Blog Question: Insuring only ITEM 4 Additional Increase Cost of Working only Under an ISR Policy

If you only insure Item 4 will the Policy respond to cover afforded under the MEMORANDA TO SECTION 2 i.e

  • Public utilities extension
  • Premises in the vicinity (prevention of access)

And also to other Endorsements i.e.

  • Wide Area Damage (General Area) Damage

I am asking this this question as I have been advised that these extensions cover “loss as Insured by the Policy” and if you do not have Section 2 Item 1 Insured then there is no “loss”claimable under ITEM 4….

To me “Item 4” only stipulates the “Basis of Settlement” not your entitlement to “Indemnity”??

Am I missing something??



Carl [Surname and email  provided]


My answer: Carl you are perfectly correct. The trigger in the first instance for a business interruption claim under Section 2 – Consequential Loss of Profits of an Industrial Special Risks (“ISR”) Policy, whether it be the Advisory or Modified version, reads:


“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]

There is no link or limitation in this Indemnity clause to Item 1, which we in the industry know as Loss of [insurable] Gross Profit

Further into the Policy, still under Section 2, there is the Basis of Settlement Section. Here 4 optional basis of settlement, numbered 1 through 4 are available to be taken by the Insured/broker. Regrettably, these 4 items are not given names or headings in the original wording and so I list them with the names that I have given them in policies that I tailor for my broker clients:

Item 1 – Loss of insurable Gross Profit

Item 2 – Professional Fees

Item 3 – Pay-Roll

Item 4 – (Additional) Increase in Cost of Wording.

I have explained the coverage afforded by Item 4 (Additional) Increase in Cost of Working in earlier postings and I do not propose spelling all this out here. You can use the search function in the blog to locate the earlier articles if need be.Concept of learning

Turning now to the Memorandum to Section 2 and to the endorsements that are designed to extend the coverage afforded by the base wording, they are either triggered by the Indemnity clause outlined earlier or they have their own in built trigger.

I chose the Prevention of Access Memorandum to explain how the trigger works. As an aside, I would explain that the Public Utilities Memorandum adds no value to the policy coverage at all and in my opinion should be either removed or replaced with a clause that provides genuine protection as in its current form it only provides false assurance to the Insured that they have cover.

Turning to the “Premises in the Vicinity- Prevention of Access” clause, the memorandum reads in both the Advisory and Modified version of the ISR as follows:


Loss as insured by this Policy resulting from interruption of or interference with the Business in consequence of damage to property in the vicinity of the Premises caused by a peril, damage as a result of which is insured hereunder, which shall prevent or hinder the use thereof or access thereto, whether the Premises or property of the Insured therein shall be damaged or not, shall be deemed to be loss resulting from Damage to property used by the Insured at the Premises.” [Emphasis Mine].

Here the memorandum, imports damage to property that would be insured under an ISR policy, that is, it is not excluded property, caused by a circumstance that is not excluded, into the Insured premises and treats that damage as “Damage to property used by the Insured at the Premises”

Having been triggered, the Insured is entitled to claim under any or all of the Items listed in the Basis of Settlement section and this includes Item 4, (Additional) Increase in Cost of Working.

While Item 4 is itself a Sub-Limit and not a Declared Value, the claim pay-out could be further sub-limited to any amount shown in the Policy Schedule as a Section 2 Sub-Limit for that particular circumstance. For example, if the Insured had a Sub-Limit for $1,000,000 for “Additional Increase in Cost of Working”, and a further Sub-Limit  of $250,000 for “Premises in the Vicinity- Prevention of Access”, and the disruption to the Insured business was as result of a Prevention of Access issue, the client would be limited to a claim of $250,000.

As an aside, it is an interesting debate as to whether Item 2, Professional Fees / Claims Preparation Sub-Limit is claimable in excess of the Sub-Limit for Prevention of Access. It really depends on the wording of the particular ISR policy.

It is common practice to allow both Sub-Limits and it is certainly industry practice when it is a base trigger for the interruption claim and the client has both Item 2 Professional Fees (Claims Preparation costs) and an Item 4 (Additional) Increase in Cost of Working claim.

In summary, you are entitled to claim for financial losses that fall within the scope of the coverage afforded by Item 4, (Additional Increase in Cost of Working, where the trigger is only Prevention of Access, subject, of course to the terms and conditions of the policy.

Carl, I hope this adequately explains the situation.



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Please have your say on claims

claimscomparison 2The first quarter 2015 Claims survey is now underway. It is your chance to rate the service of the insurers you have dealt with and acknowledge great service or to express your suggestions for improvement.

The industry does value your honest input which is helping drive improvement in the most important area of all in insurance: claims.

To have your say, please go to here.

Results will be published the first week in April.

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LMI Claims Service Survey Results

Survey claimsAs part of LMI’s drive for constant improvement, we surveyed a large cross section of our claims services customers and the brokers that the team dealt with. It was a short survey with only 5 questions covering the initial engagement process, communication, advice, speed of service, pro-activity and technical knowledge.

We had a 30+% response rate which in today’s busy world is quite high and I thank all those that responded.

While LMI Claims Service rated well with 87% rating  the overall service, very good or excellent, the stand out result was in our technical knowledge. Here it was 77.5% at the highest rating and a further 16.4% at the next level.

The results were shared with the claims services team at the 17th Annual LMI Conference and a big chunk of time devoted to improving other parts of our service delivery so that the team provide the highest level of service to our clients when they need us most, when they have a serious claim.

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One of those OMG moments

LstaffMI has been a dynamic organisation from its inception and the past 12 months has seen the organisation jump to a whole new level. When you live it day to day you often do not realise it but yesterday was one of those OMG moments.

Over the past 2 days the claims division of LMI and the leadership team from eServices in Australia and New Zealand got together and met for our 16th annual conference and planning days.

As I did the welcome I introduced 14 new team members to the group that have joined LMI since last year. This itself was not the moment. It was when we did the tradition team photo and team members just  keep coming and coming out the front door that it hit me just how much we have grown just in the last 12 months. If we had the whole team here we would have to move to a super wide angle lens.

The very successful developments of specialist Forensic and Mining Divisions and the expansion of LMI Legal have spearheaded the growth but every part of the business has grown thanks to the great support we received from our customers. For this I thank you.

A great deal has come out of the planning sections of the conference, including some great initiatives, the rejigging of priorities all of which I am sure will continue to see the business grow both in Australia and New Zealand but in the United Kingdom where usage of our eServices is about to reach 50% of that of Australia, and into Asia where we have had a presence with our Singapore office since 2010 and where steady growth has been achieved.

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Insurance News Article Featuring The LMI Drone

Drone in InsuranceNewsLMI’s new unmanned aerial vehicle (“UAV”) featured in the latest edition of InsuranceNEWS [the magazine].

Please click on the link below to access the article:


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What is building for Strata in New South Wales

Apartment BuildingsI had a question regarding what forms part of the building under a body corporate policy following the denial of a claim by an insurer on floor tiles that the Insured has replaced.

Another tenant in the same building contacted me as he was about to change over his as well.

The problem was the strata insurance policy, as it reads, only covers the original tiles. It does not exclude replacement tiles but is rather silent on the issue.

New South Wales Fair Trading was contacted for their opinion and they advise as follows in an recent email.

As discussed, a lot owner is responsible for providing the owners corporation 14 days written notice of any proposed structural alterations; the notice must state what the alterations are going to be.

Once this approval has been given, preferably in writing, the Owners Corporation must take reasonable steps to notify the insurance provider and upgrade the insurance policy of amendments and alteration to the building.

Furthermore, under the Strata Scheme Management Act 1996, Part 4 states This Part requires an owners corporation for a strata scheme for a building to take out insurance on the building. In the case of a strata scheme for a part of a building, the obligation to insure is placed on the owners corporation and the owner or owners of the rest of the building.

Section 81 further states;

In this Part, building includes:

(a)  owners improvements and owners fixtures forming part of the building other than paint, wallpaper and temporary wall, floor and ceiling coverings, and

 (b)  a building consisting entirely of common property, and

(c)  anything prescribed by the regulations as forming part of a building for the purposes of this definition,

but does not include:

 (d)  fixtures removable by a lessee or sublessee at the expiration of

a tenancy, or

 (e)  anything prescribed by the regulations as not forming part of a building for the purposes of this definition.

If in the case that owners improvements and owners fixtures that form part of the building is disputed by the  insurance policy and its provider you may wish to seek independent legal advice.

This all makes sense to me and is in keeping with long established insurance practice. I just wish the policy wordings were clearer and followed the legislation.

I am yet to find out if the Insurer will continue with their denial of liability.

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A warning to double check for any endorsements placed on the policy when it is issued

Policy Violation road construction barrier sign warning rule regHaving been in the industry for over 4 decades I have seen a marked change in the way that policies are drafted and the way that insurers are offering protection to their insureds.

Once, I almost feel I should be writing, “once upon a time” as it seems like a fairy tale, but I assure you it was true, underwriters had a social conscience and drafted wordings for particular industries and clients that protected them from the expected risks of that industry.

With LMI drafting wordings we try and do the same. The base wordings are compared by LMI to show the differences in the wordings.

The broker or client then places the cover and when it is bound, the schedule comes back, often with endorsements that take away some of the most important covers that the client in that particular industry requires. While it is most prevalent in liability and professional lines, this scenario can occur in all classes.

When I check the old tariffs, rather than recommend that the cover should be removed, the tariff, suggests that coverage be granted to provide the protection the client needs.

While this change is not universal among all insurers and there are some well thought out covers available, the change of limiting or excluding much needed coverage has certainly crept into many companies that I thought were above such tricks.

With this change from customer focus to shareholder focus by some insurers it is now more important than ever for the client to use the services of a professional broker and for that broker to keep two weather eyes open to see that no such endorsements are included that turn the coverage into a Clayton’s one. It just may be that the cheapest cover ends up costing the insured and the broker, as second line of insurance, the most.

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There are risks in tall residential living but good design including safe fire exits is the key

 Source: Hugh Tomlinson, Dubai

Source: Hugh Tomlinson, Dubai

I am not sure if it was on the news but one of my colleagues from LMI in Dubai advised that thousands of people had to be evacuated and thankfully were moved to safety from one of the world’s tallest residential buildings after a fire raged through at least 15 of its 79 floors.

Most residents of the 1,105ft Marina Torch building in Dubai were asleep when the fire alarm sounded at 2am local time on Saturday 21st February. Fanned by strong winds, the blaze spread fast through the higher floors of the tower in the Marina district of the city, home to thousands of expatriate professionals.

Over night in Melbourne a 7 storey apartment opposite the famous Victoria Markets also had a severe fire necessitating the evacuation of all residents.

When any residential tower gets about the height that fire officers can reach you with ladders and snorkels it is imperative the building has good fire escapes that are not blocked or equally as bad having doors propped open which only allows the fire to get in as it looks for oxygen and fuel.

The fire also demonstrates the need for occupants to have contents insurance to protect the financial loss that may result from the loss of their contents or even damage by smoke, heat or water which will no doubt effect many more floors than the fire itself.

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The Latest News Beat is now available

CaptureIf you have not received your copy of the very popular LMI News Beat please click here.

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Large gum trees and residential housing do not mix


Source: ABC News

The tragic death of a toddler in the Victorian Dandenong ranges reaffirms a very strong view I have that large trees, particularly some types of gum trees and houses do not mix.

The biggest frustration for me is that so many councils. the latest that I have been attempting to assist home owners have been in Frankston and Stonnington in Victoria, simply refuse to allow their removal.

In both cases the council has refused in writing, to let home owners cut down trees that have huge limbs right over the home with the risk of damage, injury or death clearly explained. Stonnington Council wrote that the worst that would happen is that a few roof tiles would be cracked. What a load of rubbish! I have seen hundreds of homes and other buildings being seriously damaged by trees coming down in storms with associated injury to residents.

The Micawber Tavern, also located in the Dandenongs suffered extensive damage only last year from another large tree falling on it. Luckily this happened after closing hours and no one was injured or worse.

To me this is the same issue as the clearing of trees around residential properties to reduce the risk of bush fire. While I have the ones that I have been working on well and truly documented to show the foreseeability of the tree falling, and I recommend you do the same with any of your clients, it is little comfort to the home owner who live under the tree. The safe removal of large gum trees is something that ought to be granted to protect the life and safety of those that live in their communities. To do otherwise is in my view a serious breach of the council’s duty of care to their ratepayers.

I cannot comment as to whether the council had been approached in this latest incident but LMI have been asked to provide advice to the family and the position will become known.


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