Recently, there have been several fires in large manufacturing plants in Poland. The owners turned to Galicja Brokers for help in settling the damage. After analyzing the insurance policies, it turned out that all the policies had an understated insurance amount in relation to the actual value of the buildings and machines. The differences ranged from several to several dozen million złoty.

The problem is extremely important in the context of the Insurance Company's liability for damage. In the event that the insurance sum is set at a level lower than the value of the insured property, we are talking about underinsurance. The injured party must then reckon with the fact that in the event of damage, the insurer's benefit will not cover the full value of the damage. Insurers use the following provisions in the general terms and conditions of insurance:If the sum insured is lower than the value of the property on the date of conclusion of the contract (underinsurance), compensation is paid in such a ratio (proportion) to the amount of damage incurred in which the accepted sum insured remains to the actual value of the insured property, but in an amount not higher than the accepted sum insured"

Example:

The insurance amount of the factory was set in the policy at PLN 10,000,000. The actual value of the plant is PLN 20,000,000. When a fire causes damage of PLN 12,000,000, the insurer will pay out only PLN 6,000,000 on a pro rata basis because the underinsurance of the property was PLN 50,%.

In judgments IV CSK 149/10 and II CSK 454/18 the Supreme Court assumed that, as a rule, in underinsurance of property the insurer's liability may be based on the rule of proportion if the insurance contract or the general insurance conditions so provide.

With the above in mind, we draw your attention to this very important issue when taking out property insurance.

Legal adviser Jerzy Klimkowski