Welcome to the twentieth edition of Claim Solutions’ Newsletter.
Insurance issues related to extreme weather events have been highlighted in many of our recent newsletters. These events continue this quarter with Cyclone Larry in Queensland, seven cyclones threatening the north west coast including Cyclone Wanda, floods in central Queensland and the Northern Territory, and a blizzard at Thredbo, where a total fire ban is still in place.The recent events list on page 4 includes many small businesses from rug and stationery shops to clubs and community centres. These remind us that it can happen to our smaller clients and they need adequate insurance tailored to their business.
If you would like us to discuss the importance of Business Interruption insurance with you and/or your clients please do not hesitate to contact us.
It came to our attention in this quarter that pictures of semi naked people in a tanning solarium were circulating cyberspace. The tanning salon was named and patronage of that salon, understandably, decreased substantially. It was proved that the business named had nothing to do with the taking of any photos and the photos were not taken at their premises.
It would take considerable time to counter such negative publicity and regain customer confidence. The business has sustained losses, through no fault of its own, and would hope they would be insured for such an event. So is the event insured?
Under a standard Industrial Special Risks Mark IV policy wording Section 2, Consequential Loss, provides cover for Loss of Gross Profit from physical loss or damage to property caused by an unexcluded peril.
The list of peril exclusions would not appear to limit such an event.
There does not, however, appear to be any physical damage to insured property ie. to buildings, plant & equipment and/or all other contents.
Under the standard wording, the Memoranda to Section 2 provides extensions of cover for 3 other events: where there is damage to public utilities; damage to computer installations; and prevention of access caused by an insured peril. None of these apply to this event.
So under a standard ISR wording the losses sustained are not covered. We doubt any current business pack policies would provide cover either.
This case only proved that not all publicity is good publicity.
It may seem logical that a cost would be included in property reinstatement but where exactly does it fit in the policy?
The Industrial Special Risks Mark IV policy covers any unexcluded physical loss, destruction or damage to the Property Insured. The Property Insured is generally buildings, plant & equipment, stock and all other contents. Are a quantity surveyor’s costs, EPA review, the replenishment of fire extinguishers, temporary fencing and an employee’s own tool box able to be claimed in the event of loss?
Section 1 Material Damage of the standard policy contains 7 additional benefits. These are outlined as follows.
a) Professional fees. These include architects, surveyors, and consulting engineers, legal and other fees for estimates, plans, specifications, quantities and tenders. They must be incurred in reinstatement of damaged property and cannot include any costs of preparing a claim.
b) Government/ statutory fees. A fee payable to any Government, Local Government or other Statutory Authority where payment relates to obtaining their consent to reinstate damaged buildings. It does not include any fines and/or penalties imposed by such Authorities.
c) Fire extinguishment costs. These include:
- extinguishing a fire for the purpose of preventing or diminishing imminent damage to property
- damage to gain access
- the cost of replenishing fire fighting appliances
- shutting off the supply of water or other substance following accidental discharge from any fire protective equipment.
d) Temporary protection & safety of property. This includes costs related to the protection of property that has been damaged pending its repair or replacement.
e) Costs of replacing locks, keys and/or combinations where there is a burglary or theft and the cost of opening safes and/or strongrooms.
f) Removal of Debris. Costs claimed include the removal, storage and/or disposal of debris or the demolition, dismantling, shoring up, propping, underpinning or other temporary repairs as a result of insured damage. Cover does not extend to pollution.
g) Clothing & tools of trade belonging to directors & employees. The replacement cost with due allowance for wear and tear is claimed.
These additional benefits do not require separate sub limits unless imposed by insurers for premium purposes as is often done with Removal of Debris. They are limited to the Limit of Liability but are not subject to the co insurance clause (under insurance provisions).
Claim Solutions prepare Material Damage claims. We do so in accordance with the policy and you will see the above terms referred to in our reports. If we can be of assistance please call us.
In January a Tokyo newspaper reported a fire in a fire station following a party to celebrate the end of a fire awareness promotional event. While the building was badly damaged we understand the brigade were quick to attend and extinguish the fire! We hope they had adequate insurance and had paid their fire services levy!
Feedback advises us that our readers like the succinct manner we report insurance policy technicalities. So for those smaller issues that don’t always warrant a stand alone article here are some helpful tips. These relate to a standard Industrial Special Risks Mark IV wording.
The Basis of Settlement
- The Material Damage proviso means that for a claim to be made under Section 2 there must be damage to unexcluded property.
- Increase in Cost of Working (item 1(b)) does not require a sub limit as it is insured within the Declared Value for Gross Profit.
- The economic limit test applies to claims for additional costs under item 1(b). For example, a claim for $5,000 will not be paid if the expenditure only saves Gross Profit of $2,500. The claim will be limited to $2,500.
- Item 4 Additional Increased Cost of Working requires a sub limit and is not subject to the economic limit test.
- In the event of underinsurance on Gross Profit, the uninsured portion of additional costs claimed under item 1(b) may be claimed under the cover available for Additional Increased Cost of Working (item 4). (See our Spring 2001 newsletter)
- If a business intends to insure 100% of its payroll it is included within item 1(a) Loss of Gross Profit.
- If separately insuring payroll on a Dual Basis (item 3), payroll limits must be specified in the Schedule and payroll listed as an Uninsured Working Expense.
- Item 2, Claim Preparation Fees, includes reasonable professional fees to prepare both Material Damage & Consequential Loss claims (Autumn 2004 newsletter).
- The adjustments clause allows the calculations of Rate of Gross Profit, Annual Turnover, Standard Turnover and Rate of Pay-roll to reflect the trend, variations or other circumstances affecting the Business (see our Spring 2002 newsletter).
Memoranda to Section 2
- The Departmental Clause allows a claim to be calculated by departments if the business is conducted and reported financially in departments.
- Allowance should be made if a loss is temporarily postponed by maintaining turnover from accumulated finished goods stock (refer Winter 2005 newsletter).
- Cover extends to insured peril damage occurring at a Public Utility. This is noted as any electricity station or sub-station, gas works or water works. However, the standard wording states it must be situated on or immediately adjacent to the Premises.
- In the event of a Salvage Sale the Loss of Gross Profit is calculated as defined and excludes turnover from the sale. The Gross Profit earned at the salvage sale is then deducted.
Memoranda to All Sections
- The Memoranda to All Sections allows an Adjustment of Premium where calculations at the end of the insurance period alter the Gross Profit in that period. (Newsletter Winter 2002).
- Finally, it is a Condition of the Policy that if the Business ceases, is disposed of, is in liquidation or the Insured becomes a bankrupt, the insurance and any claim ceases.
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 in relation to any of the above incidents or similar losses.
The Articles which appear in this Newsletter are not intended to be a substitute for specific technical advice.