Welcome to the nineteenth edition and first Claim Solutions' Newsletter for 2006. This year we will continue to bring you news, events and claim scenarios from across the country. Some are generated by the extreme weather conditions. Wind, hail and lightning storms and even cyclones have been common in recent months. Other claims have been the result of fires, molotov cocktails, explosions, gas and chemical leaks, vehicle collisions, burglaries and the like. Of concern is the number of losses due to vandalism.
A list of some of the recent events is on page 4 of this newsletter and a more comprehensive list is on our web-site.
If you have any specific claim issues you would like us to address please do not hesitate to contact us. We enjoy bringing this newsletter to you and hope you enjoy reading it.
Imagine receiving a Notice To Evacuate your home or business because a dam some 4 kilometres away containing 6,000 megalitres of water was leaking and may burst. No, this is not Holland. It happened in the small town of Tunbridge (population 100) located in the Midlands Region of Tasmania.
Construction of the $2m dam had recently been completed. It was built on the Blackman River between Launceston and Hobart and was designed for irrigation purposes. News reports indicate the dam was financed by local farmers.
On Thursday 13 th October 2005 significant seepage was observed from cracks in the earth dam 6 to 10m below crest level. This was some 2 to 6m below the reservoir level. The seepage increased by some 30 times the initial flow within 24 hours.
On Friday 14 th October 2005 the police issued evacuation notices to the residents of Tunbridge. Some 60 residents chose to remain while the balance were accommodated in an evacuation centre in the nearby town of Oatlands.
An emergency spillway was constructed and storage levels were reduced to 50% capacity. This reduced the seepage and fortunately property at Tunbridge remained unharmed.
If the outcome had been different and commercial property was destroyed would it be covered by insurance?
The Mark IV Industrial Special Risks policy contains a number of exclusions. Perils exclusion 2 removes cover for “physical loss, destruction or damage occasioned by or happening through flood, which shall mean the inundation of normally dry land by water overflowing from ….. any…..dam…..”
Thank goodness the residents of Tunbridge remained high and dry.
Over the past 18 editions of the Claim Solutions Newsletter we have commented on many aspects of the Mark IV Industrial Special Risks policy which remains the industry standard for the commercial property insurance market.
The Operative Clause of Section 1 of the policy begins with the words “In the event of physical loss, destruction or damage…..” and it is time to consider what they mean. If there is no physical loss, destruction or damage there may be no claim.
In most instances the evidence of physical loss, destruction, or damage is obvious. The charred remains from a fire, the collapsed ceilings from a storm, the soggy carpets from a flood are clear examples of physical damage.
But what of the chemical processing plant that produces various chemicals in batches. The plant must be thoroughly flushed via an automated cleaning system so that each batch of chemicals is not contaminated with the compounds from the previous batch. The cleaning system fails. The failure is not detected before the subsequent chemical batch is produced. The subsequent batch of product appears to be intact but simply cannot be released as the risks of some contamination, no matter how small, is too great. Has there been “physical loss, destruction or damage”?
A technical report will be necessary but if the structure of the property has been changed in any way it may be possible to argue it has been physically damaged.
A similar example of less tangible physical damage is the impact of smoke.
We think of smoke as the grey, malodourous cloud generated by a fire, but what does it contain? Acidic gases, carbon deposits, vapourised plastics and other unknown materials. Once it is deposited on property is the property physically damaged? Definitely. Once it is wiped off has the property been restored to its pre-fire condition? Perhaps not. The deposits left on the article may cause some latent deterioration which still needs to be addressed.
All is not always as it seems.
News reports indicate that on 9 January 2006 a foul smell wafted through Lakes Entrance in South- East Victoria.
Emergency services were called out and traced the heady stench to an upturned hull of a boat which was found to contain 1.5 tonnes of flathead. The boat overturned in the sea off the coast some time in the previous week.
The news report indicates that the rotting fish could not be immediately removed from the hull because of “insurance reasons”.
We hope the delay did not occur because some poor unfortunate soul had to count the rotting carcasses before the claim could proceed.
The words “stock reconciliation” take on a whole new meaning.
The Autumn 2003 edition of our newsletter included an article on Infectious Diseases and Severe Acute Respiratory Syndrome (SARS). This is available on our website.
Avian Influenza commonly referred to as Bird Flu is the latest infectious disease understandably making world wide headlines.
Bird Flu is an infectious disease of animals caused by viruses that normally infect only birds. These viruses have, on rare occasions, crossed the species barrier to infect humans (World Health Organisation).
Bird Flu has been with us for a long time. The first highly pathogenic form dates back to 1878. The current strain, H5N1, which is thought to have originated in South-east Asia in mid 2003 has resulted in the death or destruction of some 150 million birds. Outbreaks have been reported in 9 Asian countries and more recent reports advise the virus has been detected in Russia, Kazakhstan, Mongolia, Turkey, Romania and now Iraq.
The virus is thought to have infected humans when they have come in direct contact with diseased poultry or surfaces contaminated by the diseased birds. At this stage it appears the virus has not mutated to allow it to be rapidly transmitted between people. If this occurs there are concerns of a global outbreak.
As at 30 January 2006, 160 human cases were reported resulting in 85 deaths across 7 countries.
What are the implications for property insurance?
The standard Mark IV Industrial Special Risks policy responds to Business Interruption as a consequence of damage to insured property.
Infectious diseases may cause a diminution in trade without any property damage and if so, the standard policy is unlikely to assist.
However, endorsements are available which extend the Business Interruption cover to loss flowing from incidents where there is no damage to insured property. One of these is an endorsement for infectious diseases.
Typically, this responds to Business Interruption loss from: -
- Infectious or contagious disease manifested by any person whilst at the Premises.
- Evacuation of the Premises by a Public Authority.
- The outbreak of a notifiable human infectious disease occurring within a specified radius of the Premises.
While the circumstances of each claim need to be individually considered it is not difficult to construe a case where this endorsement may well cover the Business Interruption losses sustained as a result of the spread of the H5N1 virus. Claims may be limited if the virus remains contained to poultry but the financial losses may be considerable if human to human transmission occurs!
A significant claim event may include costs to reinstate several categories of property such as stock, contents and building. Did you know stock is not subject to the replacement and reinstatement conditions? One of the provisos to these conditions is that funds must be expended before the replacement or reinstatement cost can be claimed. As this does not apply to stock, insurers should make a payment for the replacement cost of the stock as soon as it has been quantified.
The Articles which appear in this Newsletter are not intended to be a substitute for specific technical advice.