It is a general belief among the insuring public that the purpose of taking up an insurance cover is to be returned to the position previously enjoyed before the occurrence of a loss event. In my years of experience I have found this to be largely a theoretical truth as in actual fact, there are many factors that could prevent full indemnification.

Many of these factors are the application of clauses and policy conditions that only becomes known to you (the insured) at the point of claim. The need for you (the insured) to therefore fully comprehend the provisions and requirements of your insurance policy cannot be overemphasized as it is the basis underwriters use to determine the extent of their liabilities.

Today, we round up our discussion on Fire & Special Peril Insurance Policy by examining some of the policy conditions that could prevent full indemnification following a loss experience.

1. Inadequacy of the sum insured:


The sum insured is the monetary value the insured places on the subject matter of insurance. Because this value forms the basis of premium computation, it is a known fact that the insured would usually undervalue their property in order to pay a reduced premium. However, at the point of claim it becomes an issue, the insured wants full indemnity (a return to the previous position enjoyed before the loss) but the underwriter’s liability cannot exceed the sum insured.

2. Application of Average condition:

Evaluation below average and disappointed woman
Evaluation below average and disappointed woman

What is stated in (1) above usually apply to a case of total loss and it is therefore straight forward. However, in a case of partial damage, some mathematical computation comes into play as the amount claimed is weighed in relation to the sum insured and the actual value of the property. When this is done, the underwriter’s liability becomes a prorated value which is lesser than the insured’s expectation and this becomes a matter of both confusion and dissatisfaction for the insured.

3. Single Article Limit (SAL): This clause states that in the event of a loss, no single item would be considered to be more than a certain percentage of the sum insured on contents under the policy unless such item is specifically insured. For instance, where the total value of your content was put at $2,000.00 and the SAL was fixed at 5%, it means that for any single item, the maximum you can claim is $100.00. One way to beat this is to declare from the onset such items and their values.

4. Policy Excess or Deductible: Basically, it states that in the event of a claim, you would bear a predetermined amount of the agreed cost of repairs. This amount is deducted from your claim before it is paid.

5. Breach of policy conditions:


some of these could lead to outright repudiation of a claim or attract stiff penalties. Its application is not cast in stone and it is left to the underwriter’s discretion as the circumstances of the claim demands. Some of these conditions are;

· Breach of documentary evidence warranty – where the insured is unable to adequately substantiate a claim.

· Breach of claim notification condition – where there has been undue delay in notifying underwriters of a claim such that the circumstances and facts of the loss becomes difficult to examine or investigate.

· Poor moral hazard – This could be construed as negligence on the part of the insured.

6. Reinstatement Value Condition: This clause implies that in the event of a loss, the amount payable shall be determined by the cost of replacing a damaged item (of the same kind and type but not superior to or more expensive than the initial one). Where the item lost was specifically insured, the sum insured becomes the reinstatement value except it can be proven that same item and spec can be gotten for a lesser amount. Where it is not specifically insured and the particular model of item is no longer available in the market, the insured is paid the cost of a new one with a deduction for depreciation (or new for old)

7. 85% Condition of Average: This clause implies that if at the time of loss, the sum insured is less than 85% of the cost of repairs, the subject matter would be deemed to have been under-insured and the average condition in (2) above shall apply.

Thank you for reading. We would like to have your view and also know if this post has been of any benefit to you. Kindly leave a comment.


  1. There are some more clauses in the fire policy, such as, fire fighting system, house keeping, electrical clause etc., The Insure should have an experienced broker to review the policy terms and conditions which would meet the insured business requirement.

    1. Thank you for your comment. Indeed those clauses exist. As a matter of fact, there are several others and they are used as the situation demands.
      The insured can also know about them by asking the underwriters.

  2. a good attempt to create awareness among insuring public as well as knowledge creation for motr insurance stressed intermediaries.
    Please also check whether 85% …clause still exist after SFSPP is introduced.

Leave a Reply