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Tuesday, January 11, 2011

Burglary Insurance - specific coverage to Air conditioners - problems galore

BURGLARY insurance has been a standard insurance product for long.  The Package Policies floated by many Insurers do extend sectional coverage against burglary.  Remember the golden rule that ‘facts which are to common knowledge need not be overstated and cannot be construed as suppression of material fact’.  

This insurance provides indemnity in respect of loss of or damage to any part of the property insured whilst within the premises as a direct result of burglary happening during the POI.

The policy interprets ‘burglary’ as to mean actual theft or an attempt thereat
a)  accompanied by an actual forcible and violent entry into or exit from any building at the premises or
b)  following assault or violence to any person  or threat thereof.

Thus the essential prerequisites are :
i)        identification of subject matter insured
ii)       they remaining within the premises described in the schedule / policy
iii)      loss attributed to burglary which is defined as accompanied by an actual forcible and violent entry into or exit from any building at the premises

to interpret further, the material lost might have been lifted without uprooting from its base or breaking open the safe, but entry  into / exit of  the premises should have been by violent and forcible

the Policy further defines Building as to mean :a)  any building other than an out building or  b]  that part of any building other than outbuilding occupied exclusively by the insured for the purposes of business.

Here the building should be the one used for business purposes and should not be an out building.

The Policy further has specified exceptions.  Loss or damage of or any part of the property while in the open or in any outbuilding, unless specified in the schedule or by endorsement is sought to be excluded.

Now most of  Insurance  Policies including the Package / Shield ones do describe the items covered and that often includes air conditioners. 

Obviously no detailed description on these appliances is required, as these are commonly known to all – what is attempted here is the difficulties faced by us when a claim arises for loss or damage to air conditioner arising out of burglary or attempt thereat.

The purpose of this equipment is to provide comfort typically during hot or cold weather.  The regular Unitary ones (window types) sit on window sill or wall opening with interior controls and part of the system protruding out of the building.  A large building may have many of these permitting each portion to be cooled independently. 

Often  burglars attempt to steal either the AC unit or try to gain entry into the building through the duct housing the AC unit.  The one fixed to ground floor rooms are often easy to access as you could notice in some buildings, they would remain accessible from the common road. 

When such a unit is stolen, for the Insured it is a loss by burglary i.e., somebody removing the insured property by using violent and brutal force.  However, a stricter interpretation of the policy could mean

a)  this is a property in open (of course further interpreted to mean the one specified in the schedule thus nullifying the exception)
b)  though violence is used for removal (perhaps) – there is no violent entry or exit into the premises insured

It becomes too difficult to make the Insured understand the implications as there would be no answer to a query ‘why these were then accepted for insurance’ and specified in the policy.

More worrisome is the other type of air conditioner – the split configuration.   Whilst window AC has a complete unit confined in a small space comprising of compressor, expansion valve, hot coil, chilled coil, fans and control unit,  the Split air conditioner as the name suggests, splits the hot side from the cold side of the system. It has two main parts : the outdoor unit and indoor unit.

The Outdoor unit comprises of the most important functional parts like Compressor,  Condenser, Cooling fan, Expansion valve.  It also keeps the noise outside the house, of course at the expense of one’s neighbours.

When it comes to Insurance, the Policy would describe the capacity of the air conditioner and that it is a split unit (Name plate details are required in all forms of Engineering insurances !]

NOW,  it is the subject matter of insurance – proposed for insurance, and accepted by Insurers by clearly describing it on the schedule also.  By nature they are installed outside and many time on roof tops and which are accessible without violent / forcible entry or exit. 

How would Insurers deal with such claims ?  What would be mindset of the Surveyor community which by and large recommend or deny claim settlement with their vast experience ??  What would be the right approach ???

To cite a possible day to day occurrence,  where the Insured is occupying a small portion of a big Commercial space and the property remains open to all and sundry throughout the day.  The outdoor unit is on the vacant open top floor to which anybody can gain access – in fact the Insured might become aware of the loss, only when they realize the non-functioning of airconditioning, that too found out by technicians to the dismay of all concerned that  the outdoor unit is no longer there, having been removed sometime which could not be specified.  [ a case of expecting the vehicle to run when the engine had already been stealthily removed ]

The Insurers are most likely to take umbrage on the aspects that the unit  remained outside the building and there was no ‘burglary’ as defined in the Policy –   whilst for the Insured it would be that ‘the facts of the case and the type of installation was well known to the Insurers’ which presented a risk of this nature only and that the Insurers are trying to hide behind some clauses to deny monetary outgo.   

Look forward to  your thoughts on insuring such items, the coverage intended and the ways it needs to be considered or otherwise…

Regards – S. Sampathkumar

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