The Problem with Undersized Box Gutters

Gutter replaced, overflow inserted to reduce likelihood of damage, but look at the quality of the workmanship with the overuse of silicone.

The hail storms in Melbourne and Whyalla have once again highlighted the problems of  box gutters, particularly where they are undersized or do not have an overflow mechanism.

With seemingly more intense storms and where hail is involved, many gutters are simply unable to cope and overflowing occurs.

With a gutter out over an eave, if the gutter overflows it tends to pour out harmlessly over the ground. Where there is a box gutter involved, any water that overflows finds it way inside the building.

Compounding this is that in far too many cases the gutters are undersized, or, equally as bad, there are insufficient and or undersized downpipes.

Where possible, the inclusion of overflows do stop internal damage. Another risk management measure to reduce the likelihood of damage is the regular cleaning and inspection of gutters and downpipes to remove leaves and other rubbish and detect lifting roof nails or screws and/or early signs of rust or the deterioration of any sealers.

I also question the craftsmanship of many of the roofers and plumbers. Silicon seems to be the cure all rather than doing the job properly. I think they should rename “No More Gaps”, “No More Skills”!  The other issue is that many gutters do not have sufficient fall or, worse, still fall the wrong way.

The issue of unwanted water entry from above (leaking roofs, overflowing gutters and downpipes) and below (flood or overflowing storm drains) needs to be considered from the design phase. Where possible, the gutters should be located so as to avoid damage and designed with plenty of spare capacity. It, of course, does not stop there but continues with the employment of quality trades personnel during the building phase and then regular cleaning and maintenance.

Councils also have to play their part. For more than one claim I attended to in Melbourne following the Christmas Day hail storms, the gutters became completely full of leaf litter as the hail, wind and rain stripped the leaves of huge overhanging trees. In each case, the Insured had asked permission to remove, or at least trim, the trees but had been refused for enviromental reasons. I strongly believe the energy wasted in replacing carpets, ceilings, furniture, computers, stock etc, more than outweighs the benefit of the trees.

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Will These Natural Disasters Please Take a Break!

Large hail stones cause major damage in Melbourne on Christmas Day 2011

Despite it being a very intense year with very few days off during the entire year, the LMI Claims Services Division, Loss Management International, has responded to all three natural disasters to hit Australia and New Zealand over the past few days.

First up, the New Zealand office of LMI attended to the latest earthquake damage to arise out of Christchurch following the two earthquakes that struck on 23rd December.

The second event was the severe hail and thunderstorms that struck Melbourne for the second time in 2011, this time on Christmas day. Damage was sustained mainly in the western and northern suburbs. I assisted with our response here with the claims being both physical damage by the hail denting roofs, smashing asbestos roofs and causing water damage. Two Insureds I attended were car dealerships.  Both had over 200 vehicles in the open. All damaged by the large hail stones. One Insured had insurance on the stock and one didn’t. My estimate of the average cost to repair the cars is at least $5,000. 200 x $5,000 (you can do the maths). Was the premium saving worth it! Every disaster I go to has stories like this. Business and home owners need to appreciate that over a 1/3 of property and business interruption insurance claims in Australia are weather-related.

Our Queensland and South Australian offices also responded to losses arising out of Cyclone Grant which struck the Northern Territory on 26th December 2011. LMI South Australia was also kept busy with a major hail storm in Whyalla, where the hail stones were reported to be 100mm (4″) – if true, that is massive.

As a follow up, the media bashing the insurance industry up on having skeleton staff and on the flood issue this evening is not only demotivating to those in all facets of claims, but also unnerving for those Insureds affected.

Taking a little liberty with Mario Cuomo 1986 statement: A [dishonest] judge can manipulate the law. A smart lawyer can keep a killer out of jail, a smart accountant can keep a thief from paying taxes, [the stupidist] reporter could ruin your reputation – unfairly.

It is going to be a tough patch for everyone as builders and their trades are on their Christmas break with many having travelled away from home before Christmas. The reality is that it will not be a break for many of us that did not go away. The important thing for those in the industry to keep in mind is not to let the bad press get us down. We will all do the best for the insuring public at their time of need.

I am sure that everyone in the insurance industry hopes for a less busy 2012 with fewer natural disasters to attend to. 2011 is certainly ending as it began. I think a few home and business owners may just agree!

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Christchurch Hit by Yet Another Earthquake

Christchurch hit by yet another earthquake

After a few months of relative calm, Christchurch has been hit with another earthquake.
The quake hit at 1.58pm local time and was followed by a second sharp jolt.
A visitor to the city said Westfield Mall was being evacuated. Terrified shoppers stumbled and fell as they fled the mall and items tumbled off the shelves.
Phone lines are down. I was first advised by our NZ manager but the first news bulletin I can find, following the advice, is this one:
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Festive Greetings

I have been overwhelmed by the support this new blog has received and I would just like to thank everyone for their kind words and to wish all the readers a joyous and safe festive season and that 2012 is all that you wish for.

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One Email Makes It All Worthwhile

Business Interruption Insurance & Claims (5th edition)

It takes hundreds of hours to write a book on insurance and with the cost of printing, you never are financially rewarded for the effort that you put in, but that is not why most people make the effort. You do it because you want to help others and make a difference.

I was fortuneate enough to receive an email that made it all worthwhile to write my first book a decade ago. It has come along way and is now in its 5th edition. The email, for which I am extremely grateful that the sender to have taken the time to write, reads as follows:

Dear Allan

Firstly I would like to congratulate you on your Business  Interruption Insurance & Claims and Understanding the ISR Policy text books.

I have a particular interest in business interruption and have been working hard on this aspect of my Loss Adjusting.  I have the benefit of some good mentors who have been kind enough to invest considerable time in my development, which I have been most appreciative of.   However, I having read your Business Interruption Insurance & Claims text book cover-to-cover, many of the gaps in my knowledge have been filled.

Allan, the way of you structured the text (in both BI & ISR texts) is nothing short of brilliance, honestly.  One could be forgiven to slip into the usual grind of dry text book content but some how, and I’m not entirely sure how, you have constructed the text in a manner that the reader is captured into the content of the text and almost compelled to keep reading through from cover-to-cover.

I can honestly and genuinely confess that studying your text has played a major part in the development of my career.  Whilst I considered my practical experience coupled with my Chartered Loss Adjusting exams and ANZIIF’s General Insurance & Insurance Broking Diplomas have given me a good grounding, your texts
have just elevated me to a new height. For this I’m most grateful.

Unfortunately there is nowhere near enough ‘independent’ type material available to Insurance Professionals and you should be congratulated for your considerable efforts in this regard.

I look forward to working through your other titles and perhaps introducing myself if our paths cross.

All the best.

Yours sincerely,

David M

To learn more about the book please go to

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Congratulations CGU on the Flood Issue

A big thumbs up to CGU on their position on Flood

I start this series of postings with a big thumbs up to CGU for the prompt and professional way they have addressed the flood issue. Well done guys.

If you have not seen the media release, here it is below: 


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Another Subtle Change (#2) to Business Insurance that weakens the cover!

Is insurance there to protect or destroy SMEs when they need the cover the most?

After nearly 41 years of handling insurance claims, what motivates me in all I do is to work towards business and home owners having the right insurance in place so that when ‘it’ does happen to them, they are fully insured.

At the same time, I fully appreciate that an insurer needs to be compensated by way of a fair premium to cover the risk that has been transferred from the Insured to them.

My third motivation is to reduce the number and size of professional indemnity claims against insurance brokers, and, in fact, turn it around so that a client feels that the broker gave them the right advice before any loss and that they (the Insured) have been fairly treated during the claim process.

With the high level of government taxes, the media and politicians demonising the insurance industry and a de-skilling of our profession, I sometimes feel I am fighting a losing battle.

Clearly, those that share my dream have another enemy to fight. This time it is the underwriters who are slowly reducing the cover afforded by their policies.

Last week, I raised the issue that a number of policies now require the Insured to include the GST in the sum insured. Further, that sub-limits also include the GST. See Should the client include GST in their sum insured on Business Insurance?. A couple of weeks before that, I asked, Where has the insurance industries social conscience gone?

This week I want to talk about at the change in some policies as to when the test for co-insurance is to be made.

Long before I joined the industry, the test for under insurance (average or co-insurance) on a property policy was on the commencement date of the policy. In the 1987 Mark IV Advisory Industrial Special Risks (“ISR”) policy, the co-insurance clause which is Proviso (iii) of the Reinstatement and Replacement Memorandum reads as follows:

In the event of damage to any property insured hereunder at any situation caused by any event hereby insured against, the insurer(s) shall be liable for no greater proportion of such damage than the amount that the Insured’s declaration of value of property insured at such situation on the day of the commencement of the Period of Insurance bears to the sum representing eighty-five per cent (85%) of the cost which would have been incurred in reinstatement if the whole of such property had been destroyed on that day, but not exceeding the Limit of Liability expressed in the Schedule; provided that if the sum actually incurred or expended in rebuilding or replacing the damaged property, within the meaning of sub-paragraph (a) of the abovementioned definition of reinstatement, exceeds the amount which would have been payable under this Policy if this memorandum had not been incorporated herein but is less than the cost of reinstatement as above defined, then the sum so actually incurred or expended shall, for all purposes of this memorandum, be deemed to be the cost of reinstatement of the property.”

[emphasis mine]

The reason that the commencement date of the policy was chosen was that it was accepted by socially responsible insurers that the Insured could not reasonably predict changes in the cost of rebuilding or in the cost of replacing stock, machinery, plant or other insured property in the upcoming insurance year. Changes in the economy, legislation, changes in currency values, fashion and a raft of other variables, can and do effect values.

So why then have many insurers started to move the date to test for under insurance from the start or inception date of the policy? (Bearing in mind that in accordance with the ruling in Edwards Dunlop & Co Limited v C.E Heath Underwriting & Insurance (Australia) Pty Limited (1993) 176 CLR 535, that each renewal creates a new contract and a new inception date of the contract of insurance.)

The issue was brought ahead for LMI’s claims team attending to Cyclone Yasi claims earlier this year. The building industry in North Queensland was a bit depressed prior to the cyclone hitting, but then all building trades were in hot demand. Should we test for under insurance 1 minute before the storm hit when building costs were lower or one minute after when the costs had escalated by 30% to 50% due to basic economic principles of supply and demand?

I reviewed the policies that are out in the Australian Market and was surprised to see so many that had moved to testing on the date of the damage. Even insurers that I would never have guessed would move down this route.

At this stage, insurers have not moved on the cluster group policies as far as I can see but on their generic wordings, as they fall due for renewal many are moving them over, and, as far as I can see, not notifying their clients of the difference.

I will not repeat the duty of utmost good faith as espoused by Lord Mansfield said in Carter v Boehm (1766) 3 Burr 1905, but I feel that this change is unfair and undoes the good practice of those, as I say socially responsible underwriters/insurers, that developed the original policies. Our clients deserve more and I believe our industry is better than this. If it is a profitabilty issue, put the price up by the small fraction that is needed but do not take away cover.

I have always strongly believed that policies should contain a co-insurance clause due to the risk of Insureds selecting against the Insured by choosing a sum insured that would cover their estimate of the maximum probable loss. My position has only strengthened as a result of my work arising out of the Christchurch earthquake where I have seen endemic under insurance as Insured after Insured set their estimate of their maximum probable loss on a fire or storm and not a series of massive earthquakes. This has had negative life-changing consequences on so many good people, their families and that of their employees and on the Christchurch and New Zealand economies.

The whole reason that the industry moved from the ISR Mark III to Mark IV was over under-declaration and the primary change was to make the test for under-insurance being the value at risk at the situation at the commencement date of the policy.

The way I see it, this move is going to disadvantage small and medium-sized businesses, who are the backbone of the Australian economy and the primary client base for many Australian insurers. It will not affect those on an ISR policy nor those who use an international broker where co-insurance is often deleted. It is on this point that it will not, at this stage at least, affect those brokers who are part of a cluster group where they stay with their partner insurers and or with a broker who understands and appreciates the significant difference that this change in the wording has. What of the SME client that buys direct? What is the PI exposure to the broker that fails to notify his client of the change in cover?

Our industry has been demonised by the media and government over the flood issue and we have had further legislation thrust upon us. The recommendations went further and asked for the removal of sum insureds on home building policies by 2014. This was an unexpected consequence.

I genuinely fear that when the media and/or regulators become aware of the changes, perhaps during a natural disaster, that there will be a push for the removal of all penalties for under-insurance. The fact that insurers are prepared to do it for some clients, coupled with the poorly communicated change in the time for the test of co-insurance, is just the opening that the regulators will jump on.

I urge all insurers moving down this path to seriously consider what they are doing to their customers and to the brand ‘insurance’.

Remember that there are tools to assist you explain co-insurance to your clients. These are available in LMI RiskCoach with the building cost calculator and the under-insurance calculator. Both of these are available on iPhone and iPad from the Apps store (search for LMI Group), while the Under-insurance Calculator is now avaiable on Android phones via the Market Place. Again, search for LMI Group.

Also remember that LMI PolicyComparison will show you the date for the test for co-insurance and the percentage the loss has to reach before the test is applied. You will see that many insurers are phasing the change in as they update their wordings.

It gives me no pleasure to raise issues such as these. Besides GST and the test date for under insurance, I have a couple more serious concerns that I will give more thought to and do a posting on over the next few weeks.

On the other hand, if I have missed something as to why the change is necessary, please drop me a line via the ‘Comments’ section or write to me at

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New Laws on Workplace OH&S

Wokplace Safety

Work Place Safety - It Starts With You.

The topic of ladder safety leads me nicely to the next topic for this week: the upcoming Australian laws affecting workplace health and safety. Many business owners/Insureds should consider what they need to do to prepare for the upcoming legislative changes.

Queensland, NSW and the ACT have already implemented changes and the other states and territories are expected to do the same very shortly.

The new laws introduce new duties on businesses and individuals. The duty of officers of businesses to exercise due diligence to ensure compliance is but one example.

In a nutshell, there are 3 key changes of which every insurance broker and every employer must be aware.

The Primary Duty

There are two important differences in the new legislation on how a business should ensure the health and safety of all workers and others that might be put at risk by their work.

There is also a new definition of what is meant by ‘worker’. It is no longer only an employee, but may also includes contractors and sub-contractors and their employees, employees of labour-hire companies, outworkers, work experience students, interns, and volunteers.

The duty of care is now “as far as reasonably practicable.” When the word reasonable appears, it typically creates a great deal of work for the legal profession. In the case of “reasonably practicable”, The High Court of Australia has ruled that to achieve a successful prosecution of a workplace safety offence, the Regulator must identify the measures that should have been taken to prevent the incident. The Regulator now also has the additional burden to prove that the measures that should have been taken were reasonably practicable in the case being prosecuted.

For employers, what this means is that they must determine how likely the risk is and the degree of harm that could result from doing the particular work. In addition, they have to research what is known about the risk and the ways it can be eliminated. Once they have carried out this research for the particular task, they need to show they have considered the cost associated with its elimination or minimisation, including whether the cost is grossly disproportionate to the risk.

As part of their Job Safety Analysis (“JSA”), the business owners/managers need to ensure compliance by all to avoid potential prosecution.

In normal practice, the person completing the JSA would use their common sense and training along with any Australian Standards to determine what is reasonably practicable. The risk of working off a ladder, taking my previous posting as the example, without fall protection, for example, is obvious and a conscientious employer would eliminate this risk with harnesses and a work platform with handrails. These are well-known prevention measures.

The problem that I, and many other commentators, see is in cases where risk is relatively low. Here proving a measure was reasonably practicable may require expert evidence, which will only add to the cost of doing business.

Having said this, this additional burden and cost associated with instructing experts in proving low-probability offences may be the only way to avoid a workplace safety prosecution.

The New Officer Offence

I am sure that many company directors gave a sigh of relief when the deemed liability provision was removed from the Occupational Health and Safety Act 2000 (NSW).

The new legislation means that directors and management involved in high-level management imposes a positive obligation to exercise due diligence to ensure the health and safety of their employees and others at the workplace. Among other things, it means developing and maintaining procedures and systems that ensure executives have up to date knowledge of health and safety matters and industry risks and that the company has allocated sufficient resources towards full compliance.

The Requirements to Consult and Co-operate

Under the new legislation, businesses must now consult with their workers and the new laws formalise the type of consultation required as well as introduce new powers for Health and Safety Representatives. All business owners and senior management should look closely at these provisions when amending existing policies. They also need to be extremely mindful of these new consultation obligations.

Please keep in mind that where there are two or more businesses working together on, for example, a construction project, say as principal, principal contractor, subcontractor etc. These businesses are required to consult, co-operate and co-ordinate activities on safety matters to an extent that it is reasonable in the circumstances. Fines of up to $100,000 can be levelled for breaches of this new provision.

Wrap Up

In summary, the work health and safely legislation is focusing on increased communication and co-operation to ensure the health and safety of Australian workers and those that might be affected by businesses operations. The new rules highlight the importance of information flow between a business and its executives, its workers and other businesses working on the same project. Government hope that this front-end loaded approach to OH&S will reduce the amount of serious injuries and deaths in Australian workplaces.

For any business owner, the important thing to do is to ensure that your business is ready for this new legislation. You can best do that by understanding it and then to undertake an immediate gap analysis of existing procedures and systems. Once the gaps have been identified, the next step it to develop, document and implement any new polices to ensure compliance with your new duties. An important part of this is to review any existing contracts to ensure the new consultation requirements are met.

Insurance brokers, as trusted advisers on risk management and insurance, should be fully aware of these changes as well. To assist brokers, LMI, with Hamilton Professional, will bring a new product to market in 2012 tentatively called LMI SafetyCoach, which will be a practical guide on OH&S and compliment what we currently bring with LIM RiskCoach and LMI ContinuityCoach.

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Shocking Injury to Molly Meldrum a Stark Warning on Risk of Using Ladders

Ladder Safety

Ladder Safety - Ignore it at your Peril

We men in particular think we are indestructible and that it will never happen to us. Over the years, I have seen a number of friends and colleagues get badly injured from falling off ladders. Luckily, no one has been killed but there have been some very close calls.

One example was a claims officer who was trimming a tree from a ladder when he fell and was impaled on a star picket. Another cut his leg badly with a chainsaw when his ladder slipped. I have also investigated many serious injuries involving ladders where people were trying to sue the ladder manufacturer. Most, but not all, involved middle-aged men, often overweight and or reaching too far from the ladder.

In my own case, I have been on ladders my entire life. My father was a builder (brick layer) and I was up and down ladders and scaffolding since as far back as I can remember. When I got married, my wife and I decided to build our own home and so for 10 years of weekends we, along with help from brothers from both sides and my father in law, were up a ladder building, painting and decorating our first home. We never had one incident that I can recall.

Since then I have renovated three further homes and three offices along with the typical home maintenance that includes cleaning out the gutters and changing a light bulb again with no incident.

Two years ago, my son Steve purchased a Californian bungalow only a few doors down from me and I offered to help him install a burglar alarm. I was up a ladder at the front of the house connecting the siren and blue light to the system. My ladder was leaning up against a brick paraphet above the garage. A neighbour from across the road shouted out that my work was causing his alarm to sound off and as I twisted around to tell thim that that was physically impossible as we had no power to our system and did not have a remote switch, the top course of bricks on the parapet moved and the ladder slipped out from under me. I feel about 2.5 metres with my back sliding down the wall and landing in a seated position.

Other than a few grazes I was fine but then 3 bricks from the paraphet fell on top of me. One grazed the left side of my head and hit my left shoulder. one hit my right leg on the inner thigh and the other hit me edge side on the right side of my head. This last one nearly knocked me out.

The worst part of the whole incident was the look of horror and concern on the faces of the neighbour, my son and soon after my wife and daughter. I was taken to the Alfred Hospital and had 8 staples in my head. The service I had was first class and I am sure that Molly is getting the best of treatment.

I consider myself very lucky with this accident. If I had a softer skull or the brick had hit me on the corner it may have done a lot more damage. I also wonder what would have happened if my head was forward and it had hit be across the back of the neck.

The lessons learned were that I should have checked the brickwork against which I had sat the ladder and secondly, I should have had someone on the ground supporting the ladder. If there had been the ladder would most likely only fallen at the top less than 100mm and the base would not have slipped out from under me as it did.

The reality is that you do not have to fall far off a ladder to be seriously injured: 1–2 metres can be enough.

At least 83 Australians, mainly men, have died after falling from a ladder over the past five years (Source: WorkCover Victoria). Thousands more have been seriously injured while using a ladder for home repairs and renovations, as well as gardening tasks.

Men at, or nearing, retirement age are in the highest risk category for this type of accident.

I have now purchased myself a work platform rather than risk a ladder. I share this with my family, work colleagues and friends. A small price to pay to stay safe and healthy. I really do not want to see any of my staff or family up a ladder. Having proved I am not the superman of my youth, I will not be rushing up one again soon.

I attach a brochure issued by WorkCover Victoria on ladder safety in the hope it may just save you or someone you know from serious injury or worse.

I am sure you join me in wishing the living legend that is Molly Meldrum a speedy and full recovery.

Ladder safety

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Where Does All the Knowledge Go? Give It a New Home!

With insurance being such a complex product, you never stop learning and we build our knowledge from the shoulders of those that came before.

Recently I have had the need to ring a senior insurance expert for advice and have learnt that they have retired and while they are still happy to assist where they can, they have advised me that they have dumped all the reference files that they had built up over a lifetime.

This is not a new phenomenon. It is often at the insistence of their spouse or just a need to make a symbolic break from the past that they make the trip to the recycle centre.

The first time I came across this was nearly 18 years ago. John and Iris Salmon, both very talented loss adjusters and very supportive educators for the Chartered Institute of Loss Adjusters, had an large collection of text books and articles. With downsizing their home to spend their retirement on the Mornington Peninsula, Iris came to my office, at that time with one of the international loss adjusting firms, and said she would like me to have them. I gratefully took the books and added them to the firms library which I put into a room, which I named the Iris and John Salmon Library.

When I left the firm to start my own practice, I had to make the call as to whether the books and article collection from Iris and John were given to me or to the firm. I have always tried to do the right thing and so I decided it was probably in my position as the regional leader of the firm, rather than to me personally, that the books were donated and so I left them all behind.

About 3 years after I left the company, the new management decided to move offices and as the new offices were smaller, they decided to trash the library and had them put into a mini skip for dumping. One of the staff rang me to say what was happening and I rushed into the city to offer to buy the lot, only to find that the books and articles, all cross-referenced, and very difficult to replace, were gone. I know that some of the books were over £400 to buy back in the early 1990s.

At LMI, we have an extensive library of books, insurance articles and insurance policies. With the articles and policies, we scan them and have them online so that they are available to students and a valuable resource to the industry. Any books that we have duplicated, we donate to the Victoria Univesity Library who are, themselves, building a good insurance library.

It was equally heartbreaking to hear, as I did twice last week, that a large important collection has again been lost by someone who had recently retired, throwing away their collection.

On the other hand, I would publicly like to thank Interlink in WA, Karl Barduras in Queensland, Ivan Vojlay, Max Salveson and David Goodlad who have kindly donated policies, insurance texts and articles to our insurance library.

Before you throw anything out, no matter how old or seemingly out-of-date, please let me know and one of the LMI team will collect and store it. Naturally, you will have access to your own material, and the entire library, should you ever require it.

You can be assured it will be given a good home and be put to very good use in that it will be helping train future generations of insurance professionals.

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