatus, fixture or fitting so affected and not to other machines, apparatus, fixtures or fittings which may be
destroyed or damaged by fire so set up."
Thus the exclusion applies to the particular machine and resulting fire damage to other machines, is payable.
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Marine Cargo Policies:
1) Damages / shortages caused by ordinary leakage, ordinary loss in weight (say by evaporation in transit during
vessel's voyage in tropical regions) or volume.
11) Loss caused by inherent vice or nature of the subject matter. fIi) Loss, damage caused by insufficiency or
unsuitability of packing or
preparation of the subject matter insured.
Machinery Insurance Policy:
1) Deterioration of or wearing away or wearing out of any part of any machine caused by or naturally resulting
from normal use or exposure.
ii) Loss, damage and / or liability due to faults or defects existing at the time of commencement of the policy and
known to the insured but not disclosed to the insurer.
111) Loss or damage for which the manufacturer or supplier or repairer of the property is responsible either by
law or contract. iv) Loss or damage to exchangeable tools (like
dies, cutting tools unless
specifically covered), operating media (like refrigerant, lubricating oil), nonmetallic parts (like belts, ropes, rubber
tyres) and such other parts.
Electronic Equipment Policy:
i) Loss or damage to property covered under the terms of the maintenance agreement.
ii) Loss, damage caused by any faults or defects existing at the time of
commencement of the policy.
111) Loss or damage as a direct consequence of the continual influence of operation (say by wear and tear,
corrosion) or of gradual deterioration due to atmospheric conditions.
iv) Loss or damage to bulbs, valves, tubes, fuses, seals, exchangeable tools etc.
Motor Policy:
1) Any accidental loss or damage suffered whilst the insured or any person driving with the knowledge and
consent of the insured is under the influence of intoxicating liquor or drugs.
ii) Accidental loss or damage caused while the car is being used otherwise than in accordance with the limitations
as to use or being driven by any person other than a driver as stated in the driver's clause.
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Burglary Policy:
1) Loss of money and / or other property abstracted from safe following the use of the key to the said safe or any
duplicate thereof belonging to the insured, unless such key has been obtained by assault or violence or any
threat thereof. i1) Losses occurring when the premises are left uninhabited for more than 7
consecutive days and nights.
Examination of Warranties
A warranty is an undertaking by the insured that;
1. a particular thing shall be done or shall not be done,
2. that a condition shall be fulfilled or
3. whereby he affirms or negates the existence of a particular state of acts.
A warranty is a condition and unless it is complied with there is no liability for the loss. It is particularly immaterial
for what purpose a warranty is introduced, but being introduced, liability does not exist unless it is literally
complied with.
A breach of warranty, therefore enables the insurer to avoid a claim, whether or not the breach has any
connection with the loss or increases the risk. Such being the implication of breach of warranty, the surveyor
should carefully go through the stated warranties in the policy and confirm whether any breach has been
committed by the insured as evident from the facts gathered during the survey.
Any breach will affect the admissibility of the claim.
Express warranties may be stated in terms of nature of occupancy (no inflammable material having flash point
below 32 degrees centigrade should be stored in the warehouse), end use of the premises (like the premises to
be used as shop only and no manufacturing activities should be carried out), condition of packing (warranted to
be packed in new double gunny bags), etc.
Recommending non-admissibility of the reported claim is one of the most difficult tasks of a surveyor. He should
be fully equipped with all facts and evidences, and should be sure of his inferences, before any comment on
admissibility of the claim is made. It is not out of place to say that settlement of claim is easier than repudiating a
claim by the insurer. But if the surveyor is on strong grounds with regard to his conclusions based on facts and
evidences, he should not hesitate to intimate no admissibility of the claim. It is also to be realised by the surveyor
that he is only a recommending intermediary, and any final decision on settlement or repudiation of the claim is
the responsibility of the insurer.
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