the Claim Solutions' Newsletter for Summer 2003.
As indicated on page 4 the year closed with a variety of losses
including fires, chemical spills, train collisions, lightning
strikes, the sinking of a fishing trawler, mini tornado and the
unfortunate chairlift collapse at Arthur's Seat in Victoria.
We hope all those who sustained a loss experience a speedy recovery.
We are pleased to report that the Australian and New Zealand Institute
of Insurance and Finance has chosen two articles from our previous
newsletters for use in their Diploma course on Business Interruption
Insurance and Business Pack Policies.
We look forward to providing our claims services to the insurance
industry in 2003.
Your enquiries are always welcome.
& General Area Damage
The very public
incident at Arthur's Seat Chairlift in early January has highlighted
the risks of such unforeseen events and the impact to the area.
Media discussion has indicated the chairlift will be closed for
some time with the possibility that it may not reopen. The chairlift
is a recognised attraction to the area for international, national
and local tourists.
The diminished revenue earning capacity of other businesses in
the area should not be under estimated. If you are restaurant
or tourist attraction in the vicinity, the decline in patronage
of the area may translate to a loss of profit.
A similar situation arises if a fire occurred at the premises
of one business in an industrial estate, denying access to other
businesses. Production ceased mid process, staff evacuated and
it may be days before access is permitted because of the risk
of hazardous chemicals or a flare up of the smouldering embers.
The undamaged business/s have policies covering Material Damage
and Business Interruption, so everything will be okay right? Wrong!
The Material Damage proviso in the Business Interruption section
of the policy says there must be insured damage to your property
for the policy to respond.
If available, an appropriately worded General Area Damage extension
2002 two men on a small fishing charter in the Northern Territory
were forced to jump into a crocodile infested river when their
collided with a submerged log.
The marine claim for the boat damage was the furthest thought
from their minds.
They were fortunate the crocodiles weren't biting!
a copy of our Company Profile please
contact Joe or Susan.
Interruption from burglary
At 8am, Monday
2 December 2002, Ms Ruby Rosel of Rage Designs arrived for work
to discover every garment from her exclusive women's fashion store
had been stolen.
Police investigations indicated unknown intruders forcibly gained
access to the building, disabled back to base alarms and loaded
a waiting truck with Rage's stock.
Distraught, Ruby contacted her insurance broker and advised him
of the loss. As expected her broker advised her the stock loss
was restricted to a sub limit - but what about the loss of profit?
Rage was in the midst of the Summer fashion season for 2002/03
and the annual peak Christmas sales critical for cash flow was
Designers were now marketing stock for Autumn/Winter 2003 and
the Summer 2002/03 fashions could not be replaced.
Rage was insured under an Industrial Special Risks cover. This
responds to the Loss of Profit flowing from a property loss under
the Material Damage section of the policy provided the event is
Burglary was not an excluded peril and the Loss of Gross Profit
associated with the Summer 2002/03 season was calculated. The
claim was settled.
Claim Preparation Costs - What is covered?
On 29 November
2002 a fire in premises operated by PDK Parts reduced it to rubble.
Loss adjusters attended, advised the cover was adequate and requested
details of all reinstatement costs as incurred.
The insured contracted architects to draw building plans destroyed
in the fire, a project manager to supervise the building works
and accountant to re-create accounting records.
The client included the fees invoiced by these consultants in
their claim under the heading of Claim Preparation Costs. They
also included an allowance for time worked by the General Manager
and staff for collation of documents associated with the claim.
The submission for Claim Preparation Costs was denied.
The Industrial Special Risks Mark IV policy covers those reasonable
professional fees for preparation of claims under Section 1, Material
Damage and Section 2, Business Interruption.
The fees invoiced by the Architect and Project Manager should
have been claimed under the Section 1 cover for Professional Fees.
Part of the fees invoiced by the Accountant should have been claimed
under the Section 1 cover for Rewriting of Records. The policy
does not respond to time worked by management and staff which
would have been paid irrespective of the fire.
Appointment of a claims preparer allows management to focus on
running their business.
Insurance covers the Loss of Future Profits. As a result the amount
declared on Gross Profit at the commencement of the renewal period
must reflect the insurable Gross Profit expected to be obtained
over the possible maximum indemnity period.
Depending on the indemnity period selected the declared value
will need to be based on the potential annual Gross Profit in
the year following the renewal period and beyond.
Declared values are often reviewed annually. But what if, in the
midst of the renewal period: -
- A new business
- A new and
substantial customer is obtained.
- A significant
new contract is won.
- An improved
production facility is commissioned.
- A major
competitor exits the market.
factors may substantially and unexpectedly increase sales mid
term, before the annual review of the declared value.
If a claim arises an underinsurance penalty may apply.
The declared value on Gross Profit should be constantly reviewed
and increased mid-term if necessary.
Lets avoid underinsurance!
To see a list of recent losses,
Recovery of Uninsured Losses
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.
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.
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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
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.
a copy of our Company Profile please
contact Joe or Susan.