Abandonment

The term Abandonment as used our day to day language, has a similar connotation in insurance. In an insurance policy, it refers to the right of an insured to not accept a property damaged due to a claim and abandon/leave it to the Insurer to handle. Eg If a vehicle is involved in a severe accident, the Insured may not like to get it repaired. He may prefer to be paid the claim on Total loss basis. However, as a general rule insurance policies do not encourage such discretion being given to the insured. 

As a concept Abandonment has its roots in transit insurance. The Marine Insurance act, 1963 provides detailed process of notice of abandonment by the Insured and its specific acceptance/rejection by the Insurer. 

The Marine Insurance act also talks of “reasonable abandonment” before considering a loss as  constructive total loss (CTL) ie.  a  loss which has not actually resulted in damage to goods but needs to be considered as such on commercial considerations. Let us consider the example of a truck loaded with goods worth Rs two lacs which has fallen down in a hilly terrain. Fortunately the goods do not appear to be damaged in a major way.  People engaged to  retrieve this truck with goods want a sum of Rs 3 lacs for the task. Obviously this effort at retrieval does not make commercial sense and even the part damaged goods have to be left where they are. In other words, goods are reasonably abandoned. 

CPM cover like other insurance policies has a specific section mentioning the duties of an insured whose property has suffered damage due to an accident. These norms specifically mention that the insured shall take all reasonable steps to minimise the loss and take care of the damaged property to avoid further loss. The CPM policy also follows the standard practice of discouraging abandonment by the insured. The policy terms specifically mentions- “The Insured shall not be entitled to abandon any property to the Company whether taken possession of by the Company or not.” 

In addition to the above general restriction, the policy has a specific exclusion regarding abandonment of property working underground. It says-  

“Loss or damage due to abandonment of any plant and/or machinery working in underground mines or tunnels shall be excluded from the cover.” 

The rationale for this specific exclusion can be understood by considering the case of a Tunnel Boring Machine (TBM). Tunnel boring machines are used to excavate in a circular cross section through variety of soils/rocks etc. These machines can be quite huge- largest with a 15 meter diameter built by Herrenknecht AG for a project in Shanghai, China. A TBM may be used for Subway tunneling in cities or in hilly terrain. The sheer bulk & weight in addition to high probability of losses make this equipment one, which not many insurance want to cover. Hence the specific exclusion clause in the CPM Policy.