What is an Abandonment Clause?

ABANDONMENT CLAUSE DEFINITION


The language in a property insurance policy that says the policyholder may not vacate or discard damaged property, leaving it to the insurer. The abandonment clause states that the policyholder shall handle the repair or discarding of damaged property, unless the policyholder makes alternate arrangements with the insurer. If the insurer determines that the damage constitutes a total loss, it may allow for abandonment, as in the case of a totaled vehicle. When the policyholder abandons the property, it must give the title to that property to the insurer. If the insurer recoups any value from the abandoned property (e.g., by selling still-functional parts from a totaled vehicle), that sum belongs to the insurer. However, the insurer will have compensated the policyholder with a check that allows him or her to replace the damaged property.

EXAMPLE

Neil lives in Saskatchewan and his home and truck have been severely damaged by a tornado. His home is uninhabitable and his truck is not drivable. Neil wants a fresh start and thinks his best option is to walk away and start over. He has insurance, which he thinks will issue him large enough checks for his losses that he can buy a new home and a new vehicle instead of rebuilding and getting the truck repaired. However, under his insurance policy’s abandonment clause, Neil cannot decide to take this path without his insurer’s permission. After assessing the damage, the insurer decides to issue him a check to repair his home, but it will not take possession of the home. His truck, on the other hand, is considered a total loss, and his insurer agrees to tow it away and dispose of it after issuing him a check to buy a replacement vehicle.

FIRST FOUNDATION TIPS

A policy’s abandonment clause may also describe the insurer’s right to access and control the property on which the insured is filing a claim. It may state that the insurer has the right to access the property in order to assess the damage and estimate the amount of the loss. It may further explain that the insurer does not have the right to take control or possession of the damaged property. In essence, the abandonment clause protects both the insured’s property rights as well as the insurance company’s financial interests. Also, in the case of lost property, such as a stolen car or a boat lost at sea, the abandonment clause lets the policyholder relinquish the rights to his property, should it ever be found, in exchange for filing a successful claim and receiving funds to replace the lost property.

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Last updated Oct 29, 2018