Abandonment in Insurance
Abandonment is the act of surrendering a claim to, or interest in, a particular asset, or allowing an options contract to expire unexercised. Abandonment usually means surrendering by the insured the remains of the damaged property to the insurer and claiming a total loss. It is not basically peculiar to marine, as in marine insurance practice the assured has the right to abandon the property (subject to the acceptance by the insurer) thereby claiming a constructive total loss. When, there, the insurer pays a total loss he takes over the salvage as owner thereof. He becomes the absolute owner irrespective of that value is received from the subsequent sale.
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. This clause 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. 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.