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Claiming house contents

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What about claiming for the contents of my home?

1. Misdescription and exaggeration

House contents claims are one of those areas in which the insured is prone to exaggerate the value of the items lost, or to include items not in fact lost, or to misdescribe items so as to increase the amount of the claim. The justification offered for what amounts to fraud or misrepresentation is usually along the lines that the insured believes that for one reason or another the insurer is going to pay him/her less than they deserve, then they might as well start by claiming more than they deserve and they will then probably end up with fair compensation. The chances are, sad to tell, that s/he will end up with nothing at all.

All policies contain provisions which the Insurer can use to reject the whole claim, or have the policy cancelled "ab initio" (from the beginning) if the insured is guilty of deliberate misrepresentation, misdescription, exaggeration of value, or of claiming for non-existent losses. Often persons who have suffered a genuine loss attempt to recoup the excess or first amount payable by increasing the value of the loss.  DO NOT DO THIS.  This conduct may amount to fraud and may compromise your entire claim. Particularly in times when fraudulent claims abound, any taint of fraud in a claim is likely to be severely treated by the insurer.

There are cases, of course, when the Insured may be able to show that there was a genuine mistake or misunderstanding on his/her part in regard to the offending item or items and it is in this area that an approach to the Ombudsman could possibly be successful and s/he might be able to persuade the insurer to reconsider its attitude. Where the "misinformation" relates only to value, it may also be possible to show that the exaggerated estimate was an optimistic opinion genuinely held. To give yourself and the Ombudsman the best chance of achieving something in a situation of this kind, complete frankness and disclosure at the outset is essential.

2. The value of items lost

As much information as possible about the individual items lost and their market value must be given to the Insurer. Policies contain provisions which require the insured to co-operate with the insurer's investigation and to give any information or documentary proof which the insurer may reasonably require to establish the existence and the value of the goods claimed as lost. Whilst this does NOT mean, as some insurers' adjusters or assessors seem to believe, that the insured must produce invoices, receipts, written proofs of purchase and evidence of the exact place and time of acquisition in respect of every item, it does mean that such information as could reasonably be expected to be in the hands of the insured, or documents which s/he would normally be expected to have retained should either be made available or their absence satisfactorily explained. What precisely is reasonable depends on the nature and value of the item.

For example, where one is dealing with an expensive item of jewellery, a valuation certificate and proof of place and time of purchase might well be deemed a reasonable requirement, whereas an invoice or receipt for a radio purchased some years back is not usually something which the owner would normally keep for long, especially if it was a cash purchase; it might however be reasonable for him to be able to recall the approximate price and place of purchase, or the fact that it was a gift from someone identified. A broker advising his client at the time of the inception of a contents policy, especially where the total sum at risk is high, will often request (and some insurers will ask for) a detailed list of all the items covered, together with particulars of value, date and place of acquisition and sometimes also photographs, all of which will greatly facilitate the insurer's investigation and performance of the insured's obligations in the event of a claim. However, even if this is done, with the passage of time values change, new assets are acquired and old ones disposed of so that lists and details should be kept as up-to-date as possible. To know exactly the total of goods at risk at the time of the claim may also assist the insured to resist any contention that "average" must be applied and the amount of the claim reduced which leads us to the final topic in this memorandum.

3. The meaning of "Average" and the manner of its application

A "Contents" Policy normally insures all the contents of a particular residence against loss by any event specified in the policy, which are in the residence at any time during the operation of the policy - not specific items. The insured initially places a value on those contents by insuring them for a particular sum. That sum, less any applicable excesses under the policy, is then the MAXIMUM that the Insurer must pay if everything that is covered is lost. Should the goods turn out to be worth less, then only the lesser amount, less excess, will be paid out and the insured will in fact have over-insured the goods.

What happens, however, in the opposite situation when the insured is under-insured? The situation is illustrated best by example: - The insured takes insurance for the contents and values those contents at R100,000 for insurance purposes. However, their actual value at the time of the loss is R200,000. If everything is lost, the insured will only recover R100,000 less excesses. But if only goods to a total value of R50,000 are lost then the insurer, by applying average (because it has in fact been covering goods to a total value of R200,000) will pay out only one half of the value of the lost goods, i.e. R25,000 less excess. The mathematical calculation, if average is being applied, is the following equation:-

Value of goods lost (R50,000)  x Total Insurance (R100,000)
__________________________________________________      = R25 000 (less excess)
Total value of all goods (R200,000) 

If the Insurers contend that "average" is to be applied, there are two ways of attacking the calculation above, as follows:-

  1. The total value of all goods covered under the policy is less than the figure calculated by the insurer, and/or
  2. the actual value of the goods claimed as lost is more than the figure calculated by the insurer.

In the situation summarised earlier, if it could be shown that the total value of all goods was R150,000, and not R200,000 and the total value of the goods actually lost was R75,000 and not R50,000, then the calculation would work out as follows:-

Value of goods lost x Total Insurance (R75,000) (R100,000)

Total value of goods insured R150,000 = R50,000 less excess.

However, increasing the value of goods lost may at the same time make it more difficult to reduce the value of all the goods covered. If you want to avoid the danger of having your insurer apply Average, please read again what is suggested in point 2 above in regard to proving the value and the existence of the goods.