Average clause

Understand the idea

A simple calculation multiplies the covered loss by the sum insured divided by the required value. The insurer then applies the other policy terms in the appropriate order. Some clauses allow a tolerance or use a particular declared-value basis, so the simple formula is not universal. Disputes can concern the correct value, whether the provision applies and how other adjustments interact with it.

An example

Suppose the relevant property value is J$50 million, the sum insured is J$40 million and the covered partial loss is J$10 million. The insured proportion is 40 ÷ 50 = 80%. A basic average calculation gives J$8 million before any deductible or other adjustment. The loss being below J$40 million does not prevent the proportional reduction in this hypothetical policy.

Sources

• JN General Insurance: Average clause and underinsurance
• CILA: Introduction to claims handling

In the news

Jamaican insurers report J$54.35 billion in Melissa payments; 983 claims remain