Risk & Business Magazine Cooke Insurance Group Fall 2016 | Page 28

LOSS LESSONS

T

he importance of insuring
to value can’t be overstated
when it comes to managing
risk and protecting your
assets. Unfortunately, many
insured’s experience a significant financial
burden every year as a result of being
underinsured. This issue’s two case studies
highlight the consequences of failing to
maintain adequate insurance coverage and
how you can avoid a similar fate.

less than the required portion of its full
value, the policyholder is regarded as a joint
insurer. The policyholder therefore becomes
financially responsible for a portion of the
total claim. The condominium corporation’s
policy also contained a common coinsurance
clause. This type of clause requires the
policyholder to maintain a specified
minimum amount of insurance coverage,
expressed as a percentage of the total value of
the property.

CASE #1 – THE EXPOSED CONDO?
condominium corporation owns
and manages several large urban
properties in various provinces. One of
its developments, a townhouse complex,
recently had a major fire.

In this case, instead of the required 90
percent coverage, the property was only
insured to 60 percent of the replacement
value of the property—that is 30 percent
below what was required by the policy. As a
result, the condominium corporation was
considered a joint insurer. The payment
of the claim was substantially reduced to
$666,000 based on the following formula:
$4.5M (actual insured amount) ÷ $6.75M
(required insured amount: 90 percent of
$7.5M replacement value) × $1M (amount of
loss) = $666,000 (portion of loss covered by
insurance).

A

The property had approximately 30 singlefamily units and was insured for $4.5M.
However, the complex had an estimated
replacement value of nearly $7.5M.

IMPROPER DISPOSAL RESULTS IN
CLAIM OF OVER $1M
The building sustained a significant
property loss as