What must our customer’s think

Love and Hate, closer than you think - 3d imageI received a call from a distressed broker whose client’s business had been during the siege and subsequent police investigation in Sydney. The business had been shut down during a peak period leading up to Christmas.

The Insurer would not accept the claim as they were not sure if the loss was due to terrorism or not.

This Insured, like any other in the CBD of Sydney had paid a terrorism levy with their insurance. Whether it is declared an act of terrorism or not, which for a raft of reasons, (political, and above all financial) I doubt it will be, the Insured is entitled to have their claim lodged and reviewed with the Insurer.

If it is deemed, under the Terrorism Insurance Act (2003), to fall within the definition then the Insurer would have the right to recover from the Australian Reinsurance Pool Corporation after meeting the first $100,000 of the claim.

The last thing that should happen at this time is that the insurance industry be painted by the media as being uncaring and looking for ways not to pay valid claims.

Hopefully, this is just an isolated incident where the insurance officer was not fully briefed.

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Blog returns in 2015

2014-2015With Christmas fast approaching and the usual rush to finish everything, I take this opportunity to wish all readers a very safe and happy festive season and a great 2015.

If any questions you did not have time to send through come to mind over the break please send them through as the blog will recommence no later than 5 January.

All the best to you all.

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Blog Question: Onus of Proof

Claims File Contains Insurance Applications Or PaperworkHi Allan,

I’m not sure if you answer general claims questions but if yes I would appreciate your views on a loss situation, very briefly as follows: the insured is suffering from damage to a generator due to ongoing vibrations.

The insured has effected repairs to the damaged rotor windings twice now but on both occasions has not determined a root cause and the vibrations continue. Consequently they have now instigated a BI claim against underwriters for ongoing ICOW electricity costs in excess of the 60 day deductible (MD costs are still within MD deductible).

Is this a so called aggravated BI loss against underwriters or is the onus on the insured to determine and  remedy the root cause and therefore the ongoing costs fall to them?

Many thanks.

Simon [surname and email provided]


This is a bit complex. It depends on reasonableness.

If the Insured was not aware it was a vibration issue from the start and rewound the motor(s) thinking reasonably that it was just a breakdown, then that one would, I suspect, be fine.

It then depends on how long the second loss followed. If it was a short period and they did nothing but rewire it again, I would think that the Insured would be expected to find the cause, remedy it and then repair it.

There is a condition in the policy that supports the insurer from a common law position, the condition being that the Insured ought to exercise reasonable care. I would refer you to Policy Condition 11, Precautions to Prevent Loss. Having said that, it is rare, but not impossible, for an insurer to succeed on this one.

I am assuming this is a claim under the Industrial Special Risk (ISR) policy due to the size of the time deductible you mentioned.

You then need to consider whether the exclusion for faulty design, faulty workmanship, faulty materials has any application and whether the consequential losses are as a result of the resultant damage or are as a direct result of the excluded event. This is under Perils Exclusion 4. (c) and (e).

There is also a broad exclusion about mechanical and electronic breakdown but this can be written out by endorsement.

Sorry, but this is quite a complex issue and not something that I could really provide a more on without a full brief or meeting to better understand the policy, the circumstances, timings etc.




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Good to see my Books Being put to Good Use!

Is this the most battered and well used version of the ISR Book?

Is this the most battered and well used version of the ISR Book?

I visited Pace Insurance Brokers in Melbourne this week and found that one of their new staff members was reading It May Happen to Me! A guide to General Insurance, while their office copy of my book on the ISR, Understanding the Industrial Special Risks Policy – A Comprehensive Guide was clearly well used.

Most authors do not care if you ever read their books they just want you to buy them. I am the exact opposite. I get my satisfaction when I see them being read and adding value to the reader and the insuring public.

Well done guys!

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Blog Question: How Many Deductibles get Applied Under and ISR Policy?

Image Source: Storm Restoration Services

Image Source: Storm Restoration Services

Hi Allan.

Hoping you can clear this up for me. Following the Brisbane hail storms we have been inundated with claim notifications.

One client has a number of premises insured under one ISR policy which received hail and storm damage. Can you tell me whether a separate excess would apply to each building or would just one excess apply to the single storm event? Some buildings are within an industrial complex whilst others are at different locations.

Thanks for your help as always, Allan. Merry Christmas to you and family.

Ian [Surname and Email provided]


Hi Ian,

The wording under a Mark IV Advisory or Modified Industrial Special Risks (“ISR”) Policy reads:


The Insured shall bear the following amount(s) in respect of each claim or series of claims arising out of any one event:

Earthquake, subterranean            (a)    $20,000 or

fire or volcanic eruption               (b)    an amount equal to 1% of the total Declared Values at the Situation                                                                           where the damage occurs whichever is the lesser

Other Losses:                                  $x,xxx

 Should more than one deductible apply under this Policy for any claim or series of claims arising from the one event, such deductibles shall not be aggregated – the highest single level of deductible only shall apply.”

Emphasis mine

What this means is that with the one storm hitting Brisbane only one (1) excess/deductible is to apply and with your cluster group wording any limits or sub-limits of liability are claimable in addition to the deductible.

For the sake of completeness I would mention that the Limit and Sub-Limits of Liability work differently and the Insured is able to claim up to the Sub-Limit for say Extra Cost of Reinstatement at each and every location, that is multiple times while still only having to pay one Deductible over all.

I hope this explains the situation adequately.

Finally thanks for your Christmas wishes and I hope you and your family have a safe and happy Christmas and 2015 is disaster free for you guys in Queensland.




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Blog Question: Worker’s Compensation Cover due to Terrorism

Source: ABC News

Source: ABC News

Following on from yesterday’s post I received this question by email.

Hi Prof. Allan

Please advise if yesterday hostage exercise was an act of terrorism and if some of the hostages being nearby office workers were in the cafe to purchase a coffee  would they be covered for a workers compensation claim in the case of an injury?

Please advise?


Salosh [surname and email provided]


Hi Salosh,

WorkCover is not my area of expertise but what I understand is that at Act of Terrorism is defined under the NSW in the WORKERS COMPENSATION ACT 1987 – SECT 239AB as:

 Meaning of “act of terrorism”

239AB Meaning of “act of terrorism”

 (1) An

“act of terrorism” is an act that, having regard to the nature of the act and the context in which the act was done, it is reasonable to characterise as an act of terrorism.

(2) Any lawful activity or any industrial action cannot be characterised as an act of terrorism for the purposes of this Act. An act may be so characterised only if it:

(a) causes or threatens to cause death, personal injury or damage to property, and

(b) is designed to influence a government or to intimidate the public or a section of the public, and

(c) is carried out for the purpose of advancing a political, religious, ideological, ethnic or similar cause.

It would be up to the government /courts to decide but under this definition, I would suggest that the actions fall within this definition.

It is my understanding that this definition relates to when the Australian Reinsurance Pool Corporation is available for access by insurers who have met claims over a monetary size arising out of such an event.

The Act goes on to say

 239AD Minister may make declaration as to significant terrorism-related liabilities

(1) The Minister may, by order published in the Gazette, declare that an act of terrorism specified in the declaration has given rise to significant terrorism-related liabilities.

(2) The Minister may not make such a declaration unless:

(a) an insurer has requested the Minister to do so, and

(b) the Minister is satisfied that:

(i) an act of terrorism occurred after 4pm on 30 June 2002 or at any time on any day after that date, and

(ii) the act of terrorism has given rise to liabilities (whether liabilities of one or more self-insurers, or liabilities under policies of insurance issued or renewed by one or more insurers that are not self-insurers, or both) for payment of amounts that, in total, exceed the threshold amount.

As for employees and employers who hold a policy, I believe that they would be if they were legitimately there on business and while performing their normal duties they would be entitled to make a claim.

Clearly the staff of the café would fall into this category.

The legislation can differ between states and I understand that in some jurisdictions such as Western Australia where it is possible for a self managed fund to opt out of the Terrorism Pool.

I hope this helps.



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Insurance Response to Sydney Siege

Yesterday I received an inordinate number of phone and email questions regarding the response of insurance policies to the crisis in Sydney. While I answered one question, I did not feel it appropriate to post an article until such time as the siege ended. It has now transpired that the my worst fears have come to fruition and there has been unnecessary loss of life.

Before going on I would like to express my sincere sympathies to all those caught up in this horrific event and my personal thanks to the emergency services and the police who performed so well in such difficult circumstances and that it is now our industries turn to respond compassionately and promptly to those business owners that have been affected.

There are a number of ways an ISR or Business Pack policy may respond the Business Interruption losses suffered by retailers or others during this peak retail shopping period.

The first is by closure of public authority where the cover extends to provide an indemnity or threat of physical injury or damage. This varies from policy to policy and some contain a 48 hour or 72 hour time excess, which I understand that some insurers are considering waiving in this particular case to assist their customers during this critical period. While this has to be handled carefully so as not to set a precedent for future losses, it is certainly an act of great good will by those insurers to their customers.

Another cover that is available is the murder suicide extension, which in some policies is limited to the situation, while others extend to at, or near the premises; an initiative that LMI introduced following the Wales-King murder of April 4 2002 in Melbourne, where this coverage is provided it typically does not have a time excess, although there may be a policy sub-limit.

Max Salveson and I are currently reviewing all the wordings and will make recommendations to our broker clients and insurers over the next week or so in this regard.

It is unlikely that the Australian government will declare this as an act of terrorism, as it was one man acting alone and, like the Cronulla riots, I would suspect the private insurance industry would be looked to respond to the needs for the losses suffered by their insureds (earlier). I have written other articles on the topic of terrorism, most recently on the topic of the G20 summit. I have attached a link to this post below, for readers to view if they require further information:


Source: http://www.abc.net.au/news/2014-12-16/paramedics-with-injured-hostages-at-martin-place/5969324 Source: http://www.abc.net.au/news/2014-12-16/flowers-are-left-near-the-lindt-chocolate-cafe-in-martin-place/5969724









Photographs sourced from ABC News Website

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Blog Question: Additional Increase in Cost of Working for a Property Owner

The word Why in red 3D letters and a question mark to ask the reHi Allan,

My insured is a property owner and the tenant is a restaurant. The annual gross rentals are insured for this under their Business Interruption Section.

Would you recommend that I also insure additional increased costs of working even though they are only a property owner? If so, what are the pros of this so I can discuss it with the insured?

Thanks & regards,

Hanan [Surname and email provided]

Hi Hanan

I would certainly buy some additional Increase in Cost of Working for a property owner.

The money can be used for advertising, rent free periods or to pay a builder to speed up the repair time by working overtime or rostered days off.

This is particularly important where the Indemnity Period is too short to reinstate the damaged building and find a new tenant should the worst happen.

I think it is a vital cover for every client under any business interruption policy.



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Thanks to Northern Territory Young Insurance Professionals (“YIPS”)

HLMWhile up in Darwin yesterday, I was asked to speak at a Sundowners Function for the YIPs (the Young Insurance Professionals). My topic was the challenges that I see facing insurance over the next 1o years.

This is not the first occasion I have been honoured to speak to this group who are such a great group of enthusiastic and dedicated professionals.

After the talk I was privileged to be awarded with an Honorary Life Membership. My sincere thanks to the President, Sarah Kempton, and the entire Committee.

Well done to the sponsors of the NT group. The major ones I am aware of for last night’s function were TIO, Vero, and Aon. I gather that there are different sponsors for different YIP events and well done to all those companies that are getting behind the future leaders of our profession.

If you are not a member in your area can I urge you to join. I have been most impressed with the organisation in all the areas that I have visited. To learn more go to http://yips.org.au/


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Blog Question: Non-Vitiation Clause

http://www.dreamstime.com/-image3804639Good afternoon Allan,

Can you please explain what a Non Vitiation clause is all about?


Steve [surname and email provided]

Hi Steve,

Another name for a Non-Vitiation clause is a Breach of Conditions clause.

In most jurisdictions, a mistake or misrepresentation of a material fact by the Insured entity gives sufficient reason for the insurance company to argue that the insurance policy to be void or under the Australian Insurance Contract Act 1984 (Cth) to reduce a payment by the amount the insurer has been prejudiced.

This could harm the interests of the financiers who in the normal course of their due diligence investigations prior to lending, would not be in a position to identify such a breach.

Including a non-vitiation clause in the insurance policy prevents the insurer from refusing to pay the project company on the basis of defences based on such mistakes or misrepresentations.

In Australia, the Concessions Agreement, which the major finance providers and insurers were signatories in Australia, provided protection to financiers in a similar way but this agreement was let lapse in, from memory the late 1980’s and no longer has relevance.


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