In which circumstance can an insurer refuse to pay a claim under an indemnity policy?

An insurer can refuse to pay a claim under an indemnity policy in a situation where the loss is underinsured. An indemnity policy is designed to cover the actual loss incurred, and if the policyholder has insured the asset for less than its actual value, they may only receive a proportionate amount of the loss. This principle prevents policyholders from profiting from their insurance coverage, which is a key feature of indemnity.

In cases of underinsurance, the principle of proportionality comes into play, where the payout is adjusted based on the level of coverage relative to the actual loss. For example, if a homeowner has insured their property for £80,000 but the actual value is £100,000, and they experience a loss of £40,000, they would only recover £32,000, reflecting the 80% coverage of their insurance policy.

Other options might seem plausible scenarios for claim denials but don't apply in the same manner. The existence of multiple insurances may complicate the claim process but does not inherently grant the insurer grounds to refuse payment. Failing to pay premiums typically provides grounds for a policy to be voided, but this is often addressed during the policy's validity rather than at the point of claim