Repair or Refurbishment in Insurance Claims
A clause granting insurers the right to repair damaged goods or replace these with a refurbished alternative, removing the legal barriers that insurance policies typically place against this.
What this clause does
Allows repairing rather than replacing goods which can be considerably cheaper for the insurer, especially if they can create a system of upcycling to benefit from economies of scale. The clause allows insurers to provide cover with lower premiums which is more appealing to customers. Beyond helping the environment, this clause is cost-effective.
Clauses
Insuring Agreements
1. Insuring Clause
1.1 Underwriters agree to indemnify the Assured in respect of:
A. [INSERT INSURABLE LOSS]
[Drafting note: for instance, Damage to the Insured Item caused by an Occurrence taking place within the Policy Period.]
1.2 Underwriters’ liability under this Clause [1] shall be for the Cash Value unless the Right to Repair or the Right to Replace are exercised.
2. Valuation of loss
[Drafting note: from a regulatory perspective, insurance companies are required to treat customers fairly (see Principle 6 of the FCA’s Principles of Business and Practical Law | Insurers and reinsurers, regulatory overview). Clause 2 may not be applicable for use by SME customers who may not expect their policies to permit underwriters to pay out a reduced sum on the basis that the assured could get the item repaired or obtain a refurbished alternative.]
2.1 Subject to Clause [2.2] below, the Cash Value of the Insured Item shall be the lesser of the cost to the Underwriters of providing:
(a) the Restored Item; or
(b) the Replacement,
save that if either options (a) or (b) are not available or the cost of (a) or (b) can not be determined, the other shall apply.
2.2 Where:
(a) providing the Restored Item or the Replacement are not available options;
(b) the cost to the Underwriters of both Clause 2.1(a) or 2.1(b) cannot be determined by the Underwriters; or
(c) the cost of providing the Restored Item and the Replacement are each greater than the Actual Cost of the Insured Item,
the Cash Value shall be the Actual Cost of the Insured Item.
3. Right to Repair
3.1 In the event of a claim where the cost of the Restored Item is less than the Actual Cost and subject to Clause 3.3, the Underwriters may choose to provide the Restored Item instead of paying the Cash Value to the Assured (the Right to Repair).
3.2 The Assured shall, in so far as it is reasonably possible, assist the Underwriters in facilitating the repair, refurbishment or reinstatement of the Insured Item, including but not limited to:
(a) [delivering the Insured Item to a place where it is to be repaired, refurbished or reinstated, as indicated by the Underwriters;]*
(b) making the Insured Item available for [collection/ inspection] by the Underwriters and/ or their agents and/ or contractors/ subcontractors in order to carry out such repair, refurbishment or reinstatement; and
(c) providing information as may be necessary to facilitate the repair, refurbishment or reinstatement of the Insured Item, including details of how the Damage to the Insured Item occurred.
* [Drafting note: in accordance with the previous drafting note, exclude this bracketed subclause 3.2(a) from consumer or small business contracts if the risk of unfairness is considered too high.]
3.3 The Underwriters shall not elect to repair, refurbish or reinstate the Insured Item under Clause 3.1 where such repair, refurbishment or reinstatement is likely to take more than [●] calendar days from the date of the Claim, to provide the Assured with a Restored Item.
4. Right to Replace
4.1 In the event of a claim where the cost of providing the Replacement is less than the Actual Cost, the Underwriters may provide the Assured with the Replacement instead of paying the Cash Value to the Assured (the Right to Replace).
4.2 Where the Right to Replace is exercised under this Clause 4, ownership of the Insured Item shall [where the Underwriters elect] pass to the Underwriters and the Assured shall, in so far as it is reasonably possible, make the Insured Item promptly available to the Underwriter and/ or their agents and/ or contractors/ subcontractors.
Definitions
Actual Cost means the market cost of the Insured Item immediately before the Occurrence which caused Damage to the Insured Item, on an indemnity basis.
Cash Value means the value of the loss as set out in Clause 2.
Equivalent State means a [substantially] similar condition to the Insured Item immediately before the Occurrence in terms of functionality, physical condition, life expectancy, aesthetic condition and with similar practical features.
[Drafting note: this will vary from policy to policy. Motor insurance, for instance, could stipulate engine specs, size, model, etc. Cargo insurance could focus on type of goods as per commercial invoice, etc.]
Insured Item means [INSERT DESCRIPTION, DEPENDING ON POLICY TYPE].
Replacement means the refurbished replacement for the Insured Item that is of an Equivalent State.
Restored Item means the Insured Item that is repaired, refurbished or reinstated to an Equivalent State.
Right to Repair has the meaning given to it in Clause 3.1.
Right to Replace has the meaning given to it in Clause 4.1.
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