Question: I am insured through a broker. My motor vehicle policy has been with the same insurer for a number of years. Recently, I examined the contract documents for the first time. An endorsement describes the value of the vehicle as the "insured's estimate of value". Each year I am instructed to have the car(s) valued from a list that the insurer provides. The valuator's reports are always used by the insurers. Is it correct to call the amounts in the reports as the insured's estimate of value? Also, do I have any right to dispute this definition?

- errolchampag@hotmail.com

Answer: I am glad to learn that you have taken the time to read your insurance policy. Given recent developments in the local market for motor insurance, as well as information which is available on cable about what United States insurers offer, your questions are, in my opinion, timely and topical. Please accept my congratulations and thanks for not only reading your policy but also for writing to me.

Insurers Hold The Handle

The contracts that insurers write and sell to prospective customers are offered on a 'take-it-or-leave-it' basis. Consumers have little or no choice about what goes into or is left out of these contracts. These types of agreements are called contracts of adhesion.

This means that they favour the authors. Attempts on your part to dispute the definition of the term 'insured's estimate of value' will get you nowhere. As a former prime minister once said: "Forget it!"

The four-word phrase - insured's estimate of value - should be examined in the context of how insurers say they will pay for claims for damage (or loss) to vehicles that are insured under comprehensive policies.

Contracts generally deal with this issue under two separate headings. One is the settlement options. The other describes how insurers will pay.

Three settlement options are found in most contacts of motor insurance. They are:

Payment to repair the vehicle(s).

Replacement of the vehicle(s) if lost, stolen or uneconomic to repair.

A cash payment which is equivalent to the value of any loss or damage, which is called cash in lieu of repairs by industry insiders.

Claims for spare parts and accessories are settled on a similar basis. Standard equipment that is fitted by the vehicle maker is normally treated as part of the vehicle.

Most problems occur when it comes to what and how much insurers will pay. This occurs usually because of differences of opinion between the insured and the insurer about value. The standard policy says the maximum that insurers will pay "will be the lower of the market value of the vehicle or, the amount the vehicle was insured for". Market value is a simple concept. It means the price that a willing buyer will pay for property from a willing seller at a particular time.

In practice, the concept is hard to apply if there is no agreement about how value is fixed at a particular time. Values can go up or down during a 12-month period.

Policies almost always refer to "the sums insured" for vehicles as "estimates of value". That term is not inconsistent with how insurers say claims will be settled. Regular valuations are one way to reduce insurer-buyer disputes about the values of vehicles, assuming economic stability.

Agreed Advantage May Offer Solution

Advantage General Insurance (AGI) launched a new motor policy last week, called 'Agreed Advantage'. It applies to private cars and 'luxury pickups' up to seven years old with a minimum value of $1.5 million.

The product is intended to remove the uncertainty about how will be paid in the event of claims for total loss. Unlike most motor policies, it offers a guarantee. Sub-section (ii) of section I of the contract says, if the motor vehicle is destroyed, and results in a total loss, whether actual or constructive, the amount payable "shall be the value agreed and insured at the inception date or the last renewal date of the policy, whichever date shall be later".

Value Agreed is defined as: "The sum for which the vehicle is covered. It is the sum agreed between Advantage General and the insured and represents the maximum amount payable by the company for loss or damage to the vehicle and the sum to which the excess will apply."

Total loss or constructive total loss means: "Where the motor vehicle has been completely destroyed or where the estimated cost of repairing the vehicle is uneconomical, that is, greater than or equal to its agreed value."

Your problem, I suspect, has more to do with the uncertainty surrounding how much you will be paid in the event of the total loss and less about being 'forced' to get an annual valuation.

contract

If am right, I suggest that you ask your brokers to get more information about AGI's product. For example, how this company's premium and the other terms and conditions of its contract stack up against those of other insurers.

After you have obtained that information, make a decision whether it is in your best interests to remain with your existing insurers or dispute the definition of a phrase you obviously dislike by switching insurers.

Cedric E. Stephens provides independent information and free advice about the management of risks and insurance. Email: aegis@cwjamaica.com