Welcome to our Autumn 2013 Edition and 44th Claim Solutions’ Newsletter.
Our previous newsletter, issued in December 2012, considered the seasonal nature of disasters and claims.
It concluded that in our experience there is indeed a seasonal spike in bushfire and weather related claims in the months of December/January sometimes extending to March.
Unfortunately our conclusion appears to have been validated by recent events.
Tropical Cyclone Oswald made landfall in the Gulf of Carpentaria on 21 January 2013. In the following weeks, heavy rains and high winds resulted in floods, damage to property, transport links and isolation of towns in Queensland and New South Wales.
In January 2013 bushfires ignited in most States and Territories with evacuations and property loss being experienced in south east Victoria.
If you, or your clients, have suffered loss or damage we wish you a speedy recovery.
We are available to assist you or your clients and welcome any claim enquiries.
An Industrial Special Risks policy is often seen as a maze of operative clauses, indemnities, additional benefits, memoranda, exclusions and even provisos to exclusions impossible to navigate. What we need is a road map; a GPS to guide us through the maze along the most timely and direct route. This newsletter provides our road map which we hope you find useful. Join us on our road trip. There are four principal sign posts to prevent us from getting lost. They are (1) Cause, (2) Damage (3) Exclusions and (4) Provisos.
“Cause” is the amber light. Until we understand it there is no green light and the journey cannot begin. In insurance terms it is often referred to as “proximate cause”.
Sadly the destruction from a fire may be all too obvious but what was the cause? Was it spontaneous combustion, lightning strike, sparks from machinery, a fault in electrical equipment or the irresponsible disposal of a cigarette butt? Were flammable or combustible liquids present and if so why?
Specialist assistance may be required. A fire investigator may be required to determine the most probable cause of the fire.
The sodden mess resulting from the escape of water can be similarly obvious but again what was the cause? Was it due to a leaking pipe? If so, why did the pipe leak? Was it due to poor workmanship or was it a maintenance issue? Was the damage caused by rainwater? If so, where did the rainwater enter the property and why? Was the damage caused by an overflowing river, lake, storm surge, tidal wave or, heaven forbid, a tsunami.
Specialist assistance anywhere from a plumber to a hydrologist may be necessary to determine the probable source of water damage.
The failure of machinery can result in loss and damage and cause can often be difficult to determine. Was it due to faulty design, poor workmanship, operating the machinery outside specifications, or subsidence of footings? The failure must be fully investigated and the cause which resulted in the loss or damage must be identified if we are to find our way through the ISR policy.
Investigations into cause should not be delayed. Evidence needs to be preserved, photographs need to be taken, and specialists need to examine the site at the earliest opportunity. Time has a way of erasing the facts and the earlier the true cause of a loss is identified the smoother the road ahead will be.
Having identified “Cause” the lights are green and we’re off. The next landmark is in our sights is the dreaded “Damage”!
For the ISR Policy to respond there must be “physical loss, destruction or damage”. As suggested above, in most cases this is usually unmistakable as blackened, saturated, battered or broken buildings, contents and/or stock.
Sometimes the damage is not so obvious. For example a fire may result in little flame but extensive smoke. Smoke permeating through a building can settle on shelves, walls and machinery. It can be absorbed into fabrics and garments. It may be loaded with contaminants resulting in odor, rust and deterioration. To the eye, physical damage may not be apparent. To some an odour may be noticeable to others it may not. There may be a change to the property, it may be molecular but it is still physical.
Just as specialists are often essential to assist with cause other specialists are sometimes required to report on damage which may not be visible or obvious.
We may have had to wind down the window and ask for help but two of the landmarks are now behind us; (1) Cause and (2) Damage.
The next is on the horizon. The feared exclusions! There is a fork in the road. If an exclusion applies the road on the left may lead you to a dead end. If it does not, your journey continues and you take the road on the right and the claim proceeds.
The ISR policy is an “All Risks” cover. It covers all risks unless they are deleted by way of an exclusion. There are two types of exculsions (1) Property Exclusions and (2) Perils Exclusions.
Our desire not to lose you to a fatigue, from which no power nap can ever revive you, precludes us from navigating around every exclusion in this newsletter. We have chosen two Propery exclusions and two Perils exclusions which are often tortuous.
Property Exclusion 8 deletes cover for physical loss destruction or damage to land.
Bushfires are all too common in Australia, often with not only physical but also emotional damage. Sometimes the emotional scars are such that an insured elects not to reinstate the property at the same site. They may elect to reinsate at another site. While the policy may respond to the reinstatement cost of the buildings and contents it does not respond to the replacement cost of the land. The acquistion cost of the new plot of land must be incurred by the Insured.
A similar experience was encountered in the earthquakes in Christchurch New Zealand. Large tracts of land were physically damaged by liquefaction and relocation was necessary. The cost to purchase an alternative parcel of land upon which to rebuild is not insured. Cover for land is specifically deleted by exclusion. You’re heading toward that dead end.
Machinery Breakdown: -
Property Exclusion 16 removes cover for damage to all Machinery caused by mechanical, electrical, eletro-mechanical, electronic or hydraulic malfuntion, failure, derangement, breakdown or non-operation of whatsoever kind.
This exclusion involves (1) a class of property (i.e. machinery) and (2) cause (i.e. machinery breakdown).
For example if a conveyor belt fails catastrophically due to an electronic malfunction the damage and loss from the machinery breakdown, as defined in the policy, is excluded.
It may be necessary to wind down the window again and ask for help!
An appropriate specialist familiar with the operation of the machinery may be required to identify the cause of the failure.
Perils Exclusion 3 deletes cover for flood. Flood is defined as the inundation of normally dry land by water overflowing from the normal confines of any natural water course or lake, resevoir, canal or dam, water from or action by the sea, tidal wave or high water.
Special Climate Statement 44 issued by the Bureau of Meteorology attributes extreme rainfall and flooding in coastal regions of Queensland and New South Wales in January 2013 to Tropical Cyclone Oswald.
Care must be exercised before accepting the flood exclusion to ensure that the proximate cause was attributable to the flood and not the extreme rainfall. This will influence which way you turn.
Faulty Design: -
Perils Exclusion 4 deletes cover for physical loss or damage arising from error or omission in design, plan, specification or failure of design.
For example a vat containing hundreds of litres of liquid essential for a production process fails. The vat buckles, collapses, ruptures and the liquid floods the plant.
The reason for the failure needs to be fully investigated. If it failed because of an error in design the exclusion may well apply. The red light is on.
Navigating the exclusions can be tricky. If specialists are required to help you unravel the maze, make sure they are appropriately briefed so relevant information is obtained to determine if the exclusion applies.
OK .. so your investigations so far have suggested an exclusion applies and you are heading down that road on the left, the one taking you straight to that dead end. Is there any way out? There is one last roundabout which may allow the claim to proceed. We’ll call it “The Proviso”. Many of the perils exclusions contain a proviso. While the exclusion removes loss or damage for specified perils many include a proviso that indicate under certain circumstances “subsequent damage” may be covered.
For example this proviso exists under the “error in design” exclusion considered above. The text of the proviso probably won’t fit on any road sign but we need to understand it.
It states , “provided that this exclusion ... shall not apply to subsequent loss, destruction or damage to the Property Insured occasioned by or happening through a peril (not otherwise excluded) resulting from any event or peril referred to in this exclusion”.
This means if the error in design results in subsequent damage (caused by a peril which is not excluded) the subsequent damage and loss that flows from this secondary peril is covered.
The example used to demonstrate the application of the “error in design” exclusion was the vat that buckled, collapsing and spilling litres of liquid throughout the plant. What we didn’t explain earlier is that the liquid was flammable and a fire ensued severely damaging property and resulting in a Loss of Gross Profit.
Fire is not excluded, the fire caused subsequent loss or damage, the proviso reinstates the insurance cover for this subsequent loss or damage. Success, we have approached the roundabout, taken the third exit on the right, our journey continues and our claim proceeds.
It’s not the cliff tops of the Amalfi Coast but navigating an ISR policy can be just as tortuous. With a clear mind map from cause, to damage, then through the exclusions and awareness of the provisos to the exclusions, the right destination can be found. Sometimes the destination is that there is no claim and sometimes the journey continues and the map then leads on to another maze, that of establishing quantum. That’s another road trip …. and one where we can be your navigator!
When a loss occurs an adjuster is usually required to provide the Insurer with a reserve sufficient to reflect the Insurer’s potential liability under the policy.
It is important for these estimates to be as accurate as possible because: -
- They allow the Insurer to allocate funds for the payment of the claim.
- An understated estimate can lead to unnecessary justification as to why the claim exceeds the reserve.
- An overstated estimate can have an unrealistic impact on insurance renewals and premiums which may fall due during the course of a claim.
While it needs to be as accurate as possible it is important to remember that an estimate is just that and attention needs to be focused on the actual costs i.e. the claim.
On 15 February 2013 news channels and social media were filled with videos of meteor fragments not only entering the earth’s atmosphere but exploding several kilometres above the earth and sending sonic shockwaves and debris over the Ural mountains in central Russia. Some 1,500 people were reported to be injured and some 7,200 houses and buildings were reported to have been damaged over six cities. Shockwaves shattered windows throughout the region and eyewitnesses reported feeling the heat from the fireball.
News reports indicate that the meteor was about 55 feet in diameter and weighed some 10,000 tons. Scientists suggest it is the largest object to hit the earth in more than a century. It has been reported that it exploded near Chelyabinsk, Russia and released nearly 500 kilotons of energy which is more than 30 times the energy of the Hiroshima Atomic bomb.
The object was not detected before it entered earth’s atmosphere.
Scientists estimate that on average an event such as this should be expected once every 100 years so hopefully we will not have to address any meteor claims in Australia in the near future.
About Claim Solutions…
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.