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Chapter 7 Indemnity 7/13

Question answers

7.1 In the absence of any new for old cover the insurers would have agreed to pay Simon the full replacement
purchase price, less a deduction for wear and tear and depreciation.
7.2 It is the value at the date and time of the loss that is recoverable even if it did not correspond with the value
declared at the commencement of the policy. Therefore, insurers are liable to pay the US$2,400 in settlement
of the loss. This case is based on Re Wilson and Scottish Insurance Corp. (1920).
7.3 Yes, it is possible that Kevin would not receive a full indemnity for the picture as there could be a limit on
works of art of, say, 5% of the sum insured. Using a limit of 5% in this example, the indemnity would be:
5% × US$70,000 = US$3,500

This is lower than the market value of the picture destroyed in the fire. Kevin has not, therefore, received a full
indemnity.
7.4 The total sum insured is only payable when the policyholder suffers a total loss.

7.5 Because you would remove the need for the insurer to become involved in claims for very small amounts,
which could still be very costly to administer, and would reduce the size of payment of any claim that exceeds
US$300.

Sample examination question answers
1. The correct answer is D.
Remember that personal accident policies are not contracts of indemnity as the policyholder cannot be restored
to the same financial position after a loss as they enjoyed immediately before the loss occurred.
2. The correct answer is C.
US$300,000 × US$100,000 US$75,000=
US$400,000 Reference copy for CII Face to Face Training Chapter

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