What is an "Agreed Amount" clause?
An "agreed amount clause" is a provision commonly found in property insurance policies. This clause sets a predetermined or agreed-upon amount as the limit of coverage for a specific item or category of items, regardless of the actual value of the property at the time of loss. The agreed amount is established through negotiation between the insured and the insurer and is stated in the insurance policy.
How an Agreed Amount Clause Works:
Negotiation and Agreement:
Before the policy is issued, the insured and the insurer negotiate and agree upon a specific amount to be covered for a particular item or category of property. This agreed-upon amount becomes the limit of coverage.
Stipulated Value:
The agreed amount is often referred to as the "stipulated value" or "agreed value." It represents the maximum amount that the insurer is obligated to pay in the event of a covered loss, regardless of the actual cash value or replacement cost of the property at the time of the loss.
Application to Specific Items:
Agreed amount clauses are commonly applied to high-value items, unique assets, or categories of property where the parties can reasonably agree on a set value. This could include items like artwork, antiques, or specific pieces of equipment.
Certainty for Coverage:
The purpose of the agreed amount clause is to provide certainty to both the insured and the insurer regarding the coverage amount. This can be particularly important for items with fluctuating values or items that may be challenging to assess accurately.
Sample Agreed Amount Clause:
"Agreed Amount Clause: The parties agree that the value of the insured property, described as [specific item or category], is hereby stipulated to be [agreed amount]. In the event of a covered loss or damage to the insured property, the insurer's liability shall be limited to the stipulated value, regardless of the actual cash value or replacement cost at the time of the loss."
In this example:
The agreed amount clause specifies a particular item or category of property.
The agreed amount is stated as a fixed value.
The insurer's liability in the event of a covered loss is limited to the stipulated value, irrespective of the property's actual value at the time of the loss.
Agreed amount clauses provide clarity and predictability in property insurance, especially for items with unique or subjective values. It's essential for both parties to carefully review and understand the terms of the agreed amount clause during the policy negotiation process.
Comments