Under-insurance in condominiums: the proportional rule (Art. 1907)

Under-insurance occurs when the building is insured for a value lower than the real one at the time of the loss. In this case Article 1907 of the Italian Civil Code imposes the proportional rule: the insurer compensates the damage only in proportion to the ratio between the insured value and the actual value, unless otherwise agreed. It is one of the most insidious causes of reduced indemnity, because the condominium discovers the problem only at settlement, when it receives a sum considerably lower than the loss suffered.

What Article 1907 of the Civil Code says

Article 1907 states that if the insurance covers only part of the value the thing had at the time of the loss, the insurer is liable for the damage in proportion to that part, unless otherwise agreed. In practice, if the real value of the building is higher than the insured sum, the indemnity is cut by the same ratio. The rule applies to the cover on building damage: according to settled case law, it does not apply to the civil liability contract, which follows a different logic based on limits.

How the proportional rule is calculated

The proportional rule follows the formula: indemnity equals the damage multiplied by the ratio between the insured sum and the real value. An example clarifies the mechanism. If the building is worth 1,000,000 euro but is insured for 600,000, the ratio is 60 percent. In the event of damage of 50,000 euro, the company pays 60 percent, that is 30,000 euro, and the remaining 20,000 stays with the condominium, on top of deductibles and any uncovered amounts. The reduction hits every claim, even small ones, because it depends on the ratio between values and not on the size of the damage.

Why the building is often under-insured

Under-insurance almost always arises from an incorrect or outdated estimate of the value. The typical causes are recurring.

• Insured value based on the market value of the property rather than the reconstruction cost
• Insured sum never updated over the years, while reconstruction costs have risen
• Improvement or extension works not reported to the company
• Value calculation that ignores common systems, accessory parts and demolition and clearance costs
• Deliberate undervaluation to lower the premium, which then backfires at the claim

Reinstatement value, reconstruction value and derogation clauses

To avoid under-insurance the building must be insured at its new reconstruction cost, that is the expense needed to rebuild the building with equivalent features, and not at its commercial value, which is affected by location and market. Many policies offer clauses that, within certain limits, derogate from the proportional rule: the full value insurance clause with derogation, or formulas that tolerate deviations within a percentage. Checking the presence and scope of these clauses is essential, because they can wholly or partly neutralise the effect of Article 1907.

The administrator's role and periodic review

The administrator should periodically verify that the insured value is consistent with the current reconstruction cost, especially after major works or significant changes in construction prices. It is useful to ask the company or broker for a review of the insured sum and to submit any adjustment to the meeting, explaining that a slightly higher premium today avoids a halved indemnity tomorrow. A valuation survey of the building, in buildings of significant value, is an investment that pays off at the first settlement.

Keeping values and deadlines under control

Monitoring the insured value, the policy deadlines and the history of works that change its size is part of prudent risk management. A management software such as AmministraPro allows the policy to be archived with the insured sum, extraordinary works affecting the building's value to be recorded and renewal deadlines to be remembered, so as to review the cover in time and avoid the under-insurance trap: the features are described on /funzioni and the plans on /prezzi.