Abandonment in Insurance Contract


An abandonment clause in a property insurance contract, under certain circumstances, permits the property owner to abandon lost or damaged property and still claim a full settlement amount. It is a clause in property insurance policies prohibiting the insured from abandoning damaged property to the insurer for repair or disposal. The term is used in Marine Insurance in connection with a constructive total loss of a vessel by any of the perils. It signifies the relinquishing by the insured of all interests in the wreckage for an agreed compensation. If a property owner’s ship is sunk or lost at sea, the abandonment clause affords the owner the right to essentially “give up” on finding or recovering his or her property and subsequently collect a full insurance settlement from the insurer.

In marine insurance, the insured has the right to abandon the property subject to acceptance by the insurer. It is a provision in an insurance contract that ensures full compensation in the event of abandonment. If acceptance is granted, the insurer pays a total loss, usually the maximum settlement possible according to the terms of the insurance policy, then takes over the salvage as an owner, regardless of any amount received from its subsequent sale. For example, suppose a company has an insurance policy on a machine, and the machine is damaged to such an extent that it is not worthwhile to pay for the repairs. The company may abandon the machine and collect on the insurance policy via the abandonment clause.

So, it provides insurance policyholders with the option of using the proceeds from their claim to repair the damaged asset, or abandon the property and still retain the settlement. Non-marine policies usually prohibit abandonment by the insured and the claiming of the total loss. Homeowners’ policies typically prohibit policyholders from abandoning property under any condition.