Insurance Helpline | Reduced claim not always an unfair decision

Question:

I own a 2007 Honda CRV. It is comprehensively insured. Unfortunately, I was involved in an accident two weeks ago in which it was damaged. I took it to my repairer, who prepared an estimate for $300,000, which was sent to the insurers. The loss adjuster reduced the labour charges and recommended the use of second-hand parts. As a result, the total cost of repairs was reduced to nearly $200,000. The adjuster's actions seem arbitrary and unfair. Is there anything that I can do to ensure that new parts are used to repair the vehicle?

- M.B., Kingston 10.

INSURANCE HELPLINE:

As a youngster, growing up in the traditions of the Christian faith, I was urged to study the Bible. The lessons took place mainly at the church my family attended at least four times each Sunday - at morning and night service, at Sunday school, and at post-night service family prayers in my home; at Wednesday night prayer meetings; and finally, at Friday night youth fellowship, also at the church.

If this was not enough, I also enrolled in a Seventh-day Adventist Bible correspondence course. Perhaps these lessons influenced me to study the gospels of Mark and Luke and the Acts of Apostle at the church-affiliated high school that I attended, and, much later in life, may have indirectly contributed to the mission of this column.

The Bible provides for Christians insights into the meaning of life and describes the responsibility that human beings have to their Creator and to their neighbours.

Insurance contracts define the nature of the relationship between buyers and insurers. Much in the same way that Christians and members of other religions refer to their holy books for spiritual guidance, a question like yours cannot be properly answered without reference to the contract of insurance between you and your insurer.

A typical comprehensive motor policy provides an insurer with three settlement options in the event of a claim. They are as follows:

1. Pay for the vehicle to be repaired; or

2. Replace the vehicle if it is lost, stolen, or damaged beyond economic repair; or

3. Pay an amount in cash equivalent to the value of any loss of or damage to the vehicle.

These choices are quite straightforward. Problems typically arise when decisions are made about how much is paid in a particular case.

Here is what one policy actually says:

"The most we (the insurer) will pay will be the lower of

1. the market value of the vehicle; or

2. the amount you insured your vehicle for.

"We will not pay the cost of any repair or replacement that improves your vehicle beyond the condition it was in before the loss or damage occurred."

Insurance students would say this is consistent with the principle of indemnity, putting the policyholder back in the same position he/she would have been had the loss not occurred. Would the fitting of brand-new parts to a 2007 model vehicle be inconsistent with that general rule? Alternatively, if the insurer were to agree to replace the damaged parts with new ones and asked you to pay, say 30-40 per cent of those costs, would you find that approach more acceptable?

The settlement provision continues: "If the loss or damage to your vehicle necessitates the supply of a part not obtainable in Jamaica or we exercise our option to pay in cash the amount payable in respect of any such part, the maximum we will pay will be the price quoted in the last catalogue or list price in Jamaica. If no such catalogue or list price exists, we will pay the price last obtained from the manufacturer plus the reasonable cost of transport other than by air to Jamaica and the amount of import duty and tax and the reasonable cost of fitting such part."

Do these general rules seem unfair and arbitrary?

Loss adjusters are independent professionals paid by insurers. One of their jobs is to find out if the claim was valid. Another is to examine of the claim and determine, based on their experience whether the amount of the claim is exaggerated. Repairers in Jamaica use different pricing methods depending on whether the repairs are being funded by a private individual or an insurance company.

Given my immersion for many in the spiritual traditions of what was described then as a 'born-again church,' plus the knowledge that I have acquired about the principles of insurance, I would find it very difficult to conclude that the actions of your insurer were unfair or arbitrary.

- Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com