CHAPTER SIX

Non-Life Insurance

Property and liability insurance

Property and liability insurance consists of those forms of insurance that are designed to provide
protection against losses resulting from damage to or loss of property and losses resulting from a
legal liability.

Property insurance:

Property may be exposed to a wide range of perils – fire, theft, perils of the sea and damage by
persons (whether accidental or carelessness).

1. Automobile insurance:
Most automobile insurance contracts are schedule contracts that permit the insured to
purchase both property and liability insurance under one policy. The contract can be divided,
however into two separate contracts one providing insurance against physical damage to
automobiles and the other protecting against potential liability arising out of the ownership or use
of an automobile.

The objective of automobile insurance is to indemnify the insured against accident loss or
damage to high auto and / or his liability at law for bodily injury or material damage cause by the
use of motor vehicle, subject to the terms and conditions and to the cover granted.

There are two main types of insurance covers in motor commercial and motor private
insurance, viz. Comprehensive cover and Third party cover.

Comprehensive Cover: A comprehensive cover provides protection against a wide range

of contingencies. It includes indemnity in respect of the insured’s legal liability for death or
bodily injury or damage cause to the property of third parties arising out of the insured’s vehicle.
The policy also indemnifies the insured in respect of all damages to the vehicle caused by an
accidental, external physical means as a result of collision, overturning, fire self-ignition,
lightning, explosion, and burglary.

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The policy excludes, among other things, the following:

Consequential loss sustained by the insured.

Wear and tear depreciation of motor vehicle,
Mechanical or electrical breakdown of failure of any part of a motor vehicle,
Death of or injury to members of insured family or his employees,
Damage to property of the insured or held by him in trust or in custody.
Third Party Cover: There are two parties involved in an insurance contract, the insurer and the
insured. Accordingly, any other person who may become linked in some way with the insurance
is regarded as third party. A third party only policy covers the insured’s legal liability (i.e.
property damage, death, and injury) towards other people in the event of an accident arising out
of the use of a motor vehicle.

A third party policy may be extended to include at an additional premium the policy
holder’s vehicle against the risks of fire and theft as follows:

 Third party, fire and theft.

 Third party and fire.
 Third party and theft.
The basic cover guaranteed by the Ethiopian Insurance Corporation’s policies can be
extended to cover additional risks at an additional premium.

2. Theft insurance:

Although theft is generally one of the perils covered under an all risks policy, the contract
usually excludes or limits the amount of protection on certain types of property, such as money,
that is highly susceptible to theft losses.

Theft insurance protects a business against losses by burglary, robbery, or some other
form of theft by persons other than employees. Fidelity guarantee insurance or dishonesty
insurance covers losses caused by dishonest acts of employees.

Burglary is the act of unauthorized entry, with criminal intentions into any building or
residence. It is the unlawful taking of property from within premises closed for business, entry
to which has been obtained by force. There must be visible marks of the forcible entry. Thus, if

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a customer hides in a store until after closing hours, or enters by an unlocked door, steals some
goods, and leaves without having to force a door or a window, the definition of burglary is not
met under a burglary policy.

Robbery, on the other hand, is defined to mean the unlawful taking of property from
another person by force, by threat of force, or by violence. Personal contact is the key to
understanding the basic characteristic of the robbery peril. However, if a burglar enters a
premise and steals what wallet of sleeping night guard, this crime is not one of robbery because
there was no violence or threat thereof. The person robbed must be cognizant of this fact. On
the other hand if thief knocks out or kills the guard and then robs the guard or the owner, the
crime would be classed as robbery. Robbery thus means the forcible taking of property from a
messenger or a custodian.

According to EIC burglary policy does not cover losses or theft committed by:

 Members of the insured’s household,

 The insured himself or his assignee.
 Theft connected with war or any kind of population uprising, or
 Theft of valuables including documents and works of art unless agreed pre hand. In
addition, failure to disclose materials facts at the time of writing the policy will also make
any theft claims null and void.
3. Fire and lighting insurance

Fire insurance is designed to indemnify the insured for loss of, or damage to, buildings and
personal property by fire, lighting windstorm, hail, explosion and a vast array of other perils.
Coverage may be provided for both the direct loss (that is actual loss represented by the
destruction of the asset), and indirect loss (defined as the loss of income and or extra expenses
caused by the loss of use of the asset protected). Originally, only fire was an insured peril, but
the number of perils insured against has gradually been expended.

Business may therefore, purchase fire insurance contracts covering their building and its
contents, to both the peril of fire and lightning. The standard fire policy promises in its insuring
clause to indemnify the insured for “direct loss by fire, lightning and by removal from premises
endangered by the perils insured against.”

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 Insurers, however, may offer protection against a very great number of perils other than
fire and lightning by extending the contract in relation to the interest of the insured through
additional premium payment. For additional premium the standard fire policy maybe extended
to cover any of the following perils: windstorm, explosion, damage by aircraft, damage by
vehicle, flood, earthquake, fire and shock, bursting of pipes and water damage etc.,

Not all fires are covered under the fire insurance contract, but the exclusions are few:

Fires caused by war.

Fires intentionally set by public authorities, and
Fires set intentionally by the insured.
4. Marine insurance:

Marine insurance is designed to protect against financial loss resulting from damage to, or
destruction of owned property, due to the peril primarily connected with transportation. It is a
contract of transport insurance whereby the insurer undertakes to indemnify the insured in the
manner and to the extent thereby agreed, against losses and damages involved in being
transported. In consideration of the payment of a certain sum called the “premium” the insurer
(underwriter), agrees to indemnify the insured (the client) against loss or damage cause by
certain specified peril termed “maritime perils”.

The marine cargo policies of Ethiopian Insurance Corporation are internationally

accepted, worded and standardized insurance policies. Accordingly the coverage it affords is to
indemnify the insuring public as per the terms, conditions, warranties, and exceptions of the
policy in respect of loss of or damage to the cargo insured mainly resulting from maritime perils:
(heavy weather, stranding, collision, etc.,) or inland-transit accident (such as collision,
overturning of the carrying conveyance, explosions, fire, theft, non-delivery of the goods etc.,)

Marine insurance is divided into two classes:

Ocean Marine and

Inland Marine.

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Ocean Marine Insurance:

Contracts concerned primarily with water transportation are considered to be ocean

marine insurance. For a considerable time ocean marine insurance was the only kind of modern
insurance.

Insurance has been developed and has attained a high degree of refinement in modern-
day commerce. As world trade grew and values at risk became larger, the needs for coverage
become more apparent. Larger ships and more refined instruments of navigation made long
voyages possible, and with this development insurance protection was looked upon a almost a
necessity.

Types of Coverage:

The four chief interests to be insured in an ocean voyage are:

The vessel, or the hull

The cargo
The shipping revenue or freight received by the ship owners.
Legal liability for proved negligence.
If a peril of the sea causes the sinking of a ship in deep water, one or more of these losses
can result. However, each of these potential losses can be covered under various insurance
policies.

Inland Marine Insurance: Inland marine cargo insurance covers shipments primarily by land
or by air. Although the trucker, railroad, or airline maybe common carrier with the extension
liability (called liability exposures), the shipper may still be interested in cargo insurance
because:

 It is usually more convenient to collect from an insurer than a carrier.

 A common carrier is not responsible for perils such as an act of war, exercise of public
authority, or inherent defects in the cargo.
No one cargo insurance contract exists. Instead, different insurers may issue different contracts,
and a given insurer will tailor the contract to the insured’s needs. A convenient way to classify
the contracts is according to the type of transportation covered. One or more of the following

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modes of transportation maybe covered – railroad, motor truck, or air. Shipments by mail are
covered under separate first – class mail, parcel port, or registered mail insurance.

5. Aviation insurance:

Aviation insurance is a comparatively recent phenomenon that has been developing with the
development of passenger planes, particularly “Jumbo Jets”. The overall increase in the number
of different passenger planes and the increase in their value called for aviation insurance.
Aviation insurance in an insurance that provides protection against losses or damages to the
different types of passengers, cargo planes and associated losses.

Like automobile insurance, aviation insurance includes both property insurance, on the
planes and liability insurance.

6. Liability insurance:

Liability insurance is contract that protects the insured against legal responsibility of
losses to the person or property of others.

Liability insurance is a part of the general insurance system of risk financing to protect the
purchaser (the "insured") from the risks of liabilities imposed by lawsuits and similar claims. It
protects the insured in the event he or she is sued for claims that come within the coverage of
the insurance policy. Originally, individual companies that faced a common peril formed a group
and created a self-help fund out of which to pay compensation should any member incur loss (in
other words, a mutual insurance arrangement). The modern system relies on dedicated carriers,
usually for-profit; to offer protection against specified perils in consideration of a premium.
Liability insurance is designed to offer specific protection against third party insurance claims,
i.e., payment is not typically made to the insured, but rather to someone suffering loss who is not
a party to the insurance contract. In general, damage caused intentionally as well as contractual
liability is not covered under liability insurance policies. When a claim is made, the insurance
carrier has the duty (and right) to defend the insured. The legal costs of a defense normally do
not affect policy limits unless the policy expressly states otherwise; this default rule is useful
because defense costs tend to soar when cases go to trial. In many cases, the defense portion of
the policy is actually more valuable than the insurance, as in complicated cases, the cost of

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defending the case might be more than the amount being claimed, especially in so-called
"nuisance" cases where there is no liability but the case has to be defended anyway.
7. Pecuniary
'Pecuniary' means relating to money and pecuniary insurance covers businesses against purely
financial losses (e.g. from fraud, legal expenses or business interruption) rather than physical
damage to property

8. Fidelity guarantees insurance:

Fidelity guarantee insurance indemnifies an employer for any loss suffered at the hands
of dishonest employees. It provides guarantee against loss through the dishonesty or incapacity
of individuals who are trusted with money or other property and who violate this trust.

Cashiers and other who handle money, and other persons employed in positions of trust,
are frequently required by the employers to provide security as protection against their personal
dishonest usually in the form of fidelity guarantee policy. The policy indemnifies the employer
against losses from the dishonesty of his employees. The employer himself often takes out the
policy. He may insure a number of employees either individually or in a group basis under a
variety of policies.

Unlike other policies, fidelity guarantee policies specify a time limit to discover the loss
and report it to the insurer after the resignation, dismissal, retirement, or death of the employee in
question. Hence, while the insurer undertakes to make the insured’s financial losses lighter, it is
also a requirement that the insured should:

 Inform the insurer of such fraudulent act immediately upon discovery.

 Either obtain admission of fraud or take appropriate legal action to establish fraud, and
 Cooperate with the insurer to bring the defaulter before the court of law.
In addition, before accepting the risk the insurer considers employerstype of
establishment, methods of selecting employees, working conditions, emoluments and benefits in
relation to the responsibility assigned, supervision and control measures effectiveness.

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 9. Engineering insurance
Times have changed, businesses are evolving more rapidly and industries are becoming more
responsive to market dynamics including global forces, risks and opportunities. South Africa’s
construction and engineering sector is certainly not exempt and it would seem that history has
taught stakeholders to be increasingly astute when it comes to risk management. Nowadays it’s
no longer only a question of, “What is engineering insurance?” The more relevant questions
being asked are, “What type of insurance cover is ideal in specific circumstances or for a specific
project?” And, “Which service provider has the knowledge and expertise to ensure sound,
quality underwriting?”
The engineering industry is significant for several reasons. Apart from being a highly specialized
sector, it remains a significant economic contributor despite fluctuations, challenges and
slowdowns that have impacted it in recent years. From a risk mitigation point of view, it is
important to note that there are various risk and liability concerns that are specific to it. It
therefore follows that an effective engineering insurance solution (and the engineering insurance
cost) will hinge on tailored products that are business or project and industry specific.

In a nutshell, engineering insurance refers to essential cover which affords economic safeguard
against risks encountered during contract implementation and execution. This includes different
types of risk exposure in the course of construction project rollouts, installation projects as well
as that affecting machines and equipment.