Welcome to our Autumn 2015 Edition and 51st Claim Solutions’ Newsletter.
In this newsletter we highlight what you or your clients need to know about making a claim for Property Damage or Business Interruption.
All claims are different but there are some common principles which should be followed.
In addition we put “The Big Wet” recently experienced in NSW under the spotlight.
All our newsletters over the past 14 years have been indexed to provide you with an online compendium of our claims experience. Browse our Index here to find articles which interest you.
If you, or your clients, have suffered loss or damage we wish you a speedy recovery.
We are available to assist you. We welcome your enquiries.
It’s 2 am. Mr & Mrs Edmunds are woken abruptly by the concerning ring of the telephone. It’s the security company. The fire alarm has been activated. Not again, thinks Mr Edmunds. Reluctantly he makes the twenty minute drive in the darkness to his business, Edmunds Essentials, a major department store. He hears the shriek of an emergency vehicle. He pulls over. A fire engine dashes passed. It can’t be! It’s heading in his direction. He follows it towards an unmistakable glow at the end of the street. Mr Edmunds heart pounds as he comes to a halt a short distance from his business. Six fire trucks and countless firemen with hoses are discharging water through the upstairs windows of the century old building in an effort to quell the searing flames!
In the hours that follow the fire is extinguished and Mr Edmunds surveys the damage. Sadly it is significant. He telephones his insurance broker who assures him the insurance policy is in place.
What should Mr Edmunds know about making a claim for Property Damage?
The Loss Adjuster
The Insurer is likely to appoint a loss adjuster who should make contact with Mr Edmunds at the earliest opportunity. The loss adjuster’s role may vary depending on the Insurer’s requirements but often it includes: -
(a) An investigation of the cause of the fire which may involve the appointment of specialist fire investigators. If a third party is found responsible for the cause of the fire the loss adjuster will protect the Insurer’s rights to recover losses.
(b) A review of the insurance policy and recommendation whether the Insurer should accept liability.
(c) Obtaining details of the business, the extent of damage to property and providing the Insurer with an estimate of the potential claim.
(d) Introducing specialists who can assist with demolition, make-safe, removal of debris, reinstatement and replacement.
(e) Recommending that the Insurer pay progress payments at regular intervals to fund the reinstatement of property within the limits of the insurance policy.
(f) Assisting with claim verification and bringing the claim to a conclusion.
The time following a fire can be overwhelming. It may be useful to have an additional person present in all meetings and discussions e.g. a business partner, colleague, insurance broker or claim consultant.
The Claim Preparer
The insurance policy may provide cover for Claim Preparation Costs. This may allow Mr Edmunds to appoint his own consultant to assist with the preparation of claim(s) for property damage. The claim preparer invoices Mr Edmunds for the claim preparation costs and the invoices are included in the claim. The role of the claim preparer may vary but often includes: -
(a) Obtaining an understanding of the business and the extent of the damage in conjunction with the loss adjuster.
(b) Reviewing the Schedule of Insurance and insurance policy and determining the cover available.
(c) Gathering information necessary to substantiate and demonstrate a claim.
(d) Accumulating all costs and preparing a written report in conjunction with the Insured for presentation to the loss adjuster and the insurer.
(e) To assist with any further information, discussion or explanations which may be required to obtain progress payments and finalise the claim.
Claim preparers provide a useful role in assisting an insured through the claim process.
Limits, sub-limits and declared values
It is important for Mr Edmunds to know whether there are any limitations in the insurance policy which may restrict the potential claim. For example he should know: -
(a) The sub-limit for Removal of Debris. This cover responds to demolition and clean up costs. It is important to know whether the sub-limit is likely to be exceeded.
(b) The sub-limit for Professional Fees. This cover responds to architects’, surveyors’, consulting engineers’, legal and other fees for plans, specifications, quantities, tenders and supervision incurred in reinstatement.
(c) Any sub-limit for temporary protection which may respond to temporary fencing, shuttering or security guards.
(d) The overall limit of liability. The claim cannot exceed this amount.
(e) The declared value on buildings, contents and stock and whether it is adequate. If it is inadequate underinsurance penalties may apply. Mr Edmunds should know the extent of any underinsurance penalties as soon as possible.
Work through the insurance policy methodically. Understand it and its implications for the business. Seek professional assistance if required.
Mr Edmunds should take immediate measures to quantify the stock loss. If all stock has been destroyed quantification may be limited to the information contained in his accounts. If some of the stock has not been destroyed it is important for this to be counted as soon as possible to enable it to be quantified, costed and removed from the balance in the accounts and determine the stock lost. It is important that Mr Edmunds does not lose the opportunity to count undamaged stock.
Preserve all documents and processes necessary to substantiate the claim.
Reinstatement or Replacement Memoranda
Mr Edmunds should be aware of the Reinstatement or Replacement Memoranda. It provides him with both options and conditions. The following references are from an Industrial Special Risks Policy (Mark IV) policy wording.
(a) Where property has been destroyed it responds to the rebuilding of a building or replacement of contents with similar property to a condition equal to, but not better or more extensive than its condition when new. This does not provide for the payment of cash. It provides for the rebuilding or replacement of property with a new building or new contents items. When making a claim for the reinstatement of a building it is important for a full Scope of Works to be prepared and agreed fully documenting the materials and work required. Once agreed by all parties the scope can then be costed.
(b) Where property has been damaged the insurance cover responds to the repair of the damage to a condition substantially the same as, but not better or more extensive than, its condition when new. Similarly this does not provide for the payment of cash, it responds to the restoration of property.
(c) The work must be carried out with reasonable dispatch. The time period which qualifies as “reasonable” varies depending on the circumstances of the loss. Every effort must be made to reinstate or repair in a timely manner. If not the Basis of Settlement is Indemnity Value i.e. a reduced value considering the age and condition of the destroyed or damaged property.
(d) The work of reinstatement may be carried out on an alternate site provided this does not increase the liability of the Insurer.
(e) The reinstatement cost must actually be incurred. If not, the cover reverts to indemnity value.
Understand the options available; reinstatement, replacement, repair or cash settlement.
Extra Cost of Reinstatement
Mr Edmunds’ building is a century old. It is likely it does not comply with current building regulations and significant upgrade may be necessary. Mr Edmunds needs to know the cover available for Extra Cost of Reinstatement and any sub-limits which may apply to the upgrade costs.
Upgrading a building to comply with current regulations can be costly and time consuming.
The insurance policy may contain a clause which indicates the Insurer will make progress payments towards any claim upon production of a report by the loss adjuster. Mr Edmunds should lodge interim claims which anticipate the cash flow necessary to fund the reinstatement process to allow progress payments to be made in a timely manner.
What should Mr Edmunds know about making a claim for Business Interruption?
The insurance policy is likely to contain a condition which obligates Mr Edmunds to take all reasonable actions to avoid or diminish the loss. If not the Business Interruption claim may be limited to the amount which would have been payable if he had taken all reasonable actions to minimise the loss.
Document all efforts taken to minimise the loss.
Termination of Cover
If Mr Edmunds decides to close up, permanently discontinuing the business the cover for Business Interruption ceases from the date the business is closed.
If the business is to be terminated be aware of the consequences.
Limits, sub-limits and declared values
Mr Edmunds needs to be aware of any limits which may restrict the ability to claim the Consequential Loss in full: -
(a) Are the declared values on Gross Profit and Payroll adequate? If not underinsurance penalties may apply which may reduce the amount of any claim. Mr Edmunds needs to be made aware of any underinsurance penalties at the earliest opportunity. If possible, alternative finance may need to be arranged.
(b) Is there a sub-limit for Additional Increased Cost of Working and if so is it sufficient? This responds to additional costs not covered elsewhere in the policy to maintain normal business operations.
(c) Is there a sub-limit for Claim Preparation Costs and if so is it sufficient? This may allow Mr Edmunds to appoint Claim Solutions to prepare the insurance claim(s) for both Property Damage and Business Interruption and for our fees to be reimbursed within the claim.
Mr Edmunds can concentrate on re-establishing his business while Claim Solutions manages the insurance claim.
The Bureau of Meteorology has confirmed what many in New South Wales suspected. April 2015 was the wettest April in 25 years. The state wide rainfall was a massive 47% above average.
On the evening of Monday 20 April 2015 a low pressure system developed off the Hunter coast producing very heavy rain, strong winds and high flooding, downed trees and caused power outages. The State Emergency Service received thousands of calls for assistance and performed many flood rescues.
Transport systems were stretched to their limits with roads and rail lines cut, significant delays at Sydney airport and a cruise ship fully laden with passengers was even prevented from docking at Sydney Harbour for some time.
On 25 April 2015 a severe hailstorm hit Sydney blanketing the streets in ice. Several factories collapsed under the weight of the hail.
As at 1 May 2015 the Insurance Council of Australia reported that 35,150 claims had been lodged with an estimated value of $249m. The ICA declared the hail storm a catastrophe being the fourth since November 2014!
If you or your clients businesses have been affected by these severe weather incidents and need to make a claim we are available to assist.
Above all stay safe.
Avoid fallen electrical wires and trees.
Whether on foot or in a car, avoid floodwater.
Ensure your property is safe.
Telephone the SES if required.
Ensure electrical supply or equipment is tested.
We wish all those affected by the storms a speedy recovery.
Claim Solutions provides a specialist insurance claims service. Our firm is recognised as one of the leading practices in this field with both national and international companies featuring amongst our clients. Our aim is to provide an efficient, professional and complete claims service which responds to your needs in times of crisis. We are available to assist you and your clients.
The Articles which appear in this Newsletter are not intended to be a substitute for specific technical advice.