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Do you have appropriate insurance coverage?

Have you ever considered what it would cost to replace everything in your house?  Furniture, clothing, food and all other contents? The bill would quickly add up! Your insurance policy is extremely important.  Not only does it contains all the information regarding your coverage, it is also proof of the insurance contract’s existence[1].

If we continue with the example of a house, the required insurance is considered to be non-marine[2] insurance, or more precisely, called damage insurance. Therefore, when applying for protection, the client must declare “all facts known to him”[3] which are likely to affect the risk of insuring the goods.

In a first scenario, if the insured good is undervalued, this is what we call being underinsured.  We therefore must ask, in the event of a disaster, how would the indemnification take place?

Hence, if you had insured your house, and it was completely destroyed, you would only be able to obtain the valued amount declared[4]! In fact, the client would not be reimbursed for any undeclared amount in the claim evaluation.  This is important to keep in mind when you renovate or change your furniture!

This also applies to a company that replaces assets, invests a significant amount in new equipment, or substantially increases their inventory.

Another risk that exists with under-insuring, is in the case of a partial loss. The indemnification is proportional to the value declared.  In this case, the client can protect themselves against this by negotiating a modification or deletion of the clause[5].  It is important to consider that as long as the insured value represents 80% of the real value, the partial indemnification will not be diminished proportionally to the declared value[6].

In a second scenario, if the good is over evaluated, it is what we call over insuring.  Although this situation is less frequent, if the client acted in good faith, legislation allows them to maintain their insurance; however, it is for the real value of the goods lost and not the declared amount.

In conclusion, it is safer and more diligent for the client, person or business, to evaluate their goods at fair value, and update their insurance amount as needed, in order for the indemnification to be as fair as possible!

[1] Article 2399 C.c.Q.

[2] Article 2391 C.c.Q.

[3] Article 2408 C.c.Q.

[4] Article 2493 C.c.Q

[5] Intact, compagnie d'assurances (Compagnie d'assurances ING du Canada) c. Harvey, 2011 QCCA 712, au para 33.

[6] Article 2492 C.c.Q.

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