CHAPTER SIX

NON LIFE INSURANCE

As insurance has developed, the various types of cover have been grouped into several classes,
which have come about by practice within insurance company offices, and by the influence of
legislation controlling the financial aspects of transacting insurance. Insurance offices are
generally split up into departments or sections, each of which will deal with types of risk, which
have an affiliation with each other. There is a very wide variety in the way in which companies
organize their business, but the following divisions are not unusual:
 Fire, including business interruption;
 Accident, including theft, all risks, goods in transit, glass, money, credit, fidelity
 Liability, including employers' liability, public liability, products and professional
indemnity;
 Motor; engineering; marine and aviation; life and pensions.

A discussion on the above non life insurance will be made as follows;

6.1. Personal Accident Insurance
This type of cover is devised to compensate the insured that is temporarily or totally disabled
from engaging in his usual occupation due to sickness. Personal accident and sickness
policies are renewable annually and, if a claim has occurred, which could be of a recurring
nature, the cover may be restricted at renewal or in severe cases renewal may not be offered.

[Link] Health Insurance

This type of cover has been devised to overcome the limitation of the personal accident and
sickness policies. It provides benefits for those who are disabled for longer periods or who,
due to accident or illness, have to change to a lower paid occupation. It may also be called
long term disability insurance.

It is usual to arrange cover to exclude the first month, six months or twelve months of
disablement with appropriate discounts in the premium rates, since many people will receive
a substantial part of their salaries for a certain period when off-work. Cover cannot continue
beyond age 65 and in order to save premium some people elect for cover to cease at age 55

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or 60. The maximum benefit payable is usually 66 per cent or 75 per cent of earnings, less
any other disability benefits payable.

The intention of the basic policy is to provide compensation in the event of an accident
causing death or injury. What are termed capital sums are paid in the event of death or
certain specified injuries, such as the loss of limbs or sight as may be defined in the policy.

The policy is usually extended to include a weekly benefit for up to 104 weeks, or
compensation if the insured is temporarily totally disabled due to an accident and a reduced
weekly benefit if he is temporarily only partially disabled from carrying out his normal
duties. In the event of permanent total disablement (other than loss of eyes or limbs) an
annuity is paid.

In addition to the purchase of personal accident insurance by individuals, it is also possible

for companies to arrange coverage on behalf of their employees and many organizations
arrange 'group schemes' to this end.

[Link] Insurance
The minimum requirement by law is to provide insurance in respect of legal liability to pay
damages arising out of injury caused to any person. Policies with various levels of cover are
available:

 Third party only: provides cover in respect of liability incurred through death or injury
to a third party, or damage to third party property.

 Third party, fire and theft: provides cover as above and in addition includes cover for
damage to the vehicle from fire or theft.

 Comprehensive: provides cover as above and in addition including cover for accidental
loss of, or damage to, the vehicle itself. This is the most common form of policy.

Private car insurance applies to private cars used for social and domestic purposes and/or
business purposes. Comprehensive policies issued to individuals also include personal accident
benefits for the insured and spouse, medical expenses and loss of, or damage to, rugs, clothing
and personal effects.

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Vehicles used for commercial purposes (including lorries, taxis, vans, hire cars, milk floats and
police cars) are not insured under private car policies, but under special contracts known as
commercial vehicle policies.

Separate cover is available for motorcycles. The type of policy depends upon the machine,
whether it is a moped or a high-powered motorcycle, and on the age and experience of the
cyclist. The cover is comparatively inexpensive relative to motorcar insurance.

Special policies are offered to garages and other people within the motor trade, to ensure that
their liability is covered while using vehicles on the road. Damage to vehicles in garages and
showrooms can also be included under such policies.

In addition to private cars, motorcycles and commercial vehicles, there are a number of vehicles
which fall into a category known to insurers as 'special types'. These will include forklift trucks,
mobile cranes, bulldozers and excavators. Such vehicles may travel on roads as well as building
sites and other private ground. Where these vehicles are not used on roads and are transported
from site to site, it is more appropriate to insure the liability under a public liability policy, since
the vehicle is really being used as a 'tool of trade' rather than a motor vehicle and include fire,
theft, collision and a wide range of other perils.
6.4. Marine and Transport Insurance

I. Marine cargo
Marine policies relate to three areas of risk: the hull, cargo and freight. While hull and cargo are
self explanatory, the word freight may not be: it is the sum paid for transporting goods, or for the
hire of a ship. When goods are lost by marine perils then freight, or part of it, is lost; hence the
need for cover.

The risks against which these items are normally insured are collectively termed 'perils of the
sea' Cargo is usually insured on a warehouse (of departure) to warehouse (of arrival) basis and
frequently covering all risks. Terms of sale and conditions of carriage have important
implications for cargo insurers where goods may change ownership and pass through the hands
of more than one shipper or haulier. It is vitally important in cargo insurance to establish who is
responsible for the insurance cover and to work out when the risk passes from the consignor to
the consignee.

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Insurers often rely on inadequate packing/loading to modify claims under cargo covers. Where
appropriate insurers will pay claims and then seek recoveries from carriers.

II. Marine liabilities

The custom has been to provide insurance for three-quarters of the ship owner’s liability for
collisions at sea under a marine policy. The remaining quarter, and all other forms of liability,
are catered for by associations set up for the purpose by ship owners and known as Protecting
and Indemnity Clubs (P and I clubs). It should be noted that the P and I clubs can now insure hull
and machinery as well as liabilities.

III. Aviation insurance

The use of aircraft as a means of transport is increasing each year and because of the specialist
and technical nature of the risks associated with it, plus the high potential cost of accidents, all
aviation risks, from component parts to complete jumbo jets, are insured in the aviation
insurance market.

Most policies are issued on an 'all risks' basis, subject to certain restrictions. The buyers of these
policies include the large commercial airlines, corporate aircraft owners, private owners and
flying clubs. Usually a comprehensive policy is issued covering the aircraft itself (the hull), the
liabilities to passengers and the liabilities to others.

Liability for accidents to passengers is governed by a maze of international agreements and

national laws around the world. The main ones are the Warsaw Convention 1929, which made
signatories liable to passengers without negligence, subject to certain maximum amounts, and the
Hague Protocol 1955, which raised some of these limits. The national laws may place higher
limits on domestic flights. For domestic flights within the UK the provisions of the Carriage by
Air Act 1961 apply together with Orders made under it. You will find reference to limits of
liability in the small print, which forms part of the standard airline ticket.

The position has been made more complex by some governments imposing on their national
airlines increased limits of liability, which do not have worldwide approval. Although the
appropriate rules for calculation of legal liability are normally determined by reference to the

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country at point of departure and the country of destination recorded on the ticket, an airline
disaster may produce claims from passengers of many nationalities.

It is interesting to note that in Goldman v. Thai Airlines International (1981), it was held that
the limits did not apply when the aircrews were 'reckless' in flying the aircraft. In the aftermath
of the Lockerbie disaster, there have been a number of attempts at securing much higher
compensation than the agreements laid down. Some claims have been settled for higher amounts,
especially when the limits have appeared low in relation to the earning capacity of the passenger.

There have been unsuccessful efforts to increase the Warsaw/Hague limits. Change will only be
piecemeal without the support of the major airline operating countries, notably the United States
of America.

The two international agreements also place limits on liability for goods carried by air. Unless of
special risk or value, cargo is usually insured 'all risks' in the marine or general markets rather
than in the aviation market. Other groups of persons requiring aviation liability cover are aircraft
and aircraft component manufacturers, and airport authorities.

6.5 Fire and Other Property Damage Insurance

There are a number of different ways in which property can be damaged. One needs only to think
of a small factory unit to imagine all that can be damaged and all the ways in which damage can
be sustained. Fire and theft probably come to mind first, but then there are very many different
forms of accidental damages.

I. Fire Insurance
In most commercial policies the insured will require cover for buildings, machinery and plant,
and stock. These are the three main headings under which property is insured and in some cases
a list of such items can run to many pages, depending upon the size of the insured company.

In addition to these areas it may be necessary to arrange cover for property while it is still being
built, that is buildings in course of erection, but this form of cover is gradually giving way to a
policy known as 'contractors all risks' which will be discussed later.

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A standard fire policy is used for almost all business insurances, with Lloyd's of London also
issuing a standard fire policy that is slightly different in its wording. The basic intention of the
fire policy is to provide compensation to the insured person in the event of there being damage to
the property insured. It is not possible, in the commercial world, to issue a policy that will
provide compensation regardless of how the damage occurs. The insurance companies, the
insurers, have to know which perils they are insuring against.

The standard fire policy covers damage to property caused by fire, lightning or explosion, where
this explosion is brought about by gas or boilers not used for any industrial purpose.

This is limited in its scope because property can be damaged in other ways and, to meet this
need, a number of extra perils (known as special perils) can be added on to the basic policy.
These perils are:
 Storm, tempest or flood;
 Burst pipes;
 Earthquake;
 Aircraft;
 Riot, civil commotion;
 Malicious damage;
 Explosion;
 Impact.
It is important to remember that these additional perils must result in damage to the property, and
it is as well to precede each by saying 'damage to the property caused by special peril element'.

II. Theft insurance

Theft policies have the same aim as the standard fire policy, in that they intend to provide
compensation to the insured in the event of loss of the property insured.

The property to be insured, for a commercial venture, will be the same as under the fire policy,
of course except for the buildings. The theft policy will, in addition, show a more detailed
definition of the stock. The reason for this is that fire is indiscriminate, whereas a thief is not, so
the insurers charge more for stock which is attractive to thieves.

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The law has its own definition for theft having an impact on insurance companies, as it defined
the term 'theft'. The legal definition was wider than that which the companies were prepared to
offer, especially for business premises, because the definition did not mention any need for there
to be force and violence in committing a theft. This meant that shoplifting, for example, was
'theft' and this kind of risk had traditionally been uninsurable. To remedy the problem, insurance
companies included in their policies a phrase to the effect that theft, within the meaning of the
policy, was to include force and violence either in breaking into or out of the premises of the
insured.

Comprehensive Insurances
A step on from issuing combined policies, which is only the combination of separate policies
within the one folder, is the comprehensive policy. This form of insurance represents a widening
in the scope of cover. It is also sometimes called a 'package' policy and is an attempt by insurers
to have a single policy section detailing the policy cover, exclusions and conditions. For
example, the household comprehensive policy covers the basic perils mentioned above and also
includes cover against damage caused by collapse of television aerials, leakage of central heating
oil, the breakage of underground water pipes, sanitary fittings and many more risks.

This widening of scope of the perils insured has been accompanied by alterations in the basic
method of providing cover, so that today it is possible to arrange a household comprehensive
policy which provides cover against damage caused by almost any event and with the amount
being paid representing what it will actually cost to replace the damaged property.

This widening in cover has not been without its problems and many insurers have experienced
large losses on their household insurance business, as a result of which substantial increases in
premiums have been [Link] policies are also available for offices and shops,
where cover is provided as a package. This is an efficient and relatively inexpensive way of
providing cover for small offices and shops.