Our Newsletter for Autumn 2005 contains articles on cyclones, the distinction between flood and storm, indemnity periods and even meteorite damage. The first article covers Cyclones and provides an interesting contrast to our piece on Tornados which appeared in our Winter 2003 Newsletter. Please enjoy your read.
Page 4 contains our regular list of possible insured events. A more comprehensive list is contained on our web-site. As well as the usual fires and storms the past quarter saw an unusual mix of losses including many chemical spills, gas leaks, a bomb hoax, mini tornado and that cyclone.
Our aim is to bring these matters to your attention to highlight both the need for insurance and the existence of our claim preparation service should a claim arise. We hope that all those who have sustained damage can minimise their loss and recover quickly.
Please contact us for claims assistance. Our readers’ feedback is always welcome.
Severe Tropical Cyclone Ingrid toyed with the northern Australian coast from 6 to 17 March 2005. Cyclones with winds in excess of 117kph are classified as “severe” and this was the only severe tropical cyclone in recorded history to impact the coast of three different States or Territories.
In Queensland it fortunately avoided local towns when it crossed Cape York Peninsula. In the Northern Territory some damage to property was reported along the Arnhem Land coast. Six pearl ships were sunk or damaged. Ingrid caused widespread tree defoliation and significant storm tides on the east coast. In Western Australia, Ingrid flattened an isolated echo tourist “Faraway Bay” resort.
Australia is no stranger to cyclones. Tracy devastated Darwin on Christmas Eve 1974. A cyclone caused widespread property damage on the Gold Coast in 1954 with an associated storm surge lodging boats in trees in Beachmere. In 1918 a cyclone caused substantial wind damage and flooding to property in Mackay. A witness reported seeing 2.7 metre waves breaking in the town centre. In February 1911, a cyclone caused significant damage in Port Douglas.
The Mark IV Industrial Special Risks policy excludes damage from action of the sea, tidal wave or high water. If property escapes damage from the destructive wind and rainfall but is inundated with sea water from an associated storm tide would the damage be covered? Let’s hope this is a dilemma we never have to resolve.
5 Jan 04 – The insurance policy is renewed and an indemnity period of 6 months specified. Cover for Claim Preparation Costs is restricted to the Loss of Profit claim not the Material Damage claim.
20 Feb 04 – A fire destroyed part of the building, stock and contents. A large proportion of the sales area became unusable. The indemnity period commences.
21 Feb 04 – Insurers are notified and loss adjusters appointed. Claim preparers are engaged but due to the restricted cover the role is limited to preparation of the Business Interruption claim.
26 Feb 04 – Debris is removed. The damaged section of the building is isolated, the remaining sales area reorganised to maximise customer traffic. Signwriting is completed advising customers that trading is continuing. In reality sales cannot return to normal at least until the building is reinstated.
27 Feb 04 – Loss adjusters introduce a builder to the Insured.
5 Mar 04 – Loss adjusters advise that the building assessment has been completed. A specification was not agreed with the Insured prior to the assessment and the scope of works is found to be inadequate.
Mar 04 – it becomes evident that the foundations beneath the shop are unstable due to the amount of water used to extinguish the blaze.
Mar to Apr 04 –Discussions continue in relation to the extent of damage and work required to reinstate the building.
2 Apr 04 – damaged stock is removed for insurers to recover any salvage value.
May 04 – An alternative builder is sourced due to the lack of response from the initial builder.
20 Aug 04 – the maximum indemnity period of 6 months expires. Any loss of Profit beyond this date is NOT covered by the insurance policy.
17 Sep 04 – plans for building reinstatement completed. Building works expected to be completed by February 05 if works commence immediately. Christmas 04 trade is severely impaired.
MORAL TO THE STORY
A six month indemnity period is often insufficient for sales to return to normal.
Building specifications should be agreed before quotations are obtained.
Cover for Claim Preparation Costs should be taken in relation to both the property and business interruption loss to enable us to be actively involved in both elements of the claim.
The chances of a claim arising from a falling meteorite may not be probable but is possible.
On 27 January 2005 an errant 4.5kg meteorite started fires which destroyed several hundred hectares of rice paddies in north west Cambodia.
Villagers reported that it sounded like a bomb exploding when the rock came crashing to earth.
The damage would have been much more significant if the celestial stone had collided into an industrial area.
A quick review of the Mark IV Industrial Special Risks policy did not reveal any exclusion which would prevent a claim while many of the defined event composite policies cover damage by space debris. We wonder whether a falling meteorite would be classified as space debris?
Keep those hard hats handy!
Flood or Storm - That is the Question
In early February 2005 Australia’s eastern seaboard was subjected to intense rainfall and storm force winds. The Bureau of Meteorology reported that almost 120mm of rain fell in the 24 hours to 6.30am in Melbourne. This is the highest level since records began 156 years ago. Property and roads were flooded, fallen trees damaged buildings and there was significant interruption to public transport. There were real concerns for the retail precinct at Southbank when the Yarra rose to dangerously high levels.
Insurance claims followed with a recurring issue – Is the damage caused by storm or flood? The response is important as storm damage is generally covered but flood damage may be excluded.
For example, if not endorsed, the standard Mark IV Industrial Special Risks policy contains the following exclusion: -
“The Insurer shall not be liable under Section 1 and/or 2 in respect of physical loss, destruction or damage occasioned by or happening through: -
flood, which shall mean the inundation of normally dry land by water overflowing from the normal confines of any natural watercourse or lake (whether or not altered or modified), reservoir, canal or dam; water from or action by sea, tidal wave or high water.”
As with all claims it is insufficient to simply describe the damage, the cause of the damage must be identified.
If water damage was caused by the rainfall accompanying the storms a claim may succeed but this may not be so if it was caused by an overflowing river. Don’t put the sandbags away just yet!
During the fortnight ending Friday 18 March 2005 Claim Solutions completed its successful seminars on Business Interruption.
Through a claim scenario attendees were introduced to the circumstances which can lead to inadequate cover and the implications of under insurance.
Case studies then demonstrated how to develop and complete worksheets to ensure the declared value on Gross Profit was sufficient to reflect the risk.
Attendees were able to recognise that under insurance on Gross Profit often arises because: -
- Net Profit and not Gross Profit is insured.
- There is a lack of understanding that the Accounting Gross Profit may not be the same as the Insurable Gross Profit.
- Sales trends are not considered.
- If sales trends are considered they are only considered over the renewal period and not the possible Indemnity Period.
- The Declared Value is proportionately reduced when an indemnity period of less than twelve months is selected.
- A list of Uninsured Working Expenses is not provided with the Schedule.
Due to the success of these seminars further dates and topics have been scheduled. Registration forms are enclosed. Be quick to avoid disappointment.
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.