Texas General Lines — Property and CasualtyProperty and Casualty Insurance BasicsMedium
A business owner has a commercial property policy that covers their building. If the building becomes significantly damaged by a fire and the owner decides not to repair it, but instead attempts to give the remaining damaged property to the insurer for full value, which clause would prevent this?
- ASalvage
- BSubrogation
- CAssignment
- DAbandonment
Show answer & explanationAnswer & explanation
Correct answer: D. Abandonment
The Abandonment clause prevents an insured from turning over damaged property to the insurer and demanding full policy limits. The insurer has the right to repair or replace, or pay the actual cash value.
Why the other options are wrong
- A. Salvage refers to the insurer taking possession of damaged property after paying a total loss claim.
- B. Subrogation is the insurer's right to recover from a negligent third party.
- C. Assignment deals with transferring policy ownership, which typically requires insurer consent.
Abandonment Clause
A policy provision that prohibits the insured from abandoning damaged property to the insurer and claiming a total loss, requiring the insurer to pay its full value.
- Prevents insured from relinquishing damaged property
- Insurer retains options to repair, replace, or pay ACV
- Protects insurer from moral hazard
Memory trick: Don't abandon your mess, the insurer has rights too.