Welcome

Welcome to the Claim Solutions' Newsletter for Autumn 2003.

As indicated on page 4 there have been a wide range of losses this quarter. It is interesting to note the number of fires affecting restaurants and food manufacturers. Fires in Greek, Chinese and Polish restaurants and a fire at a Mexican Food manufacturer have all been identified.

As always, we hope all those who sustained a loss experience a speedy recovery.

We are pleased to announce that we have established an archive of our newsletters on our website. Some of these articles may assist you when insuring a risk or handling a claim.

If we can assist you in relation to any claims please do not hesitate to contact us.

Your enquiries are always welcome.

Severe Acute Respiratory Syndrome (SARS)

At the time of writing, news reports indicated that SARS has spread to over 22 countries, infected in excess of 2500 people and killed more than 150. In addition to the personal tragedy, the adverse impact on industry, particularly the tourism sector, cannot be underestimated.

For example, media releases suggest airlines are reducing selected international services due to the crisis.

Have you ever considered whether any loss of profit caused by infectious diseases is insurable?

In broad terms the standard Mark IV Industrial Special Risks Policy responds to Business Interruption as a consequence of damage to insured property.

Endorsements are available which extend the Business Interruption cover to loss flowing from incidents where there is no property damage. One of these is an endorsement for infectious diseases.

What is the Cure!

Typically, this responds to the Business Interruption loss from: -

1. Infectious or contagious disease manifested by any person whilst at the Premises.

2. Evacuation of the Premises by a Public Authority.

3. The outbreak of a notifiable human infectious disease occurring within a specified radius of the Premises.

SARS has refocused world attention on the physical nature of epidemics. Its negative impact on financial and insurance markets is also a reality which cannot be overlooked.

 

Odd Spot

It seems that coffee has taken a direct hit in recent times. On 3 October 2002 a fire severely damaged a warehouse operated by Gloria Jeans Coffee.

On 7 April 2003 a fire also occurred in a Hudson's Coffee shop in Melbourne.

Roasted coffee beans have always been popular, but this gives new meaning to hot coffee!

 

Property - Extra Cost of Reinstatement

Pronto's is a popular, a-la-carte restaurant specialising in fine Italian Cuisine. Bruno owns the business and the double storey Victorian Terrace building from which it is conducted.

On 3 March 2003 a fire swept through the premises severely damaging the building, kitchen and dining facilities.

The risk was insured under a Mark IV Industrial Special Risks policy.

After consultation with his claims consultant Bruno understood that Section 1 of the policy responded to the reinstatement value of damaged property.

Shortly after the fire building surveyors advised that substantial upgrading of the Victorian Terrace was required. These included the installation of signs clearly identifying fire exits, ramps allowing access for disabled patrons, curved skirtings in the kitchen for easier cleaning, to mention a few.

The cost associated with installing these items does not represent reinstatement and replacement of damaged property as signage, ramps and curved skirtings did not exist prior to the fire.

Fortunately, Pronto had cover for Extra Cost of Reinstatement which responded to the upgrading of the property to comply with the requirements of statutory authorities.

 

The Schedule of Insurance

It is important for the Schedule of Insurance to be complete, accurate and consistent with the Policy Wording.

Following is a checklist to assist you to avoid some of the common errors.

Ensure the name of the Insured reflects all interests/companies which are intended to be covered.

Schedules need to be complete,
accurate and consistent with the Policy

Ensure all assets and income flows associated with these interests are declared.

Ensure the Schedule contains a Limit of Liability, Declared Value on Material Damage and Business Interruption as required.

In relation to the Business Interruption risk, ensure the Schedule contains an appropriate indemnity period, adequate Declared Value for Gross Profit, Payroll, a sufficient sub-limit for Additional Increase in Cost of Working and Claim Preparation Costs as required.

Ensure the Schedule contains a list of Uninsured Working Expenses (refer article on page 3).

If payroll is separately covered, make sure the Schedule includes an Initial Period, Remainder Percentage and Period of Consolidation (refer our Spring 2001 and Summer 2002 newsletters).

Make sure that the Schedule contains any appropriate sub-limits for policy extensions such as cover for Public Utilities and Customers/Suppliers.

An accurate Schedule is essential to avoid unnecessary debate when presenting claims.

 

Underinsurance - Uninsured Working Expenses

Uninsured Working Expenses are those costs which the Insured elects to exclude from the Business Interruption cover.

The Debate is Best Avoided

They should include those expenses for which cover is unnecessary. These should reflect those costs which vary directly with the level of sales. They may include purchases, freight, electricity, etc.

By listing expenses as uninsured they are removed from the cover. This reduces the Declared Value on Gross Profit.
The Industrial Special Risks policy requires the Uninsured Working Expenses to be listed in the policy. Often this does not occur and considerable confusion may arise when preparing a claim.

It may be suggested that no expenses have been "uninsured". This may cause an unnecessary debate in relation to underinsurance.

Consider the following example. The Declared Value on Gross Profit is $100,000 after correctly excluding Uninsured Working Expenses of $50,000. The Uninsured Working Expenses were not listed in the Schedule. A claim occurs. It is suggested that the Declared Value should have been $150,000 and the Gross Profit risk is only 66% covered (i.e. $100,000/$150,000).

If workpapers are available disclosing which expenses were "uninsured" the debate may be easily resolved but is best avoided by listing the Uninsured Working Expenses in the Schedule as required by the policy.

The Dreaded Time Deductible

An explosion and resultant fire destroyed Herb's Industrial Dry Cleaning in April 2001. Investigations found incorrect chemicals had been supplied which caused the reaction.
Herb had adequate Material Damage cover and Business Interruption cover for a 12 month period.

 

Give me a Dollar Deductible Any Day!

Following various fire and workcover investigations, liability for the loss was accepted by insurers.

Local council approved the plans after a number of changes were incorporated in accordance with the current building act. Custom built machinery was ordered from Germany.

The premises were rebuilt, equipment was delivered and commissioned and new staff were trained. Dry cleaning services re commenced in March 2002, 11 months after the fire.

However, as a result of the fire Herb's industrial contracts including with the local hospital, two nursing homes and several restaurants had been renegotiated with a competitor.

The loss of profits for 12 months was paid by Insurers however, the loss, including additional costs extended well beyond the maximum Indemnity Period.

The Insurer had determined that the recovery action against the supplier was strong and asked the Insured for details of their uninsured losses. As there had been good communication with Insurers from the outset, the insured was aware of the potential for recovery and claims preparers had been maintaining a cumulative claim of uninsured losses. This provided insurers' solicitors with a timely and detailed account which facilitated the positive recovery action.

 

To see a list of recent losses,

About Claim Solutions

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.

For a copy of our Company Profile please
contact Joe or Susan.