Welcome
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.
Perhaps
we're in for a drought
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!
Odd Spot
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!
For
a copy of our Company Profile please
contact Joe or Susan. 
To
be Covered or not to be Covered
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.
Underinsurance
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.
Payroll
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.
To
see a list of recent losses,
