INSURED VALUE VERSUS MARKET VALUE
In some instances there are situations where the insured value will not be the market value. There are two (2) scenarios which can occur in this type of instance:
1. Where the market value is less than the insured value.
In this regard the amount that is able to be claimed by any insured is the actual loss suffered by the insured arising as a result of the incident. This actual loss is represented by, for example in the case of motor vehicles, the market value of a motor vehicle.
In that instance it is not possible to recover an insured value where it exceeds the market value, it is only possible to recover the market value of the vehicle as determined by an expert, namely an assessor.
It would also be available to recover any further or incidental loss including loss of equipment, towing or other loss attributable to the incident.
2. The second type of scenario is where the market value exceeds the insured value.
In that instance the proceedings should be properly commenced in the amount of the market value.
To commence proceedings in the insured value would then give the insured an opportunity to recover against you the following:
1. the loss on ability to recover the difference between insured value and market value;
2. any costs incurred by the insured.
The reason that the insured is entitled to recover these amounts is as a result of the following:
a. when an action is commenced the action is usually commenced for the recovery of all loss or damage arising as a result of an incident.
Failure to incorporate a level of damage in that action when you are recovering all loss and damage arising as a result of an incident would then entitle the defendant to claim an issue estoppel arising as a result of that action.
This would mean that the insured or any other party would not be able to recover the amounts that have not been incorporated in the proceeding. This would apply whether the proceeding was by way of claim or counterclaim.
Accordingly, as the insured or other party is not able to recover the difference between market value and insured value the insured would then look to yourselves as the insurer and the instigator of the action for recovery. The basis that the insured or other party would be entitled to recover against you would be that you as insurer in subrogating the rights of the insured in the action, you had an obligation or duty to ensure that you recovered all loss and damage and that you did not prevent the insured from recovering any loss or damage which was not covered under the policy of insurance. Whilst this principle may be set out in the contract of insurance the Insurance Contracts Act prevents you from contracting out of your obligations.
The extra or uninsured loss could relate to a difference between market value and insured value, hire car costs, loss or goods which were uninsured or other types of damage which were not insured.
It is of course essential that notification be given by the insured as to this extra loss. In this regard you would be exonerated from your duty or obligation if notification was not given to you as to this extra loss. The insured would be available to give you these details at the time of making a claim or during the course of any action which the insured would be required to attend.
Accordingly, if notification is given by the insured then your duty will arise. If notification is not given then your duty cannot arise.
This principle will apply in the cases of proceedings which have issued or if a Release or Discharge is signed for an insured value and not a market value. In this regard it is essential that if a Release is signed that it incorporate all amounts which have been lost by the insured. Alternatively, the Release could apply to only yourselves as the insurance company and not relate to any other damage suffered by the insured. Accordingly, it would be necessary to reword the Discharge so that it relates only to the insurance policy and the loss suffered by you as insurer and not to the insured’s loss or damage.
Care should be taken when signing a Discharge to ensure that all loss and damage is covered. It is also on this principle that in any Discharge it is essential that only the action which is being recovered be referred to in the Release. Accordingly, if it is only for property damage then it is essential that those terms be spelt out. If the Release is not amended to relate only to property damage then you are then preventing the insured from recovering an action for personal injury or damage to person. This would then entitle the insured to take action against you for preventing the insured from being able to recover for personal injury.
Steps to Take
Accordingly, in instances where the insured value is less than the market value care should be taken when undertaking proceedings or instructing solicitors to ensure that full details are obtained or when executing a Release to ensure that the Release encompasses all amounts and not just the insured value. Alternatively that the Release is reworded so that it covers the policy of insurance only.
In respect of the insured, the insured can authorise that the matter be settled excluding these amounts and that the insured releases you in respect of this recovery.
This written authorisation and release should be obtained prior to any Discharge being signed or prior to the matter proceeding to trial or being settled.
Please make sure you call Joe O’Hare of our office on 32668999 to ensure your rights are protected.