In an insurance contract, responsibilities flows between both the insurer and the insured. And with responsibilities comes duties and rights. Indeed as an insured, you have the right to have your losses mitigated. The insurer also has the right to recover their outflow on your claim too.
Another of my responsibilities to my principal is to retrieve from an insured, properties which were subject of an insurance claim where the claim is being treated as a total loss (either actual or constructive) and the insured has been or is to be paid off.
On one of such occasions, a client engaged me in a serious discussion. He was confused that we were going to take possession of his car having accepted that his claim be treated on a constructive total loss basis. He literally wanted to have his full sum insured and his damaged vehicle to himself. And this takes us to the issue of Salvage rights in insurance.
What is Salvage rights in Insurance?
Salvage rights is the right an insurer has to takeover from you (the insured) that property of yours which was the subject matter of an insurance claim. This “right” presupposes that your loss was or is being treated on a replacement basis or a total loss basis. And having been paid off, the property rights is transferred to the insurer to deal with as they may deem fit.
Why do insurers take over salvage?
- To recover their outflow on your claim. The salvage is usually disposed and its proceed serves as income to them.
- To enforce the principle of indemnity. This is one of the fundamental principles of insurance. One of its corollaries implies that you the insured should not be allowed to benefit from your loss otherwise nothing would stop you from cooking up a false claim. Where you retain your property after you have been paid off, you could dispose it to make additional profit for yourself.
- From experience, i have observed that insurers also effect their salvage rights in dealing with a difficult and regular claimant.
What happens to the proceeds from the disposal of salvage?
In our previous discussion on subrogation, it was mentioned that the insurer cannot recover more than his outflow on a claim and that where there is an excess the balance becomes transferable to the insured. Well, in the case of salvage, they have the right to take it all. After all, the property is now theirs to do with as they so please.
What if you are interested in the salvaged item?
You have only one option which is to offer to buy it back. Sometimes, depending on the nature of the property, you could be offered the right of “first refusal”. It means that your interest is first sought in the disposal. But, if what you are offering is considered too low, they are not duty bound to honor you.
Can you request for “waiver of subrogation rights”?
To be candid, yes. Such requests are not uncommon and I have seen insurance policies with such waivers. However, a prudent underwriter would not allow such except on very rare cases.
The idea of “Dumping” in insurance.
An insured once demanded for the outright replacement of his damaged property on the ground that each time he sees it, he is reminded of the incident that resulted in the loss. Well, insurance can only indemnify financial losses and not emotional ones as such are usually not measurable and are very subjective.
There is however a peculiar case where “dumping” is allowed in insurance. It is under Marine Insurance and it is called “Abandonment Clause”. Where a property is lost at sea (be it vessel or cargo), and the cost of retrieving it is found to be higher than its sum insured, the insured can abandon it to his insurers. The loss would be treated as if it were a total loss and the insured would be paid off. Where this clause is incorporated into other policies, it serves the same purpose.
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