Legal Matters: Third parties, indemnity insurance

10 Jan, 2016 - 00:01 0 Views
Legal Matters: Third parties, indemnity insurance

The Sunday Mail

Tichawana Nyahuma

The concept of insurance is well known. It is to compensate the insured person after he has suffered a loss that is covered by the insurance contract, also known as the insurance policy.
The contract begins to operate as soon as the insurance premium is paid. The premium is the price or cost that the insured person must pay to the insurance company, better known as the insurer, in order to receive the benefits that flow from such a contract or put in another way, in order for the insured to obtain cover.
Naturally, the things or perils that are covered by the policy are spelt out in the contract. If the policy is one of indemnity, it will cover things such as injury, property damage or loss of certain property belonging to the insured person that is specifically mentioned in the policy.
Cover may also extend to third parties for property damage or injury in some of the categories of harm that I have mentioned.
For policies that are issued in terms of the Road Traffic Act, the third party has a right to claim directly from the insurer. It, however, requires the insured to have first reported the loss to the insurer.
The whole essence of indemnity insurance is so that upon loss, the insured is put back into a financial position that is as close as possible to the one he was in before the loss had occurred and I say that with great emphasis.
At no point is the insured to profit out of his misfortune, not even where he had double insured the property in question, otherwise fraud will be inferred.
If the insurance contract is a life policy, cover will be provided to the insured person or to his family upon his injury or death. Under a life policy, the question of indemnity or “putting back into the position he would have been” does not even arise because life is priceless and that in any event, the insurer has no capacity to restore life once it is lost.
Upon the demise of the insured person, the insurer will pay a specified sum of money to the insured’s dependants as stated in the policy. Here, the issue of third parties does not arise at all.
In this contribution, I seek to dissect the law in as far as it relates to third parties, the insurer and the insured in relation to indemnity insurance only.
To start with, it is essential to define who or what a third party is. He or she is a person who has suffered harm as a result of the negligent conduct of the insured person or his agent.
Remember, the contract of insurance subsists between only two parties — the insurer and the insured. It may, therefore, be said that the first party is the insurer, the second is the insured and the third party only comes into the equation by virtue of the negligent conduct of the insured or his agent.
He, at all times, is not a party to the insurance contract. Naturally, therefore, the third party would not have any connection to the insurer but for the negligent conduct of the insured or his or her agent.
As I have already said, the relationship that can arise between the third party and the insurer does not arise out of contract because there will be no contract between them. It arises out of what in law is referred to as a delict or a civil wrong. A delict is the actual wrong doing negligently perpetrated against the third party by the insured or his agent.
Such a wrong may be a road traffic accident in which the third party’s property is damaged or the third party himself is injured. That is how the third party finds himself at the door step of the insurer. But for him to be compensated, the third party will rely on the contract between the insurer and the insured. If the insured had breached his contract with the insurer, the third party will have no claim against the insurer. His claim will be against the insured only.
Having said that, where the contract between the insured and the insurer is good, the third party is entitled to be compensated by the insurer but only within the limits of that contract. Cover is not unlimited even for the insured himself.
In my interaction with both insurers and the insured, I have come across many instances where third parties will rub their hands in glee and claim the full extent of their loss without even seeking to find out the insurance policy in question’s limit of liability once they discover that the wrong-doer is fully covered.
Also, third parties do not seem to fully appreciate what is meant by the term “full cover”. In the case of a motor vehicle, this means in the event of total loss or write-off of the insured motor vehicle, the insurer will pay the market value of that particular motor vehicle or the sum insured, whichever is the lesser amount.
So full cover is really for the benefit of the insured, and not third parties. The benefits that third parties can derive from an insurance policy that is a full cover are defined and limited by that policy. There is nothing open-ended there.
In fact, if there was such a policy, the insurance business would have long been condemned to the dust bins of history because paying out claims that are unlimited would be unsustainable.
The other aspect of claims that are frequently brought by third parties against insurers are what are known as consequential losses. These are indirect financial losses that accompany insured losses. For instance, if a person is injured in a road traffic accident and is consequently unable to pursue his or her vocation and, therefore, loses his earning capacity, he may have a claim against the wrong doer for loss of those earnings over and apart from a claim for the medical expenses for his injuries.
But such a person cannot bring his claim to the insurer unless the insurance policy in question actually provides in clear terms that consequential losses are included and even then, the amount claimable is limited. The practice in Zimbabwe by most insurers is that consequential losses for individual policy holders are excluded unless the contract is taken out for that specific purpose.
Should you suffer injury or your property is damaged by the negligent conduct of a person who is insured, be sure to first discover the conditions of the insurance contract at play before wasting time by slapping the insurer with a wild claim.

Tichawana Nyahuma is a legal practitioner who writes in his personal capacity. For feedback: [email protected]

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