Newsletter
SPRING 2018

ISSUE 56

Level 8, 350 Collins Street
Melbourne Vic 3000
03 9642 8578
claimsolutions.com.au

INSIDE THIS ISSUE

Welcome
Esso Longford 20 Years’ Later
Gas Disruption – Losses Claimed
Public Utilities – Policy Response
Odd Spot

20 years' since an explosion at Esso’s Longford plant made us all appreciate electric hot water systems

Welcome

Welcome to our Spring 2018 Edition and 56th Claim Solutions' Newsletter.

Twenty years ago on 25 September 1998, an explosion at Esso’s Longford plant in Victoria made us all appreciate gas and our friends with electric hot water systems.

In this newsletter we reflect on the outcomes of the gas disruption and how policies responded then and today.

If you, or your clients, have suffered loss or damage we wish you a speedy recovery.

If you have experienced a loss and have an insurance claim we are available to assist you.

We welcome your enquiries.

All our newsletters over the past 20 years have been indexed to provide you with an online compendium of our claims experience. Browse our Index here to find articles which interest you.



Esso Longford 20 Years’ Later On 25 September 1998, an explosion at the Esso/BHP Longford plant, Victoria’s primary provider of natural gas, resulted in a fire for 2 days and severely disrupted gas supplies for a 2 week period. There was considerable financial loss and a plethora of Business Interruption claims across a multitude of industries from hospitality to motor vehicle manufacturers. Property loss also occurred as some industries experienced uncontrolled shutdowns damaging plant such as smelters and manufacturers utilising kilns and other drying facilities for instance. Claim Solutions prepared and settled a large volume of these claims. Reportedly financial losses totalled $1.4bn. Australia's largest ever class action at the time sought up to $500 million in damages. The aftermath included:	"$32 million compensation package for businesses in settlement for property damage.” Even if financial losses are not insured they need to be quantified, documented and supported.
1999 Royal Commission found Esso “largely to blame for the explosion, because it failed to properly train its workers.” 30 July 2001 Supreme Court record fine of $2m for 11 breaches of the Occupational Health and Safety Act 1985. December 2001, Esso was ordered to pay damages in the sum of $1,025,000 to the family of one of the workers killed in the incident, an amount thought to be the highest award made under Victorian criminal compensation legislation. 15 November 2002 Coroner ruled Esso was to blame for the explosion. 20 February 2003 The Victorian Supreme Court found Esso had no duty of care for economic loss caused by the explosion brought by Australia’s largest ever class action. 13 March 2003: The Longford plant finally reopens after $500 million worth of improvement work. 20 June 2003 Justice Bill Gillard ordered Esso pay $1.1 million to malting company Barrett Burston. The money is to cover spoilt barley, the removal and disposal of barley and loss of profits arising from a 10 day halt in production after. Barrett Burston is one of only two companies allowed to claim compensation over the gas crisis. 25 June 2003 Supreme Court orders Esso pay $1.1 million to 10 of its workers for the trauma they suffered in the explosion at the Longford gas plant $270,000 to 10 family members of those workers. 8 November 2004 The Victorian Supreme Court approved a $32 million compensation package for businesses in settlement for property damage. Uninsured businesses and Insurers were able to claim from the pool. A system of claims was established with those less than $5,000 paid once proof of the property damage was made in a statutory declaration. Claims of more than $5,000 had to be approved by a loss adjuster. Esso had no role in the process. The settlement package ended 6 years of litigation and all outstanding class action claims over the Longford explosion of 25 September, 1998. Even if financial losses are not insured they need to be quantified, documented and supported.

Gas Disruption – Losses Claimed The magnitude of the financial losses arising from the Gas Disruption of 1998 increased daily for 2 weeks. Measures taken as a result, at substantially increased costs, included: Securing alternate fuels (e.g. LPG, diesel, etc) and converting plant where possible. Utilising spare capacity in interstate or overseas operations. Purchasing competitor product to satisfy local demand. Conserving energy when not required. Bringing forward scheduled maintenance. Business Interruption/Consequential Loss policy cover requires there to be physical damage, referred to as the Material Damage proviso. If there was no physical damage to property how did businesses successfully claim under their insurance policies?		Public Utilities – Policy Response There were three major failures of public services in Australia and New Zealand in 1998 that tested policy responses and invoked legal responses. In February 1998 Auckland, New Zealand, was left without electrical power after cables supplying electricity to the CBD failed. There was no, or limited power, for over 2 weeks and for a further three months they were subjected to power shortages. Losses were estimated at NZ$1bn. In July 1998 Sydney’s water supply was found to be contaminated by giardia and cryptosporidium organisms. Businesses loss estimates were $100m. Finally, the 25 September 1998 Longford cut Victoria’s supply of natural gas entirely until mid October 1998. The Mark IV Industrial Special Risks policy contains a "Public Utilities Extension". Paraphrased this reads: "Any loss resulting from interruption of ... the Business in consequence of damage to property, caused by a peril damage as a result of which is insured hereunder, at any ... gas works... situated on or immediately adjacent to the Premises shall be deemed to be loss resulting from Damage to Property used by the Insured at the Premises".



Public Utilities - Policy Response (cont) While specifically referring to "gas works" the application of this clause is limited. The "gas works" must be adjacent to the business which sustained the loss. Broader Public Utility Extensions existed under manuscript or endorsed covers. In 20 years we are pleased to say that Industrial Special Risks policies tend to contain endorsements such as “….Damage, anywhere in Australia to land based premises of any communication station, electric power station or sub-station, gasworks, waterworks, sewerage ….” Business Pack Policies slowly improved their standard wording removing “adjacent to” and replacing it with “Damage to land based property located in Australia that belongs to or is in under the control of any company or authority producing, supplying or delivering the electricity, gas, water, sewerage or communication services used by the business.” However, most policies contain sub limits and separate excesses generally based on a time limit such as 2 days or 72 hours. Application of sub limits and deductibles have their own complexities but ensuring the cover is available is the first step. Cover may also be available under a Suppliers’ Extension which may read, “Loss resulting from interruption … with the business in consequence of Damage to property at Suppliers/Customers Premises shall be deemed to be loss resulting from Damage to property used by the Insured at the Premises for the purpose of the Business”. Insurance policies should be reviewed to determine if they include endorsements to extensions for Public Utilities with no reference to “adjacent to”. They should extend to cover damage at any public works that interrupts the Insured’s business.		Odd Spot – Chocolate Spill Sadly there were no Oomp Loompa’s to be seen when a truck carrying liquid chocolate overturned on a Polish highway, blocking six lanes of traffic. The fire brigade of Slupca reported the liquid chocolate was solidifying as it cooled and the smeared chocolate was “worse than snow” and harder than oil stains to remove. Apparently it took large amounts of hot water to clear. After wondering if the chocolate was correctly tempered, we concluded it was a sticky claim for which we’re sure we would have had a sweet solution. Claim Solutions Pty Ltd ABN 31 091 028 072 Level 8, 350 Collins Street Melbourne Vic 3000 03 9642 8578 claimsolutions.com.au This email address is being protected from spambots. You need JavaScript enabled to view it.