Abandonment Clause

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Definition: Abandonment Clause

Some property insurance policies contain a clause known as the abandonment clause, granting the policyholder certain rights in the event of abandonment. Under specific circumstances(i.e abandonment), the insured is allowed to abandon lost/damaged property and yet receive full insurance benefits due, i.e settlement.

Abandonment refers to the actions of surrender, or intentionally permanently giving up, relinquishing property or premises.

In simpler words, this clause(abandonment clause) or provision gives an insured party power to forfeit damaged property in exchange for full compensation, post which the insurance company can optionally take ownership of the forfeited assets.

Abandoning or forfeiting ownership to a second party, involves a transfer of ownership which may or may not be accepted by the second party (insurer). Common situations where abandonment clauses are found are when the cost of repair or recovery is substantial compared to the value of the property itself. For example, Abandonment clauses can be applied to marine property and shipping of goods overseas. Also these clauses can be commonly found in certain homeowner insurance contracts. Usually arranging for repair disposal or related maintenance is the insured responsibility, unless the insurer elects otherwise.

Also known as a desertion clause, abandonment clauses are usually found along with salvage clauses in property insurance contracts.

Example of an abandonment clause: Consider the below clause,

“ Post loss or damage to property that is insured, the insurer will have the immediate right of access/entry to examine & survey the property, to estimate the loss and damage, and, after securing the property, the insurer has further access and entry rights to make accurate appraisals/loss(or damage) estimates. However the insurer is not entitled to control/possess said property. Without the consent of the insurer there can be no act of abandonment of insured property.”

Note: An abandonment clause is not the same as an abandonment option.



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