Excess, Deductible, First Amount Payable or Waiver, we have seen that the “Elephant” has various names, all equally uncomfortable.

Excess, Deductible, First Amount Payable or Waiver, we have seen that the “Elephant” has various names, all equally uncomfortable. The elephant in the room is an English idiom that is generally defined as a major problem or controversial issue which is obviously present but is avoided as a subject of discussion. Excess is that portion of insurance cover that is uninsured and is to be borne by the insured. Stated differently the insured can be said to be deemed his own insurer for the amount of the excess (see the English decision of Napier v Hunter (1993) 2 W.L.R. 42).

One must always keep in mind that the insurance cover enjoyed by an insured is governed by the law of contract and as such creates obligations for both the insured and insurer. When interpreting a contract, the aim is to determine the intention of the parties. This subjective intention is not easily attainable thus one will rely on the objective information available to supplement one’s interpretation of the contract. If you consider the objective purpose of an excess, it is generally a pre-agreed amount that is self-insured. Whether the excess is deducted before or at finalization of a claim depends on the agreed policy documents (i.e. policy schedule read with the policy wording).

In some instances, the excess is deducted from the settlement amount once a claim has been finalized and thereafter the remainder paid to the insured. However, this is not always the case with liability insurance as, in many situations, the matter is never settled but successfully defended. Depending on the agreed policy documents and claim circumstance, an excess may even be payable upfront for a policy to respond. It is thus important to consider that the failure by an insured to pay the excess may result in a rejection of a claim where it constitutes a condition precedent to cover or could vest in the insurer a right to recover from the insured any damages caused by the non-performance of the contractual obligation to pay the agreed excess (see Norris v Legal and General Assurance Society and Another 1962 (4) SA 743 (C)).

Excess can be a blessing when it comes to negotiating premium for clients or assisting with making them more insurable but a curse when it comes to claims stage if not understood or handled correctly. A double-edged sword one might say.

How do we then address the elephantin the room? Well, one bite at a time…

Firstly, become comfortable with the uncomfortable. If excess is part of the cover familiarize yourself with where to find it in the policy schedule and ensure you know how it operates in the policy wording.

Secondly, understand why the excess is applicable to the cover, and when presenting terms to client, be sure to discuss the excess and impact this has.

Lastly, should your insured have a claim, the excess ought to be discussed with your client as soon as practicable to help you manage expectations and avoid a potential awkward situation down the line.

In conclusion, the excess is not an elephant one wants to leave unnoticed in the room as the consequences can be devastating. Confront it as soon as possible!