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Welcome to the Spring edition of the Claim Solutions’ Newsletter.
This quarterly publication is aimed to provide you with a claims update including breaking news in relation to insurance claims, interesting and sometimes unusual interpretations of insurance policies and a summary of recent events which may be the subject of insurance claims.
Fires at an electrical retailer, martial arts studio, disused hotel, shops, sports stores, chemical spills, explosions and storms all prevailed over the last quarter.
A list of the events which may have been the subject of insurance claims listed on page 4.
Perhaps this will assist your clients to understand the need for adequate insurance.
We hope you find the content of this newsletter useful and informative.
Your feedback and enquiries in relation to our services are welcome.
The disaster in New York on 11 September 2001 caused unprecedented personal, emotional and commercial damage. We extend our deepest sympathy to all those affected by this tragedy.
One of the more unusual losses reported over the previous quarter involved a major producer of Australia’s biggest selling premium beers.
News reports indicated that a 15 tonne mixture of grain and liquid was accidentally poured into a vessel which was designed to hold a weight of only about nine tonnes. The vessel was originally manufactured overseas.
The damage to the vessel halted production.
An incident such as this raises numerous issues. Does the policy contain a sub-limit in relation to Accidental Damage? If so, is it sufficient to respond to the loss?
Can the vessel be repaired? If not, what is the lead-time associated with a replacement unit from overseas? Is the indemnity period sufficient to cover any Reduction in Turnover which may be sustained.
Another beer manufacturer distributes the product. Do they have a suppliers premises extension on their policy to cover them for the loss of distribution income?
Do the customers of the beer producer have a customers extension on their policy covering them for their Business Interruption loss.
Perhaps we are in for a drought!
At approximately 2.17 pm on Wednesday 21 August 1991, a series of explosions and fire at Coode Island caused extensive damage to plant and equipment, stock, and contents with chemicals spilling into the soil and gases escaping into the air. This necessitated the closure of the plant and evacuation of the immediate area. The fire sent thick black smoke over the Melbourne and metropolitan area and received extensive media attention.
The fire at Coode Island continues to fascinate the media.
An article appeared in the Herald Sun on 15 August 2001 reporting that the ten year anniversary of the fire fell on Tuesday 21 August 2001. It indicated that protesters initially intended to mark the occasion with a barbecue!
We are currently preparing the Material Damage claim arising from a fire causing a total loss to a major Australian manufacturer exporting products to Asia and Europe.
No cover for Business Interruption was in place!
This client mitigated its loss at every opportunity and promptly commenced trading from alternate premises.
Following are some of the loss minimisation measures implemented to save the business: -
- Staff, including the Managing Director and administration personnel, worked many nights until 2am.
- Extended finance was obtained.
- Alternate financing for consignment stock was arranged.
- Work was sub contracted to competitors.
- National and international trade fairs were attended (with minimal stock) reinforcing market presence.
- Visits to major local and international customers reassuring them the business would continue to meet their needs.
Costs associated with these actions were borne by the client.
This was one of the better examples of a business rising from ashes within a short period of time in the absence of cover for Loss of Profit.
Fortunately they had many factors in their favour.
Their excellent reputation in the industry, the availability of sizeable alternate premises close to the destroyed property and the positive attitude of staff led by a seemingly tireless Managing Director all contributed to the prompt recovery of the business.
Success was not achieved without considerable costs both financially and personally.
If Business Interruption cover had been in place, at least the financial burdens may have been alleviated.
This is one cover that is not likely to be overlooked again when the broker recommends it be taken.
The Consequential Loss Section of the Industrial Special Risks Policy contains four main items of cover.
Two of these are: -
- Gross Profit (Item 1)
- Additional Increased Costs (Item 4)
The Item 1 cover for Gross Profit responds to Loss of Gross Profit associated with: -
(a) Reduction in Turnover
(b) Increase in Cost of Working
If the declared value on Gross Profit is below the value at risk the claim is proportionately reduced.
The reduction applies to any claim for Loss of Gross Profit associated with a Reduction in Turnover as well as any claim for Loss of Gross Profit associated with Increase in Cost of Working.
The cover for Additional Increased Costs (Item 4) responds to extra expenses not otherwise recoverable necessarily and reasonably incurred to minimise the Reduction in Turnover and/or maintain normal business operations.
Do you consider that any Increase in Cost of Working not covered due to the application of underinsurance is “not otherwise recoverable”?
Many clients, insurers, loss adjusters, insurance brokers and claims consultants do.
An adequate declared value on Gross Profit is critical. However, if underinsurance applies a sub-limit for Additional Increase in Cost of Working (Item 4) may provide a partial safety net.
Many Consequential Loss policies contain two forms of insuring payroll.
- 100% within Gross Profit (Item 1).
- Dual Basis Payroll (Item 3).
Which form of payroll cover is appropriate?
If payroll is not a significant expense it may be best to insure it 100% within the Gross Profit item. This is achieved by simply not listing payroll as an uninsured working expense i.e. do nothing.
If payroll is a significant expense it is necessary to determine what it includes.
If it largely represents permanent, skilled employees which need to be retained in the event of a loss it may also be best to insure payroll 100% within Gross Profit. For example this may be appropriate for professional service providers including solicitors, accountants, insurance brokers, etc.
If a large proportion of the payroll expense comprises casual, unskilled staff which may be dismissed in the event of a loss it may be appropriate to insure payroll on a dual basis.
To effect this cover “payroll” needs to be listed as an uninsured working expense to delete it from the Gross Profit item. A separate declared value then needs to be specified for Payroll (Item 3). This should include other parameters including an Initial period, Remainder Percentage, Period of Consolidation.
Explanations of these parameters will feature in subsequent newsletters.
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.