Ever heard the phrase “Total loss” in insurance? Read along to understand it in detail.

Total loss happens when the insured item (house, car or ship) is so severely damaged that the cost to repair it is more than the value of the insurance policy. It implies that even with the insurance's maximum repayment, it would be more expensive to repair it than to just replace it.

Total loss is of two types- 

  • actual total loss - complete destruction, no valuables remain.
  • constructive total loss - not completely destroyed but restoration will cost beyond the insured's value.

Let us understand this through the case study ORIENTAL INSURANCE CO. LTD. v. GOPAL KUNDAR

The Case - The insured's fishing vessel faced damage and partial loss due to bad weather, and he claimed compensation from the insurance company. However, the insurance company refused to pay, arguing that their policy only covered complete or nearly complete losses, not partial ones.

The Argument - 

  • Insurance Company (Petitioner): Argued that their policy covered only total or nearly total losses, not partial ones. Therefore, they refused to compensate Gopal Kundar for the partial damage.
  • Gopal Kundar (Respondent): Contended that the insurance policy didn't explicitly exclude compensation for partial loss and he should be compensated for the damage.

The Verdict - The court ruled in favour of Gopal Kundar. It held that unless the insurance policy explicitly excludes it, compensation for partial loss can be awarded even when a claim is brought for total loss.

This is one of the many cases that emphasises the need to understand one's policy and its contents.

Here is what NOT to Do when facing total loss:

  1. Delay Reporting the Incident: Time is of the essence in insurance claims. Delaying the reporting of an incident may jeopardise your chances of a successful claim settlement.
  2. Underestimate Documentation: Comprehensive documentation is your ally. Don't underestimate the power of photographs, receipts, and any relevant records that can validate your claim.
  3. Overlooking Policy Details: Policies vary, and it's crucial to understand the terms and conditions of your insurance coverage. Overlooking policy details may lead to unpleasant surprises during the claims process.

Insurances Prone to Total Loss:

  1. Automobile Insurance: Accidents, theft, or natural disasters can lead to a total loss of your vehicle. Understanding the coverage and its limitations is vital.
  2. Property Insurance: Homes and belongings may face total loss due to fire, floods, or other disasters. Ensuring adequate coverage for these perils is essential.
  3. Marine Insurance: Vessels, cargo, or ships can face total loss due to sinking, accidents, piracy, or other marine perils.

What to Do After a Total Loss:

  1. Report Promptly: Contact your insurance provider as soon as possible to initiate the claims process
  2. Stay Proactive: Stay engaged in the claims process. Follow up with your insurance company regularly and provide any additional information they may require.
  3. Document Everything: Thoroughly document the damage or loss and provide any other relevant documentation to support your claim.
  4. Seek Professional Advice: In complex cases, seeking professional advice from subject matter experts can be beneficial. Remember, knowledge is your most powerful tool in securing a fair and just resolution to your total loss claim.

Conclusion

By avoiding common pitfalls, understanding the types of insurance prone to total losses, and taking the right steps post-incident, policyholders can work towards avoiding insurance claim-related issues and rebuilding after a setback.