The Importance Of Sufficient Insurance In The Event Of Fire Damage

The importance of sufficient building insurance is obvious to most. A recent fire disaster on a Scottish rural estate has brought this into sharp focus.

A fire ripped through a remote estate cottage completely destroying the internal fabric of the property with only the structural walls left intact. On notifying the insurers, the loss adjuster carried out a site visit and advised the estate that in their view the property was underinsured. CKD Galbraith's building surveying team was appointed to carry out a retrospective assessment on the estate's behalf to establish what the building should have been insured for, prior to the fire.

The retrospective assessment of the property, undertaken by James Taylor of CKD Galbraith, confirmed the property was underinsured by more than 20%. As a result the "average" clause in the insurance policy was applied and the estate consequently received a settlement offer significantly less than the cost of reinstating the cottage. 

The average clause comes into force when it can be demonstrated that the insured sum is 20% or more below the actual reinstatement cost; although care should be taken to review your policy as some insurers will have different thresholds. If the averaging clause is applied, the claim will be reduced by the same proportion of underinsurance.

In a simple example of a property that should be insured for 100,000 but is actually only insured for 80,000, the claimant can only expect to receive 64,000 settlement in the event of a 100,000 claim. It is therefore vital that adequate and correct insurance valuations are in place to safeguard against the risk of fire damage and asset loss.

In the aftermath of the fire, a phased assessment of all properties on the estate was carried out and declared value adjustments were made where necessary. 

James Taylor, Associate at CKD Galbraith, said: 

Building insurance is a responsibility every owner must be mindful of. Whilst the chances of a significant fire occurring are hopefully relatively low,due to improvements in construction and building legislation, this case in particular demonstrates the importance of having appropriate insurance cover to minimise loss as a result of fire damage, or indeed any other loss.

The underinsurance was extremely costly to the estate. Had the correct insurance cover been in place at the outset, the cost of the reinstatement cost assessments would have paid for themselves many times over.

Following a settlement agreement of around 75% of the insured sum, CKD Galbraith are working with the estate to assess viable options going forward. These include the possibility of rebuilding the cottage on a new site within the estate due to the remoteness of the original location, which posed a number of construction and cost difficulties.