Automatic reinstatement in property insurance policies

When dealing with property insurance claims after a natural disaster, many policyholders encounter or are educated as to the reinstatement clause in their policy, and how it affects future claims arising from multiple events or disasters.  In some property insurance policies there is a reinstatement clause that, simply put guarantees that once a claim (or loss)has been filed, the terms of coverage per the policy are reset to cover new, unrelated claims at the full sum insured.   However, many policies set a cap on payouts for the duration of the contract, so it is essential for property/business owners to be aware of what their policy will cover in the event of multiple losses during a coverage period.   

A good example of the importance of reinstatement clauses can be found in Christchurch, NZ where multiple earthquakes (events) have caused separate instances of damage.   Many policyholders are taking their insurers to court over reinstatement coverage regarding multiple losses.  One such case involved two Christchurch building owners who sustained losses over three earthquakes (events).  Their insurer cancelled the reinstatement provision without notice, and then attempted to deny payment (of each separate claim) to the policyholders saying that the subsequent claims would not re-trigger coverage because the initial claim had not yet been paid/settled.  The insurer also argued that it could give written notice, upon payment of the initial claim, that the policy would not be reinstated thus not providing coverage for future or multiple events.  In this case, the judge ruled in favor of the plaintiffs saying the sum of an insurance policy should be available after each insurable event if a policy includes a reinstatement clause.   He also went on to clarify that an insurer can cancel a reinstatement clause as long as they provide ample notice to the policyholder.  In this case, they had not.

This would seem to definitely be something to keep in mind when shopping for and shaping your property insurance policy.  As we’ve seen in recent years with the acceleration of climate change, natural disasters are far more common and don’t always occur in convenient intervals. It does not, however, mean that you as a policyholder are not entitled to coverage per event.   With a bit of forethought and action, you can be sure you are fully insured with a reinstatement clause in effect in your policy.

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