|Fidelity Guarantee||About Claim Solutions...|
Welcome to the Claim Solutions’ Newsletter for Spring 2002.
Regular readers will know this newsletter provides you with a claims update including breaking news on claims, interesting and sometimes unusual interpretations of insurance policies and a summary of recent events which may be the subject of insurance claims.
This quarter has seen claims for fires, gas leaks, evacuations, chemical spills, explosions, water & storm damage. Some of these are listed on page 4 of this newsletter.
Claim Solutions appreciates your positive feedback to previous newsletters and the appointments received to prepare claims.
If you have a topic which you believe would be of interest please do not hesitate to contact us.
As always, we are committed to assisting you.
Insureds and Brokers often comment on the status of the insurance market when we prepare their claims. Almost without exception they describe the market as “Hard”.
Some of the specific comments and the impact on the preparation of claims are as follows:
- Premiums have increased. In turn this raises the Insured’s expectation for a prompt and efficient claims service.
- Incident deductibles have increased. This has reduced the number of claims. Care needs to be exercised to ensure all costs are considered before concluding the claim is below the deductible.
- Aggregate deductibles have increased. Where aggregate deductibles apply it is important to accurately quantify all losses throughout the year to determine when the aggregate deductible has been breached.
- Capacity issues arise and it is sometimes difficult to insure 100% of a risk. This creates problems if a loss occurs before the full value of the risk has been placed.
- The extent of cover has reduced with the application of narrower policy wordings.
- The opportunity to delete Underinsurance clauses contained in policy wordings has reduced. As always it is paramount that correct values are declared.
Claim Solutions can deliver a prompt and efficient claims service that responds to your needs in a time of crisis.
Fire in a fixed speed camera caught our attention this quarter. The potential for loss of speeding fine income from the date of the fire to the date the damaged camera was replaced would be an interesting Business Interruption claim to prepare. Believe it or not a nearby camera caught the fire brigade running a red light while they were racing to the scene. Does this represent a recoupment of income?
One of the more subjective areas of Business Interruption claims is trend. While Turnover, Standard Turnover and Rate of Gross Profit are defined, trend is not.
An Industrial Special Risks policy contains an Adjustments Clause. This states that “..such adjustments shall be made [to the Standard Turnover, Annual Turnover and Rate of Gross Profit] as may be necessary to provide for the trend of the Business.” This is one of the most argued claim issues and sometimes prolongs settlement. Traditional methods for measuring trend include:
- Analysis of historical turnover;
- Examination of post loss turnover;
- Analysis of divisional trading results;
These are a good starting point when preparing a claim.
When reviewing historical turnover it is important to examine sales in say the 3, 6, 9 or 12 months prior to the loss, consider the business and identify the trend which most reflects the results which should have been achieved during the Indemnity Period.
Industry data or, if available, the results of similar operations can also be reviewed. Caution must be exercised as this may not directly reflect the trends which would have been experienced but for the loss.
Consider the following case study.
A fire in the central distribution warehouse of a jean manufacturer, Dynamite Denim, was destroyed by fire. Some 2,000 pairs of jeans were destroyed. The remainder, some 4,000 pairs, were badly smoke affected and could not be sold through Dynamite’s retail outlets.
The smoke damaged jeans had a unit cost of $30 and a total cost of around $120,000. It was agreed these jeans had a salvage value and a fire sale expert offered $10 per pair i.e. a total of $40,000. An insurance settlement of $80,000 was suggested.
Dynamite was concerned the damaged product would ultimately be released to the general public. Not only would this cause an avalanche of complaints but it would also adversely affect the brand name and depreciate Dynamite’s image.
Most Industrial Special Risks policies contain a Branded Goods Clause. This enabled Dynamite to prevent the smoke affected jeans from being sold and entitled them to negotiate a salvage value after all brands, labels or names were removed.
After removing the zipper which was embossed with the Dynamite logo, the leather tag containing the brand name and several logo bearing cotton tags not much remained of the jeans.
A negotiated salvage value of $1 per pair or $4,000 was agreed and the claim was settled for $116,000.
If you have maintained a file of our previous newsletters you will have articles which provide insight into some of the issues which arise at the commencement of a period of insurance, during the year and at the expiry of the policy period.
The Beginning of the Year
Our articles concerning the declared value at the beginning of the insurance year highlighted issues to consider when specifying declared values for Property, Gross Profit and Dual Basis Payroll.
An informed, systematic approach is required to ensure declared values are adequate.
The Claim – during the Year
In a claims environment guidance was provided on how to utilise the cover for Additional Increase in Cost of Working to recover possible underinsurance on additional costs.
The importance of early notification of the application of any underinsurance penalties was also highlighted.
The End of the Year
The premium adjustment clause has also been featured. If, at the end of the insurance year, the declared value on Property, Gross Profit or Payroll is found to be overstated it may be possible to request the Insurer to refund a portion of the premium.
Understanding Underinsurance from the beginning to the end helps avoid the application of underinsurance penalties.
Loudest Car Stereos are wholesalers of car stereo equipment. Radios/CD players are easily transportable and saleable and considered high risk. Accordingly, they are kept in a locked, caged area in the warehouse.
At 30 June stock take all product lines are counted and checked to quantities in the computer records. A couple of minor variances were noted in the stock in the caged area and computer records amended. On 7 July, the dispatcher is on sick leave and the office clerk is obtaining stock from the caged area to fill an order. In doing so he bumps a stack of boxes which silently crash to the floor. On inspection it is discovered the boxes are empty.
Further investigations reveal a stock variation of $150,000 and that the dispatcher has a gambling problem.
The Chief Financial Officer is pleased a fidelity guarantee policy commenced on 1 July but in completing the claim form is unsure what the date of loss is, whether there is one loss or a series of losses, and what should be included in a “Proof of Loss Statement”.
The CFO needs to identify the date of loss, check the current and any prior policy. The loss needs to be quantified over time and claimed under the appropriate policy.
If the losses are as a result of a series of related, continuous or repeated acts they may be treated as a single act.
Importantly a stock take variation alone may be insufficient proof to support the loss. Individual policies should be reviewed. Some may require “reasonable proof” and others a conviction.
Our fees to prepare the Fidelity Guarantee claim may also be covered under the policy.
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.