Is an insurance company required to take into account how its client would prefer an insurance claim to be settled?

Question Details: My insurance company has agreed to cover full replacement cost on the burglary of some artwork I inherited (made by my grandfather). They want to pay an artist to re-create the work, but since I wouldn't be able to display it as my grandfather's work I would prefer that the cost of recreating the artwork to be paid into my bank account so I can get something else to remember him by. Am I entitled to have the claim settled in this way?

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Answers by Lawyers

Community Law Wellington & Hutt Valley

Not necessarily. The insurance company is only required to fulfill the obligations set out in their contract with you, and each insurance company uses different contracts. There is no general legal requirement that requires an insurance company to take account of how you would prefer a claim to be settled. You should look at your contract (and at the insurance company's website and advertising) to see if they say they will take your views into account.

Insurance contracts often have clauses that require insurers to act in good faith with their customers. Good faith, and similar clauses, are hard to interpret, but it would be reasonable for your insurance company to consider your request, but it may not mean that they are obliged to met your request.

Insurance companies will usually replace items wherever possible, but cash settlements are often offered if requested. Cash settlements will generally be for the "indemnity value" of the item, which means the re-sale value, which is generally less than the cost of replacement.

If you discuss your preference with your insurance company they may offer you a cash settlement, but it may be less than the amount they would have paid to have the art work reproduced, and they are within their rights to do this.

If you continue to have problems, all insurance companies are required to have internal complaint mechanisms, so you can ask your insurance company for the details of their complaints mechanism if you feel things have not been resolved.

If you reach gridlock with your insurance company's complaint mechanism you can go to an independent review group. In most cases this will be the insurance and savings ombudsman (check the participants list to see if your insurance company is a member: and if your company is not a member, ask them which disputes resolution scheme they are a member of.)

Answered 28 Feb 2013. The IMPORTANT NOTICE below is part of this answer.

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