More advice on fire safety

A few weeks back I posted an article on fire safety in high rise accommodation http://www.allanmanning.com/?p=2388

I received quite a number of emails on this subject and one I thought I would share with you. It is from Matthew Pelletier, Director of Public Relations at Compliance and Safety. Matthew kindly provided a link to a free resource titled: ‘The Comprehensive Resource of fire Safety Tips’.

The link is: http://complianceandsafety.com/safety-tips/fire-safety-tips.php. What is good about it is, is that it is, to my knowledge the only fire safety tips resource that is backed by statistical data to underscore the importance of each tip. While this is US data, from my experience the risks would be much the same in our part of the world.

Brokers you are encouraged to share the information with your clients. Thanks Matthew for sharing the safety tips.

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How water tight is your home?

I was asked to assist a home owner who had had his house trashed by a spectular burst water main by the owners work mate. The work mate was an ex-insurance investigator that I have a lot of respect for and so was only too willing to assist.

I was inter-state when the incident occurred but did hear about it on the news. When the homeowner showed me the photos I thought that the images had been photo shopped to make the water spout look much bigger. But no, this was all real. The water went up an estimated 80 metres due to the high pressure and huge volume.

While the home had been a water tight sanctuary during the fiercest of storms for the family of four, the roof and gutters could not cope with this huge amount of water. Luckily a passer-by from a rival water supply company stopped and was able to turn off the water when he did otherwise the damage would have been much greater. The home owners are naturally very appreciative of the work of this good Samaritan.

As it is part of a carport collapsed, all the contents were saturated including carpets while the ceilings in most rooms collapsed.

The home appears to be very well built and there is no signs of any movement in the foundations although paving on the far side of the home has buckled and will require redoing.

The biggest concern is whether the cavity in the internal plaster board walls will dry out properly and or if mould will grow. This can result in the occupants and visitors of the home becoming ill as well as long term expensive to repair damage occurring to the home.

I do not claim to be an expert in this field, but I have a very healthy curiosity and have looked at this issue quite closely so that neither I nor any of the LMI team would be caught out on the issue of mould claims, in view of the number of burst pipe, storm or flood claims that we handle.

What I have learnt is that the relationship between airborne toxic mould spores and adverse health effects is so far unclear and unproven. While it has been reported that Stachybotrys atra and certain other toxic moulds produce micro-toxins that can cause unique or rare health conditions such as pulmonary haemorrhage or memory loss, the Centers for Disease Control & Prevention (“CDC”) report that there is a lack of significant data that scientifically links toxic mould to these conditions.

According to the CDC, common health concerns from moulds include hay fever-type allergy symptoms, and certain individuals with chronic respiratory disease (chronic obstructive pulmonary disorder, asthma) may experience difficulty breathing in the presence of moulds. CDC information suggests that moulds are very common in buildings and homes, and will grow anywhere indoors where there is moisture. The most common indoor moulds are Cladosporium, Penicillium, Aspergillus, and Alternaria. Accurate information about how often Stachybotrys chartarum (or Stachybotrys atra) is found in buildings and homes is not available. According to the CDC, although Stachybotrys atra is less common than other mould species, it is not rare.

If you do a search on the internet, you find literally thousands of sites warning of the dangers and offering advice on remedies.

I carried out the bulk of my research on this subject in late 1997, which was timely, for I was soon after managing a loss adjusting disaster response team following the extensive flooding in Katherine in the Northern Territory in January 1998. At one time, we had 38 staff on the ground and were handling hundreds of claims for homes and other property. This situation allowed me to put my research into practice. I had learnt that the main cause of mould growth was when plasterboard sheeting becomes wet. In warm, damp conditions, the dangerous fungi, moulds, spores or mycotoxins grow. My understanding was, and still is, that the spores are in the air all the time, but not in dangerous quantities. In Katherine, which is in the Northern Territory, we were faced with flooded buildings in the middle of the wet season – the ideal breeding ground for such mould. The problem was made worse by the fact that the town’s sewerage plant was one of the first places to be flooded, and effluent was washed through all the homes and buildings of the town.

To overcome both issues, we arranged for the bottom sheets of plasterboard to be removed, along with any built-in cupboards that created a hidden area for mould growth. I would explain that the plasterboard sheeting, which is 1,200 millimetres wide and of varying lengths, is laid horizontally. As the homes were typically flooded to a depth of less than 1.2 metres, we only removed the bottom sheets to save the cost of replacing the top sheets and cornice. The homes were then dried out using fans and dehumidifiers. Finally, a chemical spray was applied to kill any residual mould or bacteria. The cost per home to dry it out thoroughly (which is only good building practice anyway to stop shrinkage in the plaster joins) and then apply the treatment, was only a few hundred dollars per building. By adopting this approach, no incidence of mould or other health problems arose. 

Later, following the Sydney, Melbourne and Perth hailstorms, signs of the mould were present in homes and other buildings, where repairs to the roofs were not completed expeditiously and the building had remained in a damp state for an abnormally long period. The irony is that the cause of nearly all these claims is that not enough has been done to dry the buildings out properly. Obviously, taking care in dealing with mould or preventing mould is now an important issue for Insurers and all involved in restoration work following insured losses. It highlights the need for this work to be carried out subject to best industry practice. Failure to do so could see those involved facing future claims for which insurance cover may not be available.

Back on this new matter, I am having tests carried out to ensure that this does not become an issue for this client. Fergal O’Connell, an LMI inhouse engineer and I will also assist the Insured in documenting all their losses including the temporary accommodation costs that are claimable under the home policy.

One other interesting observation is that the pressure of the water stripped the colour out of the concrete roof tiles on the side of the home nearest the burst pipe.

I know most of us think of the risk of fire when we insure our home, but other risks particularly weather and water related risks are just as damaging and occur with greater frequency. Luckily these people seem to have adequate insurance on both their home and contents which is a great comfort to them.

 

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The first of the NZ court decisions arising from the Canterbury/Christchurch earthquakes handed down.

Many of us have been waiting with interest to see how the New Zealand courts deal with a number of issues that have arisen out of claims following the New Zealand earthquakes.

The first decision centres on a material damage issue. The case is Ridgecrest NZ Ltd v IAG NZ Ltd [2012] NZHC 2954. The question that was being determined was whether an Insured was entitled to claim for damage caused by an earlier earthquake and which had not been repaired could be claimed in addition to the total Policy Limit which was claimed and paid by the insurer after the building was all but destroyed in a subsequent earthquake.

Justice Dobson found against the Insured. His position was that although the strict contractual terms of the IAG NZ policy meant that technically the Insured was entitled to treat each loss as a seperate event and the Limit of Liability was available after each happening due to an Automatic Reinstatement clause, the obligation of an insurer to meet the first claim was frustrated by the subsequent earthquake and damage. Under these circumstances, the judge found that the Insured was not entitled to any further payment beyond the limit of the Policy.

It is going to be interesting to see if this decision is appealed. The Insured may not do so in view of the costs associated with such an appeal but there are a number of other Insureds and Insurers that have been watching this case with interest. If it is not appealed then insurers will naturally follow this ruling.

While this matter is interesting, the one of greater interest to me centres on the issue of closure by public authority and whether those insurers who have failed to pay the full claim for loss of rent or loss of insurable gross profit but rather a much smaller sub-limit where the building owned or used by the Insured was destroyed or made untenantable in the earthquake are correct. A decision on this issue will be of great interest all around the world as many feel that the way the single judge ruling in the Orient -Express Hotels Limited v Assicurazioni General S.p.A (UK Branch) Trading as Generali Global Risk [2010] EWHC 1186 (Comm), is being incorrectly applied in New Zealand.

You can obtain a copy of the Orient-Express Hotels judgment via this link: OEHvGenerali.

 

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Guest Post – Broker failed to place house insurance

LMI’s New Zealand Manager, Tony Howie was asked to act as an expert witness in a High Court hearing of a broker who failed to place house insurance for a couple despite assuring them on a number of occasions that he had done so.  Unfortunately, the house suffered significant damage in the September 2010 Canterbury earthquake.

Tony provides the following synopsis of the matter:

The clients, a doctor and his wife had insured their house, along with their contents, vehicles and the medical practice, with the Medical Assurance Society.  The doctor had suffered a series of head injuries that affected his cognitive skills, memory and ability to manage his medical practice.  More from a lack of care than a deliberate intent, he submitted some false General Medical Services claims.  He was subsequently prosecuted and in September 2008, was found guilty of fraud.  As a result of this, he was censured by the New Zealand Health Practitioners Disciplinary Tribunal and, in June 2009, the Medical Assurance Society cancelled the policies held with them.

Around this time, the clients approached the broker to obtain fresh insurances.  He submitted a High Value Homes questionnaire to NZI and obtained a quotation and offer of cover.  Cover was offered on full replacement conditions to a floor area of 498 square meters, but limited to $1.5 million until a valuation was provided.  Shortly thereafter he assured the clients that insurances had been placed with NZI.  He did this on several occasions over the next 15 months and even paid a claim for a broken pair of spectacles himself, although as payment went direct to the optometrist, the clients were not aware of this.  He had, in fact, not bound cover with NZI.

The September 2010 earthquake struck and caused significant damage to the clients’ house.  At this point, the broker completed a proposal backdated to prior to the earthquake.  This proposal was signed by the broker on behalf of the clients and answered ‘No’ to whether the clients had any convictions or policies cancelled, however it was clear from the brokers evidence that he knew both statements to be untrue.  A second proposal was completed on 19 October 2010 by the clients who included full disclosure of the client’s conviction and the cancellation by Medical Assurance.  This proposal was submitted to NZI who naturally declined to accept it and the clients were left with a significantly damaged, uninsured house.  The reason given for this was that cover had not been placed with NZI.  The letter from NZI specifically stated that the client’s conviction was not a factor that influenced this decision. 

The clients sought recovery from the broker.

The broker denied liability on the basis that:

  1. The client had failed to disclose their convictions and the cancellation by Medical Assurance;
  2. The house was uninsurable due to the insured’s conviction and the cancellation of the prior insurance.

From the evidence of the broker, the judge found that the broker was aware of the cancellation around July 2009 and that he became aware of the convictions in early August of the same year.  The question then was whether NZI, or any other insurer, would have issued cover had they been aware of the conviction and cancellation.

I was one of two expert witnesses called to assist the Court on this issue.  The fact that NZI continued as insurers in respect to the clients’ medical practice and wrote two new motor policies after becoming aware of these matters was persuasive that they would have written the House and Contents policies if these had been placed with them in a timely manner.

Not surprisingly, the Judge ruled in favour of the Insured’s.  The judge found that the broker should have:

  1. Confirmed cover with NZI in July 2009;
  2.  Arranged for the NZI proposal to be completed at that time;
  3.  Counselled the clients on the consequences of non-disclosure.

The judge ruled that the broker was liable to the clients for the amount necessary to put them into the same position that they would have been in if the insurance had been in place.  Although he did not set a quantum for this, it is likely to be in the $1.5 million to $3.0 million range.

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This is a timely reminder for every insurance broker on their duty to their client and the ramifications of breaching that duty.  In my own career, the only time that I have really got myself into trouble is going too far in trying to help someone. If the broker did not think he could have secured insurance for this client he should simply have said so from the very beginning. Better still, he could have tried and reported back his success or otherwise but made no promises until cover was actually arranged.

Two points stand out here. The broker never collected a premium and did not attempt to profit from this matter. Secondly, he set a dangerous position for himself by paying out the small claim.

Not only has the broker sustained a significant Professional Indemnity claim he has also lost his ability to trade as a broker in his own name.

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Protecting unoccupied premises from theft and fire.

I have posted articles on the risk of theft of metals from premises in the past. (http://www.allanmanning.com/?p=484 and http://www.allanmanning.com/?p=598)

One of the challenges of protecting an unoccupied building is how to protect the building with alarms, particularly when there is no existing fire or burglar alarm system and the cost to install traditional systems are expensive due to the cost of the hard wiring at a time when the owner is not receiving rental income.

The other issue is that local alarms simply do not work. Where I work, whenever a local alarm goes off in the neighbourhood, I go out and check but I have never seen any other neighbour or passer-by make any attempt to investigate. (I am probably lucky that it has always been a false alarm and not some big burly thief.)

On the other hand the mere presence of CCTV reduces the likelihood of crime including grafiti and when there is an intruder or fire there is much greater chance of early intervention.

One possible solution that seems to be achieving results is Videofied. To learn more visit ?????http://www.videofied.com.au.

I would like to thank broker Raymond Lundie who alerted me to the service. If anyone has had any first hand experience with the system please let me know.

As with all my entries, I have not received any fee to mention this company. I am just sharing what appears to be a good idea with a proven track record.

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Just how big is the insurance industry

In the latest edition of “Insurance Industry, A Global Outlook” the estimate is that by 2015, premiums world-wide will top $6.3 trillion which to put it into perspective will be around 3 times the GDP of Australia.

The premium figure includes both life and general insurance with the United States, Japan, the United Kingdom, Germany, and France representing the leading markets world-wide.

Not surprising, China and the developing Asian countries are seen as the major growth areas. The reality is that you cannot achieve a constantly growing developed economy without the presence of a stable, uncorrupt insurance industry.

Just as an economy needs the protection afforded by the insurance industry, individual home and business owners also need the protection of a quality insurer who is genuinely there to protect their life’s work and not treat you like a customer when you pay the premium but a cost centre when you have a loss.

As I repeatedly say, insurance is not about price, it is about protection! It is the last line of defence in any risk management strategy. Insurance transfers the risk from the home or business owner to an insurer.

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Victorian Government introduces Fire Services Levy Monitor Bill 2012

Victorians have been paying fire service levies for well over 50 years with their insurance. The various governments of the day have not seen any need to introduce special legislation to monitor the collection of billions of dollars through all that period.

Now with just over 8 months to go the government has introduced a bill titled the Fire Services Levy Monitor Bill 2012. The question is why.

The answer is simple. The same government that is introducing this bill, creating a whole new section messed up the transition to the point that public outcry has forced them to do something to be seen to be doing something.

I believe all of this could have been avoided if the Victorian Government has simply sat with the insurance industry and worked with them to ensure a fair and transparent transition. It is not like this is something new. Three other states have managed the transition well and any of these could have been used as a model for the Victorian transition.

What we now have is a fire axe to crack a walnut.

Of course it is not just the taxes on insurance this government has botched; the mess with the water rates is still on everyone’s mind. No wonder this first term government is so unpopular with the electorate.

The fact is this proposed legislation, like the bill to remove the fire service levy is way too late and a complete waste of government resources and tax payers’ dollars.

To view the proposed legislation visit:  Fire Services Levy Monitor Bill 2012 – Bills

It looks like the New South Wales Government is showing more leadership in the way they are looking at transitioning the taxes in that state.

 

 

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QBE again first to reduce FSL rates in Victoria from 5 January 2013

As predicted fire service levies are set to fall again in Victoria from 5th January 2013 following an announcement yesterday by QBE.

There is no set system to follow due to the way the Victorian Government handled or mishandled the transition period rather than follow the example of Queensland, South Australia and Western Australia when they removed their fire service taxes on those that insure.

As the accompanying table shows FSL will drop across all classes of property, business interruption and contract works from 5 January.

Despite the transition being a mess, the Victorian Government should be congratulated for finally getting rid of the tax. 1 July 2013 will certainly be a great day when this tax, which like pay-roll tax makes no logical sense, is finally removed from those Victorians that insure.

With the consultation period now over in New South Wales I hope all readers have had their say.

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Blog Question:- Subrogation Rights in a Commercial Motor Vehicle Claim

I received this question on an issue that fortunately does not arise very often.

“Hoping you can assist on a generic basis.

We act as insurance brokers appointed by Liquidators who were appointed over a business which has now ceased to trade.

Under the pre-liquidation insurance program the Insured held a Motor Fleet policy which included an Aggregate Deductible structure. An employee of the business driving a company vehicle under company instruction was involved in an accident whereby he clipped the back of a third party vehicle whilst changing lanes. Due to the aggregate deductible, the business was expected to settle the claim (approximately $39,000) with the third party insurer, however the cheque issued subsequently bounced. The business has since been liquidated.

As the third party insurer is not guaranteed to secure funds from the Liquidator through lodging a proof of debt, they have sued the driver of the vehicle in his individual capacity, and are seeking to bankrupt him.

My queries are:

  1. Is there precedent for the third party insurer to sue the driver as an individual considering the accident arose out of negligence (however not gross negligence) whilst he was operating an employer’s vehicle in the scope of his employment and under the employer’s instruction; and
  2. Are you aware if this is a matter which can be assessed by the Insurance Ombudsman considering the Individual is technically not an Insured Party but rather an Employee of the Insured Party?

I look forward to your advices in due course.

Kind regards

Brad [surname and email provided]”

My first thought was that, while insurance companies and insurance brokers receive a great deal of criticism from the media and politicians, the truth is that many go out of their way to assist people in genuine trouble.

I answered this question by phone as I needed more information and I wanted to provide some advice that is best not shared until the matter is resolved.

The position is that, at common law, the English courts held that it was no defence to liability that an employee was acting on behalf of an employer (within the course and scope of employment). The law went so far as to provide that an employer was even permitted to sue an employee for an indemnity where an employer had settled the debt in the first instance. This was followed with reluctance and much criticism in Australia until 1982 when the Employees Liability (Indemnification of Employer) Act 1982 (NSW) prevented an employer from recovering an indemnity from an employee.

I am not aware of any analogous legislation or case law that prevents a third party (or its insurer) from pursuing the employee directly and would need to do more research on this issue, which is outside the scope of this blog.

Having said this, my belief is that the law is likely to be clear and there would thus be no point in considering whether it falls within the Ombudsman’s terms of reference until the legal position is clarified because if the employee can be sued directly then that is obviously the end of the matter.

The employee in this instance has not found a job since the failure of his employer more than 6 months ago and he is also trying to assist his wife who has recently been diagnosed with cancer. As he does not have the cash, the Third Party insurer is trying to have him sell his family home. This to me is a very harsh step under the circumstances. I hope that once they appreciate all the facts the Insurer will not follow through with its recovery action. Of course legally they do not have to, and with lawyers involved who are on a no win no fee payment structure, there is no guarantee of success.

There is no easy solution here. It is rare but not unique. It certainly highlights a contingent liability for any commercial vehicle driver.

As an aside, I would mention that under good quality private motor vehicle policies, there is a substitute vehicle clause which protects the Insured against third party claims when they drive a substitute vehicle while theirs is off the road. Many such policies sold by direct insurers or via the Clayton’s comparator sites no longer provide this cover. In any event, this would not have protected the employee as the vehicle was a commercial (heavy haulage) vehicle.

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Blog Question – Run off cover for an air conditioning contractor

I received the following question during the week:

Hi Allan,

I hope you’ve been well.

We’ve got a small Air-conditioning sole trader who has ceased trading recently and wishes to lapse their renewal terms (premium $630.81).

We’ve recommended that they consider maintaining their General Liability cover in run-off in order to cover their on-going products liability risk.

I just wanted to confirm that given the entity type, sole trader or company, ceases trading and deregisters/cancels ABN that this has no bearing on the risk exposure i.e. the requirement for run-off cover is still relevant?

And in terms of pricing, is it that as time goes on the risk diminishes therefore so should the pricing?

If you could assist with these queries it would be appreciated.

Regards,

Ryan” [surname and email address provided]

My response to Ryan was as follows:

Hi Ryan

If your client is a sole trader, just deregistering from GST is not enough. He/she carries unlimited liability for any action of negligence that may be brought against them.

Even if they are found not liable, they will have to fund and manage the defence of any proceeding brought against them.

Over the past year alone I have tried to assist business owners (handymen, insulation installers, plumbers, carpenters and motor mechanics) where an action was bought against them for something that allegedly occurred after they stopped trading.

It could be a fire caused by an air conditioner and an allegation may be made that it was installed incorrectly. This is where the policy is important.

The difficulty is finding an insurer that will write run off cover under a Comprehensive General Liability (“CGL”) [Public and Products Liability] wording.  Sometimes it is necessary to simply say the business owner has wound back and take out cover on a minimum turnover.

This also protects the client should they do some weekend or other casual work in the future.

It is a lesser risk for a Pty Ltd company where they are completely wound up but even then the directors should retain run off cover under their Directors and Officers cover.

Hope this helps.

Allan

I received this email in reply:

Thanks Allan,

Much appreciated, your knowledge is priceless.

Regards,

Ryan”

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