Justice Prevails Again

Holding Decorative Scales Of JusticeOn May 26, I posted an article on two existing claims. Click here to read.

As a follow up to that post on both matters I would advise the following. On the first one, I ran into one of the fire investigators on this matter and he said that Erik from LMI South Australia determined that it was a valid claim on the first day he was appointed. He, like the rest of us, was pleased that justice prevailed.

On the second one, the insurer has contacted the Insured the same day and advised that on hearing of LMI’s involvement they have revised their offer and the claim will be met for the full sum insured. This, of course, is what it should have been from the beginning. Steve Manning who was assisting on the matter on a pro bono basis is delighted, but like me wonders why this was not done from the start and thereby avoiding the enormous stress felt by the Insured.

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Blog Question – Loss of Rent for Related Entity

Mortgage Rent sign conceptThis is a common question and one I have in fact answered on the blog before. The question asked was:

My Client operates at large retail business

They own the Property and occupy the property under different entities but insured under the one ISR [Industrial Special Risks Policy]

The Tenant company pays the landlord Company $774,000 per annum and this is shown clearly as expenditure in the P&L

By not selecting Rent as Uninsured Working Expense it is still included in the GP [Gross Profit] of the Tenant, however Should I then insure the $774,000 as RENT RECEIVABLE for the Landlord  in addition.

Michael ” [surname and email provided]

As an aside, I appreciate we all live in a busy world but when you are seeking free advice it would be nice to start with a Hi how are you and end with either a please or thank you.  I must say, this one nearly went into trash. My focus was with the client who needed protection.  In fairness I did get a thank you note back in response to my advice.

The answer to the question is that I see that your clients are two separate entities. If the lease is a normal one with a rent abatement clause then you should insure the rent for the landlord under the Gross Rentals Specification or, as you suggest, Rent Receivable endorsement.

Gross Rentals is better suited for an entity that is primarily a property owner but the endorsement deletes the definition of Gross Profit which can complicate things in a policy like this where you are insuring two entities.

Rent Receivable is typically used when rental income from properties is incidental to the Insured’s primary business. It can be used in this situation though.

Either way, it ensures that the landlord continues to receive revenue during the period the building cannot be tenanted. This is particularly important where they have a mortgage over the property and are required to continue to repay a financier.

Please ensure that you clearly show that the amount insured includes the outgoings normally paid for by the tenant, as this will be incurred by the landlord should the premises be unoccupied.

If the tenant is to continue to pay rent regardless of any damage to the building and this is clearly stated in the lease, or the lease requires the tenant to insure the rent, then use the Rent Payable endorsement. The advantage of doing this over relying on increase or Additional Increase in Cost of Working is that this is retained to cover other increase costs and insuring rent payable often attracts a lower rate than Additional Increase in Cost of Working.

I hope this all makes sense. Please let me know if you require further clarification.

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Victoria Government Reduces Fire Service Levy on Property Rates

http://www.dreamstime.com/-image8155938It was pleasing to see that the Victorian Government have reduced the Fire Service Levy (“FSL”) now that the bungled transition has settled down. Refer to government media release.

As predicted, it shows that when a tax is more broad based and everyone pays their fair share for a service the entire community benefits from, the cost is not so unpalatable.  It would be good now if Prof Fells was asked to go and look at how the whole transition went so wrong, why the original rates imposed were so high and if these reduced rates are not still too high.

This, of course, is me just being churlish as I thought it ridiculous to make the appointment in the first place, which was only done to take the pressure off a government who would not admit they got the whole transition wrong and tried to pass the buck back to the insurance industry. In my opinion, the sledge hammer to a walnut approach did not help.

In any event, it is a positive note to see the Victorian Government drop the tax rate. One could be forgiven for thinking there was an election coming up soon!

This aside, most Victorians that are insured are now much better off and I am seeing businesses insure more fully and taking up the all important Business Interruption coverage, as it is now more affordable with the disincentive of high FSL on insurance.

It is a crying shame that the New South Wales government “does not get it” and remove the FSL in their state. As for the Tasmanian Government, they continue to have their head in the sand.



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Risk and Insurance Trivia # 1

The archaeologist Hermann Thiersch's 1918 drawing of  the Pharos of Alexandria

The archaeologist Hermann Thiersch’s 1918 drawing of the Pharos of Alexandria

Lighthouses have saved thousands of ships and countless lives over the centuries.

The earliest ones appear to have been towers in which fires were lit and tendered by priests or monks.

The first purpose built lighthouse is believed to have been the Pharos of Alexandria (Egypt on the Mediterranean Sea) built in the third century BC. A top this massive structure the light from a fire was focused on bronze mirrors into a beam which due to the height of the edifice could be seen for 56 kilometres away.

The first lighthouse to be powered by electricity was the Dungeness Lighthouse in Southern England in 1862.

With the introduction of electricity to lighthouses meant that they no longer needed to be manned.

As is the case in most countries, there are no longer any manned lighthouses in New Zealand or Australia.

Lighthouses, nonetheless continue to be a valued risk management measure to the maritime and insurance industries.

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Many in the UK are unhappy at an ancient law that allows insurers to recover from the local authority.

GuardianOne of my readers, Kumar Chinnasamy, a Risk Engineer with SBI General Insurance in
Coimbatore, India, passed on this article that Joshua Rozenberg published in the Guardian on Wednesday, 21 May. The article has created a lot of comment with the public who are angry that insurers can seek recovery from government, while others are angry at the judges.

Australia and most parts of the world do not have this legislation which, as the article explains, transfers the risk of riot from the individual, or corporate citizen, to the rate payers. As for insurers, while the property insurer has had a win, one would expect that the City of London would carry insurance.

It will be interesting to see if the government now change the law. I reproduce the interesting and well written article here:

Appeal judges find London mayor’s office, covering Met police force, liable for meeting compensation claims

Boris Johnson faces a law requiring riots payouts for the Met area to come from the mayor’s office for policing and crime. Photograph: Dan Kitwood/Getty

London’s mayor, Boris Johnson, who is responsible for the capital’s policing issues, has been ordered to meet compensation claims of almost £75m for the destruction of a Sony warehouse during the London riots of August 2011.

Describing the fire as reputedly “the largest arson in Europe”, three appeal judges headed by the master of the rolls, Lord Dyson, dismissed Johnson’s challenge, to an earlier ruling, which referred to legislation first passed 300 years ago.

Last year, a high-court judge ruled that insurers, and the owners of uninsured property, were entitled to compensation from the mayor. They had claimed more than £62.8m.

In upholding that ruling the appeal judges have now gone further and said the mayor is also liable for consequential losses, such as loss of profit and loss of rent. Those figures were put by the claimants at £11.4m.

Sony and the warehouse owners had previously made successful claims against their insurers. Those insurers brought claims under the Riot (Damages) Act 1886, which says that compensation for damage caused by riots must be paid for by the police fund for the area.

Recent legislation covering the Metropolitan police district lays the responsibility for paying compensation at the mayor’s office for policing and crime – a corporation of which the mayor of London is the sole member.

The mayor’s office had argued that the disturbances were not covered by the 1886 act. His lawyers were refused permission to appeal to the supreme court, although the mayor could ask the court itself to grant permission.

Unless the judgment is reversed, the money now owing to the insurers will have to come from public funds.

The trial judge, Mr Justice Flaux, said last year that that the Sony distribution warehouse in Enfield had been destroyed and looted shortly before midnight on 8 August 2011 during “the widespread civil disorder and rioting which took place in London and elsewhere”. The disorder followed the shooting dead of Mark Duggan by police in Tottenham, north London.

Flaux said the attack on the warehouse was “perpetrated by a group of some 25 youths” who had earlier congregated at a nearby housing estate.

He added: “Two of them then threw petrol bombs into the stacking within the warehouse and they all made their escape, some carrying what had been looted, and left the warehouse to burn.

“The whole incident took no more than just over three minutes. However, the fire took hold and burned for some 10 days, with the total destruction of the plant, equipment and stock.”

Giving judgment in the court of appeal, Lord Dyson, Lord Justice Moore-Bick and Lord Justice Lewison said it might seem “surprising that the community should be under a strict liability to pay compensation for the consequences of riotous and tumultuous behaviour at all, when the police are not liable in tort for such consequences even where they have been seriously at fault”.

However, the judges continued, this had been the law since 1714 and only parliament could now alter it.

The Riot Act 1714 (from which we get the phrase “reading the riot act”) provided for compensation if persons “unlawfully, riotously and tumultuously assembled” demolished buildings. In the case of property within a town, the compensation was to be paid by its inhabitants, if necessary through levying a rate.

Explaining the policy behind the 1714 act some 60 years later, the well-respected chief justice, Lord Mansfield, said the idea was to encourage local residents to suppress riots.

Mansfield said it was a “very ancient principle, as old as the institution of the decennaries by Alfred, whereby the whole neighbourhood or tithing of freemen were mutually pledges for each other’s good behaviour”.

The main change made in 1886 was to transfer liability from the inhabitants to those who paid police rates in the district where the property was situated.

Even if this were considered “unfair and unwarranted in the 21st century”, the three appeal judges said on Tuesday, “it is for parliament and not the courts to amend it or remove it altogether”.

Last year, the government published the recommendations of an independent review. David Wilkinson, a partner at the law firm Kennedys, who acted for Sony’s insurer, Royal and Sun Alliance, called the ruling a landmark decision.

He said: “Insurers and uninsured claimants will now be able to recover business interruption losses suffered as a result of the London riots. However, whether each and every claim will be ultimately paid remains to be seen.”

The doubt, he explained, was due to the compensation authority being entitled to take into account all the circumstances –including the conduct of claimants and any precautions taken by them – before fixing “such compensation as appeared to them to be just”.

The mayor’s office for policing and crime said it noted the judgment from the court of appeal and was “considering potential next steps in the legal process”.

Source: theguardian.com/

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Should “No Frills” Home Policies Still Provide Full Protection in the Event of a Major Loss?

Business Ethics and Guidelines as a ConceptThis is a question I have been asking myself my and more as I check wordings for people when they ask me if their particular home policy is okay when they hear what I do. I typically go to LMI’s PolicyComparison.com on my iPhone, iPad or laptop. Most times I point out areas that are of concern such as very low limits for removal of debris, loss or rent, architects fees or other areas where I see the home owner has a major uninsured exposure.

With a 60% increase in man made and natural disasters since I started in claims 43 years ago, it is not surprising that more and more friends, family and total strangers ask me this type of question.

I am all for everyone protecting their home rather than going uninsured. If we make the reasonable assumption that many who elect to purchase the no frills, (let us be frank) cheaper policies, are the poorer in the community it is equally reasonable to assume that they will not have the funds or the means to borrow funds to make up for the shortfall in the coverage.

I am all for cutting out some of the nice to have “bells and whistles”, even things like glass and fusion. I am also in favour of larger excesses which are explained to the Insured.

But should the home burn down, then in my firm view, the policy should provide full protection and not have what I feel are hidden clauses, with ridiculously low sub-limits for the often forgotten extra costs of removing the debris, temporary protection and or loss of rent.

I mention I have been in insurance for 40+ years. I am saddened to realise that in many cases companies have lost their social consequence, which was a core value of the General Accident Insurance and many others that my friends within the industry worked for. I also feel that these sub-limits that any self respecting underwriter knows are completely inadequate are a breach of the insurers duty of utmost good faith.

Call me old fashioned, but I think the industry should be there at a time of real need for the customer. As it is now, customers feel far too often they have been tricked and cheated and the trust that our industry had and could justifiably be proud of is fast disappearing.

I would ask any home and contents underwriters to have a good look at the coverage your policy provides. Have the sub-limits been reviewed recently? Are they adequate to genuinely protect your customer. If not, do you job and provide the proper cover in the event of a major loss. I would ask the same of any broker who is developing a ‘no frills’ policy to combat the direct players.

If you want to sell purely on price that is fine but at least give the Insured the option to purchase the important add ons and which would bring the inadequacies to the customer’s attention.

Another way of  saying this is that if someone knowing the facts deliberately under insurers then they ought to lie in the bed they made for themselves. What is wrong is when the policy has, if we are honest with ourselves, hidden sub-limits that do not provide adequate protection no matter what sum insured is taken.

I say this as the most recent domestic claim that I mentioned in yesterday’s blog had the Insured crawling through her fire damaged (and very dangerous) home at night by herself trying to salvage what she could; photographs and the like, as she had no cover for temporary protection. It was only when my son Steve rang her that he learned what she was doing and warned her of the physical danger she was exposing herself to with a building likely to collapse at any time and with an asbestos risk. We owe it better to the insuring public no matter what policy they buy.  Neither Steve nor I want someone like this stressed out lady injuring themselves unnecessarily on our conscience.

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Justice Prevails at Long Last; but Another one Immediately Takes its Place

Holding Decorative Scales Of JusticeBack in October last year I wrote warning of a change that had crept into many Home and Contents policies (and contract works policies for that matter) in that faulty workmanship, faulty materials or faulty design was a blanket exclusion with no write back for resultant damage such as a fire. [See http://www.allanmanning.com/traps-with-some-home-and-contents-wordings-trap-1-faulty-workmanship]

What this means is that someone could go to a reputable retailer buy a clock radio or other electrical appliance and if it failed and their house burns down, the insurer deny liability. Similarly, if an electrician does some wiring for a new power point  in your home and this is deemed to have been faulty and the house burns down – no insurance. You may be surprised just ho many times an investigator has declared the fire is electrical when it fact it really should be recorded as “cause unknown”.  As an aside, more than once I have seen the fire been reported as ‘electrical fault’ only to find the electricity was not connected at the time of the fire!

This failure of the policy to write back losses from an insured peril, such as fire, resulting from faulty workmanship, faulty materials or faulty design, overturns a basic cover that has been around since the 1690’s when home insurance as we know it was invented. Fire was a basic cover regardless of the cause other than of course a deliberate act by or on behalf of the Insured.

I am pleased to say that in the case I reported on back in October that the matter was settled this week for an amount very close to the Insured’s loss as reported. Disappointingly, the matter took two years to resolve but I want to acknowledge the tireless work of LMI’s State Manager Erik Kroon assisted by three members of the LMI family in Melbourne and Sydney to see justice and fair play prevail.

I am equally pleased to see that this particular insurer has also altered their policy to exclude losses arising from defects that the Insured knew about but did not rectify. While I would prefer to see a reasonable period for the defect to be rectified, this is a vast improvement and the Insurer is to be congratulated on this point.

But as one fight for justice closes it is replaced the very same day. This time a home has again been destroyed by fire, the Insured, a single Mum, feels that no one is helping her and that the offer of settlement is no where near her entitlement. This one was referred to my son, Steve, ironically by a broker in Adelaide, but the loss and insured are in central Victoria. The employer of the woman having contacted his broker for advice to assist his employee and the broker in turn rang Steve. Steve is assisting here on a pro bono basis. I will keep readers advised of the results of this one but will make comment on my views of the industries social responsibility with no frills insurance, ie. cheap, policies.

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MOP /Stock Throughput Covers – An Analysis – Part 5 – Where Stock is Insured for Full Retail Price do I need Business Interruption Insurance?

bigstock-Business-Interruption-Sign-39078256The simple and firm answer to this is YES YOU DO.

There are a great many reasons for my taking this view.  In summary they include:

  1. If there is no Business Interruption cover in place, the  only time the Insured can claim for any consequential loss of profits is following a loss of stock.
  2. The maximum amount claimable is the difference between the cost price of the stock damaged and the retail price shown on the policy.
  3. If the stock would have been turned over more than once during any period of disruption a significant uninsured loss can ensure as the maximum amount claimable for Business Interruption is the difference between the cost price and selling price of the stock damaged.
  4. Disruption to a business results from many other property losses other than stock. These include: damage to the building, fixtures and fittings, machinery and plant,  and or other contents owned by the Insured or; damage to property not owned by the Insured but used by them at the situation.
  5. On my research going back over 40 years, I estimate that 30% of disruptions arise through no damage to insured property at all. Significant claims can arise and are typically insured in some form under an ISR policy but not a MOP policy. These risks include: Public Utilities outages; Damage to a Complex in which the Insured is located; Prevention of Access; Murder or Suicide; Outbreak of infectious disease; Customers’ Premises (Australia only but can be extend to include overseas as well); Suppliers’ Premises (Australia only but can be extend to include overseas as well)

Other serious concerns with a MOP cover that can be overcome by insuring them separately under an ISR policy are:

  1. There is no Increase in Cost of Working Coverage
  2. There is no Additional Increase in Cost of Working Coverage
  3. There is no coverage for loss management/claims preparation and/or accounting  services.

I hope this is enough to convince you that having the traditional Business Interruption cover is far superior to the very limited interruption protection afforded by insuring stock for retail price.


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MOP /Stock Throughput Covers – An Analysis – Part 4 – The Trigger for Business Interruption Under an ISR when an MOP is used to Insure Stock

http://www.dreamstime.com/stock-images-investigation-image27958864A common question asked me of me, that prompted me to write this series (this is the fourth) of articles on MOP / Stock Throughput policies, is “can the Insured still make a claim for Business Interruption when the only thing damaged is stock and this [the stock] is not insured under the business pack or ISR policy?”

The trigger for a Business Interruption claim under an ISR policy is damage to property owned or used by the Insured at the situation caused by an insured event.

The following is the trigger clause under the Australian Mark IV Advisory Industrial Special Risks (“ISR”) Policy.

In the event of any building or any other property or any part thereof used by the Insured at the Premises for the purpose of the Business being physically lost, destroyed or damaged by any cause or event not hereinafter excluded (loss, destruction or damage so caused being hereinafter termed “Damage”) and the Business carried out by the Insured being in consequence thereof interrupted or interfered with, the Insurer(s) will, subject to the provisions of this Policy including the limitation on the Insurer(s) liability, pay to the Insured the amount of loss resulting from such interruption or interference in accordance with the applicable Basis of Settlement.” [emphasis mine]

The issue from this clause is that the loss or damage to stock must be at “the Premises”.

There is no definition of Premises in the ISR policy other than what is recorded on the Schedule and /or in the Schedule of Declared Assets against the heading: Situation and/or Premises. Therefore I recommend that the following wording after all the Insured’s locations are listed:

Principally ……….and any other situation/premises in Australia owned or occupied by the Insured for the purposes of the Business or elsewhere in Australia where used by the Insured or where the Insured is undertaking work or has goods or property (including where goods or property are stored, or undergoing processing, repairs, maintenance, overhaul or improvements).”

The Policy will not, without agreement with the Insured, provide coverage for Business Interruption arising from loss or damage to stock overseas.

For Australian based stock, where the above wording  has been used, the Business Interruption section will be triggered but there is a second test, this is known as the Material Damage Proviso.

This Proviso reads as follows:

 Provided that the Insurer(s) will not be liable for any loss under this section unless the Insured’s property lost, destroyed or damaged is insured against such Damage (loss arising out of destruction or damage by explosion of Boilers and/or Economisers excepted) and the insurer or insurers by which such property is insured shall have paid for, or admitted liability in respect of, such Damage unless no such payment shall have been made or liability shall not have been admitted therefore solely owing to the operation of a provision in such insurance excluding liability for loss below a specific amount.” Emphasis mine 

You will note that the Proviso does not require the property damage that gives rise to the disruption to be insured under the ISR, but any policy will do and this, of course, includes a MOP or Throughput policy.

What is required is that the stock is insured, that the stock loss is met under the other policy and that the ISR policy does not have an exclusion, such as flood, that would exclude a Business Interruption claim in any event.

greenTo learn more please read pages 148 and 149 of volume 1 of my book, Understanding the ISR Policy – the Mark IV.

A note of warning: many business pack policies are not as wide and require the stock to be covered under the same business pack policy that provides the Business Interruption coverage.

The issue can be very complex where there is a prevention of access or other factors also involved as we are seeing in Christchurch and elsewhere but that is a book in itself.

I finish my series on the MOP / Stock Throughput policies tomorrow where we look at whether we need to insure business interruption at all if we insure the stock for full retail under an MOP or similar policy.

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AICLA/ANZIIF Claims Convention 2014










I will be presenting at this years AICLA/ANZIIF Claims Convention, which is being held in Sydney. We have a very integrative and topical program planned so if this interests you, please go to the ANZIIF website to register (link below). Early bird registrations are closing on 30 May.



Wednesday 13 – Thursday 14, August | Sofitel Sydney Wentworth,
Phillip Street – Sydney

Professor Allan Manning, Managing Director of LMI Group, will be examining the how, when, where and why of the highly influential website www.claimscomparison.com.

The insurance industry has received a significant amount of bad publicity leading to a drop in the number of people insuring. As an industry this needs to be acknowledged and the public’s faith in the industry restored.

Relevant to all delegates interested in the measurement and improvement of general insurance claims, this session focuses on the reasoning for the development of the website and the criteria used to rate the insurers.

Now in its eighth year the AICLA/ANZIIF Claims Convention’s exciting program has been developed by industry representatives to ensure claims professionals remain at the forefront of developments, trends and issues that affect their sector.

Early bird registrations are closing on Friday, 30 May. Take advantage of this fantastic networking and professional development opportunity. For more information on all of our sessions and to register please go to the ANZIIF website to secure your place at the special early bird rate.



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