|About Claim Solutions...|
Welcome to the Summer edition of 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, gas leaks, explosions, chlorine spills, power blackouts and even an earthquake and mini tornado all occurred over the last quarter.
A list of the events which may have been the subject of insurance claims are listed on page 4.
These reinforce 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.
We prepare insurance claims for clients ranging from small family businesses to large national and international corporations.
Fire often strikes the larger clients more than once. Many have numerous situations of risk. Rarely does it strike small family businesses twice.
In February 1998 fire destroyed a manufacturer of perspex signs in Cheltenham, Victoria. A paper clip inadvertently passed through a paper shredding machine, became hot, igniting paper and spreading flames throughout the building.
Claims were progressively prepared and submitted allowing the financial tragedy to be resolved.
In December 2001 we received a telephone call from our old client.
They advised us their business had again been razed.
A diffuser in a fluorescent tube above a desk overheated overnight. Flames quickly spread to canite ceiling tiles and then throughout the building destroying the plant, machinery and contents replaced from the insurance proceeds paid in 1998 and 1999.
Despite enormous personal and financial misfortune our client has remained positive and is again rebuilding their business.
Fire can strike twice!
Whilst we are avid AFL fans of varying teams, we were surprised to be appointed on the basis of our allegiances.
Our company profile details a selection of clients, large and small across many industries.
These include the Smorgon Group.
Our new client advised us that if our services were good enough for the Chairman of the Western Bulldogs they were good enough for his company.
Go Bulldogs in 2002!
For a copy of our Company Profile please telephone Joe or Susan.
In November 2001 we were asked to prepare a claim as a result of a fire which destroyed a motel in June 2001. The following circumstances prevailed.
The cause of the fire was attributed to an electrical fault.
The business was amply insured for both Material Damage and Business Interruption.
The motel was the owner’s only source of income.
The business was financed through a bank loan already at its limit. The loan was not in default prior to the fire.
The Insured exhausted savings and then borrowed money from friends to meet daily living expenses pending payment of insurance proceeds.
In September 2001 the leasing company repossessed the Insured’s car when payments defaulted.
Liability was admitted in October 2001 and a progress payment of $250,000 was received, some 4 months after the fire. This magically appeared in the Insured’s bank account without the completion of any formal documentation e.g. Letter of Notification or Form of Release.
The Insured utilised part of these funds to purchase a second hand car and repay loans to friends.
Within days friends advised the Insured that repayment cheques had bounced. On contacting the bank he was informed that his account had been frozen. The bank were concerned insurance proceeds were being utilised for purposes other than bank loan repayments and rebuilding. They are now progressively releasing funds.
The building is unlikely to be reinstated by June 2002. Any Loss of Gross Profit after this date is not Insured.
Perhaps these problems would not have arisen if:-
- Liability had been admitted more promptly.
- Progress payments had been made sooner.
- The bank had been included in discussions.
- Forms of Release had been signed so all parties were aware of the nature and extent of payments.
- We had been involved sooner.
Once a loss occurs it is important to obtain a thorough understanding of the insurance cover and how it responds.
This includes the underinsurance clause.
Most underinsurance clauses indicate that it is necessary to test whether the amount insured is adequate. If so, the insurance cover responds in full. If not, a penalty is imposed.
In many Business Interruption Policies the penalty reduces the Insurer’s liability to the proportion of the risk which has been insured. For example, if the declared value represents 80% of the risk which should have been insured, the insurance policy responds to 80% of the loss.
Many policies covering property often provide a margin before the underinsurance penalty applies.
The underinsurance clause exists to ensure that the Insurer receives sufficient premium from clients to meet claims. In other words it ensures that the insurer does not pay claims in excess of the premium collected and risk covered.
Some clients obtain independent valuations at renewal to ensure the amount insured for property is correct. Similarly independent advice on the amount of cover required for Business Interruption may be obtained.
In these instances the Insurer may be satisfied that sufficient premium has been collected and it may be appropriate to delete the underinsurance clause.
Our Spring 2001 newsletter provided an explanation of the two main forms of insuring payroll: -
- 100% with Gross Profit (Item 1).
- Dual Basis Payroll (Item 3).
It explained that to effect Dual Basis Payroll an Initial Period, Remainder Percentage and Period of Consolidation need to be specified.
The Initial Period represents the period immediately following the fire over which all employees will be required. For example they may be required to clean up, or union awards or enterprise bargaining agreements may require payment of a minimum number weeks wages on termination.
The Remainder Percentage represents the proportion of the payroll after the Initial Period which may continue to be paid. For example it represents the salaries and/or wages for key management and administration staff and/or key manufacturing and supervising labour. This proportion is expressed as a percentage.
The Period of Consolidation is the number of weeks wages which have been covered if the Initial Period and the consolidated Remainder Period is combined. For example if a Maximum Indemnity Period of 52 weeks has been selected with an Initial Period of 12 weeks and Remainder Percentage is 40%, the Period of Consolidation is 28 weeks: -
(12 weeksx100%)+((52 weeks-12 weeks)x40%).
Specialist advice should be obtained to ensure payroll is adequately covered.
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.
The Articles which appear in this Newsletter are not intended to be a substitute for specific technical advice.