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Average

insurance, fire, loss, insured, property and clause

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AVERAGE in Fire Insurance is a point now frequently arising in the course of adjustment of claims in respect of losses by tire. Until 1828 there was no such thing in fire insurance policies as the average clause. The companies having been originally formed upon the mutual basis, that is, for the general benefit of all the assured themselves, questions of average were not usually expected to arise. But the development of commerce, the increase in size and constituencies of the insurance offices, and, in particular, the removal in that year of the legal rest! ictions of the Stamp Acts, all tended to change. The result was the insertion in fire policies of the average clause. But by 1860 the principle of average in cases of loss by fire had been much extended, with the result that the average clause itself was much developed. and three more specific clauses of somewhat simil.,r nature had been added. These clauses thence remained substantially in the same form until 18b2, when most of the companies adopted in their stead the amended clauses now generally in use. The first of these clauses is still the one generally known as the average clause, and is the one w ith which we propose to deal. The other clauses will be considered in the article on CONTRIBUTION. The average clause now usually appearing in fire policies is a: follows : It is hereby agreed and declared that whenever a sum insured is declared to be subject to average, if the property covered thereby shall at the breaking out of any fire be collectively of greater value than such sum insured, then the assured shall be considered as being his own insurer for the difference, and shall bear a rateable share of the loss incurred.

The result of this condition is that thn assured, as in the case of marine insurance, is himself an insurer :or the proportion of the value of the property exceeding the amount of the insurance. And in such proportion is he liable to contribute in case of loss. The amount payable to the assured by the insurance company may be ascertained by the rule of three, as follows :—Value of property covered, : the sum insured, :: damage done, : damage payable.

Thus, if furniture valued at £300 is insured in the sum of £100, subject to the above average condition, the insurance company will, in case of loss, be liable for only one-third of the risk, the other two-thirds being undertaken by the assured. If in such case the damage done by the fire is £100, the as sured will receive £33, 6s. 8d. If the same furniture has also been insured for £100 with another insurance company, subject to the same conditions, he will receive another £33, 6s. 8d. But if the latter insurance had been for £200, it would have been sufficient to have completely covered his loss. The object of such a condition is to prevent under-insurance ; for experience shows owners of property that a complete loss of the whole of the insured is very rare, and that apart from averaging, it is sufficient to insure only mm proportion ate value of the property. A striking instance of this could be found in the insurance of farm produce and stock. There, where the property would be distributed in different parcels over a very wide area, it would be almost Impossible for such a fire to occur as would destroy the whole ; and that consequently there would be a sufficient insurance of the whole by limiting the amount of the policy to the value of the most valuable distinctparcel. In effect, an insurance of the whole would be obtained by insurance of a part.

Apart from and perhaps without the addition of the above average clause, the modern form of policy is expressed to be by way of insurance against loss of the property insured, for example, . . . in the several sums : buildings in £500, stock in £500, &c. . . and that the company will make good all such loss or damage to an amount riot exceeding in respect of any one of the above items the sum set opposite thereto, and not exceeding in the whole £1000.

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