Welcome
Welcome to
the Claim Solutions' Newsletter for Winter 2002.
Avid readers
of this quarterly publication will know it 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.
It has been
an interesting quarter filled with claims for fires, train derailments,
chemical spills, explosions, electricity blackouts, a rockslide,
bombings and even an earthquake. Some of these are listed on page
4 of this newsletter.
This list
highlights the importance of adequate insurance and risk management.
Claim Solutions
appreciates your positive feedback to previous newsletters and
the appointments received to prepare claims.
As always, we are committed to assist you.
The
Importance of Being Earnest
In an article
headed "Opportunity From Adversity" in the Winter 2001
edition of our newsletter we advised that our claims experience
shows that many businesses turn adversity into opportunity. They
insure their property with the intention of rebuilding a similar
property if it is destroyed. However most elect to replace their
property to a different design, layout, configuration or specification.
This may require some contribution from the Insured but often
results in a better business.
When replacing
property to a different configuration than that which existed
prior to the fire documentation is critical. A scope of works,
tenders and a critical path of the rebuilding time of the new
property will be required to allow the project to commence and
demonstrate the property will be reinstated.
However, it
is also important to obtain a scope of works, reinstatement cost
of the pre-fire structure and a critical path of the rebuilding
time which would have elapsed if the building was reinstated to
its pre-fire configuration.
This information is critical to the claim. If the actual reinstatement
cost exceeds the cost of the pre-fire structure the Insured needs
to fund the difference. If the actual reinstatement time exceeds
that which would have been incurred if the pre-fire structure
had been rebuilt the Insured needs to fund any ongoing Business
Interruption loss.
It is important
to be earnest when documenting a claim.
Odd Spot
Many years
ago a well known national circus troupe was performing in Asia
when a major earthquake hit.
The circus
performers were considered national treasures and concerns for
their safety increased with each after shock. They were evacuated
to their home country as soon as flights could be arranged. Performances
were cancelled and revenue lost.
Circus animals including horses, elephants, lions, etc remained
in Asia and required ongoing care.
A claim proceeded
for lost revenue and the increased cost of feeding animals until
a safe passage home could be arranged.
We even need to know how much hay an elephant eats!
For
a copy of our Company Profile please
contact Joe or Susan. 
In
Whose Interest?
An additional
interest expense is often incurred following an insured event
such as a fire. This arises when it becomes necessary to extend
loan facilities which can be caused by one or more reasons e.g:
-
- The fire
may adversely affect sales reducing the cash available to meet
ongoing expenses and some time may elapse before progress p
ayments
are made.
- A multitude
of contractors including builders, architects, engineers, plumbers,
electricians may submit invoices for property reinstatement.
A large volume of invoices from suppliers for replacement of
contents may also be received. The time required to accumulate
and verify the charges may exceed contractors and suppliers
settlement terms.
- The unfunded
GST component of invoices from contractors or suppliers may
be paid up to one quarter before receiving a corresponding Income
Tax Credit.
- Suspicious
circumstances may surround the cause of the fire and lengthy
investigations may be required to eliminate the Insured as a
suspect.
- The risk
may be heavily co-insured and the policy may not contain a lead
insurer clause. Some time may elapse before all co-insurers
are in a position to fund their portion of the risk.
- One of
the co-insurers may have become unfinancial e.g. HIH, leaving
the insured to fund a portion of the claim.
- The risk
may be inadequately insured and the application of an under
insurance penalty may also mean that the insured must fund a
portion of the claim.
Claims for
additional interest often meet with opposition - why?
Item 1(b) of Section 2 of the Industrial Special Risks policy
covers additional costs necessarily and reasonably incurred for
the sole purpose of minimising a Reduction in Turnover. Item 4
- Additional Increase in Cost of Working, extends this cover to
respond to additional costs incurred to maintain normal business
operations.
In some instances these clauses may respond to the additional
interest cost of financing a loss until the insurance policy responds
and a progress payment is made.
An additional interest expense is often a reality and should not
be ignored.
Underinsurance
UUnfortunately
underinsurance occurs all too often. So much so, that it is a
regular feature of this newsletter.
Underinsurance
arises when the declared value is inadequate to reflect the value
of risk. Its intention is to ensure that claims paid by the Insurer
do not exceed the premium pool collected from their customers.
But what about
over insurance? In some instances the declared value may exceed
the value of risk and the Insured may have paid too much premium.
Did you know that the declared values specified on property, gross
profit and payroll under a Mark IV Industrial Special Risks Policy
at the beginning of the renewal period are provisional?
Have a look under the "Memoranda" section of your policy.
It may contain an "Adjustment of Premium Clause".
This allows the declared values specified at the beginning of
the renewal period to be reviewed at the end of the renewal period.
If the initial declared values are found to be understated an
additional premium may need to be paid. However, if the declared
values are found to be overstated a refund may be due.
With the high premiums which currently prevail perhaps it is time
to determine whether your policy contains an "Adjustment
of Premium" clause and determine whether a portion of the
premium should be refunded.
Liability
Claims & Economic Loss
One of our
readers, impressed with the detailed list of possible insured
events on page 4 of our newsletter asked whether we maintain a
similar list of product recalls.
While not a regular feature a list of some of the recalls over
the last quarter is enclosed in a separate leaflet.
This includes consumer, food, therapeutic goods and motor vehicle
recalls.
In addition to property loss, product recalls may also result
in significant economic loss.
Consider this case study. Spicy Products, is a food manufacturer
which imports ingredients from overseas used in a variety of products
including soy sauce.
A quantity of the spices contain undesirable bacteria fortunately
detected before the product was released to customers but unfortunately
detected after a large volume of the soy sauce was produced.
Not only must the contaminated finished product be destroyed but
it may take several months to complete testing, identify the offending
ingredient, source a fresh supply of unadulterated spices and
manufacture a fresh batch for release to customers.
In the interim, a competitor, Traditional Flavours, undercuts
Spicy Products and wins their customers. Spicy Products suffers
a considerable, long-term economic loss.
This will need to be quantified and claimed against any insurance
cover which may be held by Spicy Products or against the offending
spice supplier and/or their insurers.
Will your policy respond?
To see a list of recent losses,
Subscribe
to this regular newsletter - click here 
About
Claim Solutions
Claim Solutions
was established to provide 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.
If any of your clients sustained the above or other losses we
are available to assist them.
For
a copy of our Company Profile please
contact Joe or Susan.
