Additional Benefits Under and ISR – Architects, Surveyors’ & Similar Fees

Over the next few weeks, I thought I would go over one of the additional benefits provided by the Industrial Special Risks (“ISR”) Policy. We start with the first of the additional benefits, architect, surveryor’s and similar fees.

The exact words of the Mark IV wording are:

“Subject to the liability of the Insurer(s) not being increased beyond the Limit(s) of Liability already stated herein, the Insurer(s) will also indemnify the Insured for:

(a)       Architects’, surveyors’, consulting engineers’, legal and other fees and clerks’ of works salaries for estimates, plans, specifications, quantities, tenders and supervision necessarily incurred in reinstatement consequent upon damage to property hereby insured but not such costs, fees and salary for preparing any claim hereunder.”

While the “reinstatement and replacement” memorandum covers the cost of  reinstating the damaged building, there is much more to building a commercial building that the cost of the materials and labour. This first additional benefit acknowledges that artictects and a number of engineers will, in all likelihood need to be involved. There are soil tests to be conducted, then engineers to design the foundations, the structural components of the building, the electrical and mechanical services including lifts, and air conditioning etc.

Further, the insured may require a project manager or the like. Again this additional benefit provides the insured with cover for this expense subject to the test for co-insurance and the Limit of Liability.

The reference to “and other feeswould by applying the ejusdem generis[1] rule of document (or Statute for that matter) interpretation, and means only fees necessarily associated with the reinstatement of the Damage.

While the costs of architects, surveyors and consulting engineers are usually associated with buildings, consulting engineers in particular can be useful in the reinstatement of plant and machinery, and even stock in some cases. These additional costs are necessarily confined to the reinstatement of property and are consequent upon damage. It would appear not to include such costs involved in the removal of debris, temporary protection etc that would be covered in a later Additional Benefits which we will cover off in future postings.

Claim preparation costs under the policy are specifically excluded in this clause.

The last point I would make is that while the balance of the additional benefits are not included in the test for co-insurance, it is necessary that architects, surveyors and the fees that fall within this cover are included in the Declared Values and will certainly be included in any test post loss. I personally believe that it is unreasonable for an underwriter to include any part of the cover for under insurance and impose a Sub-Limit for the same benefit.

Simply put, the ejusdem generis rule means that where a word of general specification is preceded by a specification of particulars, all of which may fairly be regarded as being
comprised in the same genus, the word cannot be taken to include anything which does not belong to the genus indicated. For more information on the topic, I recommend Pearce D.C., 1981, Statutory Interpretation in Australia, 2nd Edition, Butterworths Pty Ltd, pp.49-54.

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More on Extra Costs of Reinstatement

I had many requests for a full copy of Howell Swanton’s paper on Extra Cost of Reinstatement.

I attach a copy of the full paper, as follows. Thanks again to Robert Riddock for providing a copy.

Extra costs paper

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Today Tonight miss the point

To late to find out that you have a lemon of an insurance policy after a loss has occurred

During the week in Victoria (hopefully just there) Today Tonight ran an article on the differences in price of insurance going so far as to critisise some of Australia’s largest multi brand insurers for having different prices within their own stable of brands.

This reinforces one of the biggest urban myths about insurance. that is, all insurance policies are all the same. The reality is as anyone in the industry knows that insurance policies are not the same, nor is the claim service between insurers or in some cases within brands.

We really cannot blame anyone but ourselves as our own ads push two main points. 1. insurance is all about price, and 2. insurance is easy.

Insurance brokers need to work to overcome this more than ever before in this tough economic times. Products like was upgraded this past week to allow brokers to explain the differences even easier.

It is of course too late at claim time to find out the truth about insurance and debunk the myths.

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Taxes are damaging business

I travelled down to the Gippsland this week to build a business continuity plan using for a small manufacturer and then complete a review of their insurances for their insurance broker.

It disappointed me to learn that the business had decided to stop exporting to countries such as Singapore, New Zealand and the United States due to a combination of a hike in the cost of the Australian Quarantine and Inspection Service (“AQIS”) and the high Australian Dollar. The owners said they would have ridden out the dollar but the increase in the past few years of AQIS was the final straw and they would not continue.

Why do we as a country give massive subsidies to foreign owned industries such as the motor industry and yet not give our own SME businesses a chance to become large businesses? Is it the power of the lobby groups or the unions? I really do not know but it appears that SME business owners do not have anywhere near the same voice.

Government need to understand that it is the SME’s that are the biggest employers and yet they get every obstacle possible thrown at them. They put so much effort into their business, put everything on the line with mortages over their home and personal guarantees and get no real support.

When we came to discuss the insurance the issue of Fire Service Levies naturally came up and in this businesses case the rate had gone from 64% to 95%. Even without any increase in premium the cost of insurance due to the triple tax had gone up $5,000. Of course due to the spate of natural catastrophes the premium had gone up and the Insured has elected not to increase their sums insured as they ought to until the 2013 – 2014 year as they simply cannot afford the increases at this time.

I went away from this great long standing business worried for them should they have a loss. I know their bank is going to get what is left and not the families that have put so much into the business. I was equally worried about Australian businesses generally particularly in rural Victoria.

The current government seems to be looking into every hollow log they can to collect levies and taxes and yet cutting services at every turn.

Like everyone else I saw all the grandstanding on the National Disability Service over what was such a small amount of money. Much less than 1/10th what the government is taxing the insurance industry on fire service levy.

More and more I question the value of state governments regardless of the political party.

The only positive I took from the day was that the director of the company understood the importance of and valued the business continuity plan (“BCP”) that was created. This plan will, using be available from any where connected to the internet and will be updated and exercised regularly. They chose 6 monthly.

While a BCP is an invaluable asset to a business allowing them to recover faster and manage a crisis with much less stress, it should be seen as a compliment to insurance and not a substitute.

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More Victorian businesses elect not to insure due to absurd FSL rates

Government taxes and levies are forcing business owners to not insure or under insure

On Friday I visited a broker in Ballarat to provide training to their staff on PolicyComparison, BIcalculator and RiskCoach and heard several cases of where Insured’s are, as I had early in the week, elected not to increase their sums insured or worse still elected not to insure at all. This is extremely worrying for not having property insurance is one thing but where a client over reacts and says they want nothing to do with insurance and take away business interruption, theft cover and most important of all liabilty insurance it is frightening.

I had another example on Sunday in the town of Daylesford.

As most readers will know, in rural Victoria the Fire Service Levy (“FSL”) has reached 95% of the fire/property rate. You then have the triple tax of GST and State Government Stamp Duty being applied to this to make the cost of insurance 143% more than the base premium. It was when FSL reached this level in Queensland back in the mid 1980’s that the then Premier Joh  Bjelke-Petersen removed FSL in that state.

I have been concerned for some time at the high level of the tax in rural Victoria was too high but treated it as a bitter pill to swallow but at least in 12 months it would be gone and the cost of home & contents insurance and business insurance would be lower. But after the last few days, I question the cost of the bitter pill.

Business failure rates are at a terribly high level and the Victorian Government forcing so many businesses to under or not insure will all but guarantee business failure in the event of a sizeable property or business interruption loss.

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Cost of bricks increases

Free "under insurance penalty calculator" App from LMI Group







As predicted (see the cost of many building materials has increased since July 1 due to the Carbon Tax.

The latest that I am aware of is clay bricks which have increased by $40 per 1,000 by some manufacturers. What I found interesting is that as the ACCC is taking such a keen interest in all things Carbon Tax, the manufacturers I spoke to said the cost increase was due to increases in transport costs.

What ever the reason it is important that brokers advise their insureds that building costs continue to increase and it is necessary to review their insurances every year to avoid co-insurance.

Remember that LMI provide a free iPhone app which has both a free under insurance and building cost calculator. Go to the apps store and search on LMI Mobile.

Free "building cost calculator" App.

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US hit with large storms –

Source: US National Weather Service

A widespread severe weather outbreak killed at least three, and affected several U.S. states today, including Pennsylvania, Ohio, as well as some Southeastern states., the Midwestern U.S., and states of the Mid-Atlantic and New England regions. Notably higher damage concentrations were found in the Northeast, including New York, Pennsylvania, New Jersey, Ohio, and Connecticut.

The storm front was described as a “Derecho”. A “Derecho” is a wide, long-track swath of damaging straight line winds, capable of inflicting damage equivalent to an severe tornado. Numerous high-wind reports (derecho and non-derecho), some in excess of 112 km/hr (70 mph) were reported, together with hail, frequent lightning, heavy rain, and at least one tornado.

Typically light damage is commonly found with winds in excess of 90 km/h (55 mph).

Why I report such events that if they are significant they can effect the price of property insurance globally.


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This week’s posts

It has been quite a week and Thursday in particular was quite a day.

First up, on Thursday, I attended the ANZIIF Insurance Industry luncheon and was formally acknowledged as an honorary life member. That same day, the Midway Club, a Victorian based insurance club bestowed the Feat of the Year award on me for my work on the fire service levies and for my recent text books. I thank all those involved in making the events happen.

Between these two events I was interviewed by Channel 10 News for an exclusive news story on Fire Service Levies in New South Wales. I was pleased to support the ICA’s position that the New South Wales decision to look at removing the levy is a good one. To view part of the news article visit

The tax issue certainly dominated email traffic this week.

I was busy much of the week on claims and it was pleasing to have several major ones agreed and finalised for the Insured. As one claim is finalised a new one is received and LMI received many new claims around the country covering fires, machinery breakdown, tax audit, product recall, marine and product liability.

Internationally, our New Zealand operation continues to receive, handle and finalise earthquake claims arising out of the Christchurch events. BIcalculator is being well received in South Africa with another major firm subscribing with insurers and reinsurers appreciating the training and sales opportunities.

Students are continuing to sign up for the new Master of Insurance Law and Practice degree through Victoria University and this assures the course is off to a great start and give Neil and I encouragement to continue to work on the next phase of the course material. Thanks to Sue and Phil from Victoria University for their ongoing assistance.

I had a great many emails of support and comments on the recent articles and I thank the readers for that. This week, I have 6 articles for you which I hope you find of interest.


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Overseas Customers and Suppliers Extension

A broker contacted me for advice on insuring the risk of a related New Zealand based business effecting an Australian businesses insurable gross profit.

The endorsement the broker had tried to use which was rejected by the Australian Insurer was:

Customers and Suppliers – Unspecified

Unspecified property at the premises of Your suppliers or customers of goods or materials or services (other than those services provided by any Public utilities) or at storage premises neither owned nor operated by You where You store goods or materials, all within the Commonwealth of Australia, provided that Our liability will not exceed 20% or the percentage
shown in the Policy Schedule of the sum insured applicable to this cover section.”

With respect this was never going to work as the other company was based in New Zealand.  I did not have enough information to fully answer the question but provided enough for the broker to know what to do once he established the relationship between the Australian and New Zealand operations. My answer read as follows:

If the entity in New Zealand is a separate legal entity and supplies the Australian Entity then they are a supplier to the Insured.

The endorsement you have chosen is unspecified Suppliers and Customers for Australia.

I would suggest the following endorsement which I wrote some time back and also covers suppliers and customers in New Zealand.


Loss resulting from interruption of or interference with the business in consequence of Damage to property at the premises, anywhere in Australia or New Zealand, of any direct producer or direct merchant shall be deemed to be loss resulting from Damage to property used by the Insured at the Premises.

The liability of the Insurer(s) under this endorsement, in respect of any one loss or series of losses arising out of any one event or occurrence at any one premises, shall be limited to amount stated in the Sub-Limit of Liability noted in the Schedule against Unspecified Suppliers and/or Customers Premises.

For the purposes of this endorsement, the term ‘premises of a producer’ refers to premises, other than those described in the Public Utilities Extension to Section 2 of the policy, at which any of the goods or services used directly by the Insured are produced, assembled or stored. The term ‘premises of a merchant’ refers to premises to which the Insured directly provides goods or services.”

If the New Zealand operation is the same legal entity as the Australian one, unlikely if it trades in New Zealand it its own name, then you should consider the following endorsement.


Loss as insured by Section 2 of the policy resulting from interruption of or interference with the Business in consequence of Damage to property not insured by Section 1 of the policy and situated at any other premises in Australia or New Zealand owned and/or occupied and/or used by the Insured for the purpose of the Business or any other business shall be deemed to be loss resulting from Damage to property used by the Insured at the Premises.”

With the earthquake in Christchurch earthquake may be an issue for the underwriter.

Hope this helps.


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Complaint to Victorian Sitting Member

Anger in the business community may come back to bite Victorian Government

This is a copy of an email sent to one Victorian sitting member on the issue of Victorian Fire Services that was shared with me.

Dear Member,

I rang your office 2 weeks ago to express dismay at the approach being taken by Government to the change from insurance levies to council levies in Victoria. Your adviser seemed to think this was a non event.

If ever a Government was hell bent on disturbing it’s constituents particularly in the Country your party has served up a doozy in its crash through in its non-approach to transitional arrangements. It must be remembered that notwithstanding the method of the collection it is the public and business that ultimately pays the price.

It may be legally right to say that Insurers have a full responsibility up to 30 June 2013, however that approach ignores the historical practical difficulties for insurers in charging out this impost to policy holders. This can only be done on renewal of policies in practice and I can tell you how angry business policyholders with most having policies due at 30 June are at the prospect of paying insurers an amount on 30 June 2013 and a council levy incepting from the same date.

One is aware that consideration of insurer’s position on matters seems to have drifted a lot in recent years but bringing this on as proposed will punish Insureds.

There has always been anger in business circles in Country Victoria about the present CFA impost  where levies and charges exceed the insurance premium. Many manufacturer’s in Frankston have for years wished they had set up closer to Melbourne. I am wondering in Treasurer’s calculations whether they ever considered standardizing the rates for fire brigade charges for factories across the State on a uniform basis?

The NSW Government seems to be taking a sensible approach as per the attached advice which is similar to those States where this changeover happened without the situation proposed in Victoria.

I thought it desirable to bring this to your attention as my Local Member.”

It really surpises me just how much the Victorian government have got this wrong and the angry mood in the business and insurance communities at their mishandling of something that should have won them great kudos.

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