When does the Indemnity Period end?

At LMI Group, have an issue which comes across, almost in waves, in regards to a number of claims which needs to be addressed before the next flavour of the month adjustment to reduce an Insured’s claim.

The one we have just overcome is where the adjuster has made a “notion” adjustment, without explaining the basis for it. Now, we have come across on a number of claims, particular involving restaurants, clubs and hotels is for the indemnity period to be cut off by the loss adjuster and then the Insured being ask to prove that the loss extends beyond the period allowed by the adjuster and then also prove that the ongoing disruption is as a direct result of the damage or other insured event which gave rise to the initial claim.

One of the great frustrations for us is that often this judgment call is being made by a Forensic Accountant or an adjuster who has not been to the site, met the insured, or if they have, it has been only one short visit. Without understanding the insured’s business, their assumption that the business should have been back to normal may well be completely ill founded and at times appears to be linked to the fact that the initial reserve placed on the disruption by the adjuster or forensic accountant has proved to be inadequete. That means the claim is then being adjusted within the confines of that initial reserve.

With this background, I thought that it was appropriate to review the typical Business Interruption cover and in particular, to look at the onus of proof issue.

There are differences in the market with business interruption policies and so, for the sake of this exercise, I will use the Industrial Special Risks (“ISR”) Mark IV Modified wording.

The trigger for a claim under Business Interruption under the Mark IV ISR 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.

Assuming that the loss falls within the triggering provision of the policy, it advises that the claim will be settled in accordance with the “applicable Basis of Settlement”. The Basis of Settlement reads:

The insurance under this item is limited to actual loss of Gross Profit due to: (a) Reduction in Turnover and (b) Increase in Cost of Working and the amount payable as indemnity thereunder shall be:

(a)   In respect of Reduction in Turnover:

the sum produced by applying the Rate of Gross Profit to the amount by which the Turnover during the Indemnity Period shall, in consequence of the Damage, fall short of the  Standard Turnover.

(b)  In respect of Increase in Cost of Working:

the additional expenditure necessarily and reasonably incurred .for the sole purpose of avoiding or diminishing the reduction in Turnover which, but for that expenditure, would have taken place during the Indemnity Period in consequence of the Damage, but not exceeding the sum produced by applying the Rate of Gross Profit to the amount of the reduction thereby avoided.

In both Section (a) and Section (b), the policy makes note that the Insured is to be indemnified during the Period of Indemnity. It is therefore important, that we look at the definition of Indemnity, which reads:

INDEMNITY PERIOD: The period beginning with the occurrence of the Damage and ending not later than the number of months specified in the Schedule thereafter during which the results of the Business shall be affected in consequence of the Damage.

In Summary, this definition states that the Policy starts on the date of the Damage, which may be before any disruption to the business starts and ends when the business is no longer effected in consequence of the Damage, or the number of months stated in the Schedule.

Often, it is a case of res ipsa loquitur which simply means, the facts speak for themselves.

Naturally, as part of the calculation and/or assessing process, the person preparing the claim and/or assessing the claim, would carry out tests to determine whether or not some other factor has arisen which has caused a downturn in the business, and for that matter, may have caused an upturn of the business, unrelated to the Damage which would have taken place had the Damage not occurred.

The reasoning behind this, is that at its heart, the traditional business interruption policy is a contract of indemnity. That is, of course, to put the Insured back to near as money will allow to the position they have would have enjoyed but for the loss. I stress that this is the underlying principle of the majority of business interruption policies in the market, however, there are some policies which are in fact agreed value policies, where the Policy stipulates a formula which may well over or under indemnify the insured.

To ensure that the principle of indemnity is maintained, the policy contains what to me is arguably the most important clause in the contract of insurance and the one that creates the greatest conflict between the insured and the insurer.

This clause is the adjustments clause, which reads:

Adjustments shall be made to the Rate of Gross Profit, Annual Turnover, Standard Turnover and Rate of Pay-Roll as may be necessary to provide for the trend of the Business and for variations in or other circumstances affecting the Business either before or after the Damage or which would have affected the Business had the Damage not occurred, so that the figures thus adjusted shall represent as nearly as may be reasonably practicable the results which, but for the Damage, would have been obtained during the relative period after the Damage.

While the Indemnity Period is not specifically mentioned in the clause, what is in effect occurring when the indemnity period is being cut short, is that the insurer or their agent is suggesting that the turnover that would have been achieved had the business not been affected by the Damage, would have been reduced for some other event, and as such, the period of disruption caused by the Damage is at an end.

Just as an insurer would take a dim view of an insured who came along with an unsubstantiated request to increase the standard turnover of the business, I’m of firm belief that if the insurer or their agent suggests that there is a special circumstance that reduces the standard turnover, then the onus of proof is on the insurer to prove this and not simply make an unsubstantiated claim that the business ought to have been back at that point.

I’m the first to admit that the adjustments clause is not an exact science and that no one can ever be 100% certain as to what the business would have achieved but for the loss, other than in the rarest of circumstances. There is always room for negotiation but both sides ought to provide some logical reason for any adjustment that they wish to make to the standard turnover. For the sake of completeness, I include the definition of standard turnover which reads:

STANDARD TURNOVER: The Turnover during that period in the 12 months immediately before the date of the Damage which corresponds with the Indemnity Period.

To further put this into perspective, the position I hold is that it is inappropriate for an insurer or their agent to simply say that the business should have been returned to normal, say a week after a restaurant reopens when the business had a track record of performing well prior to the event and has recovered to their pre-damaged position at a period longer than was expected by the insurer for the Indemnity Period to be cut off unilaterally and the Insured required to prove that the ongoing disruption beyond their stipulated cut off point is as a result of the Damage.

In fairness, how can this ever be proved?

It leaves the insured in a helpless position, starved of cash and with no logical way they can prove the ongoing loss, other than for the fact that their revenue has not returned to normal. Whether I am acting as a loss adjuster or claims preparer, my role would be to carry out an analyse and look at industry figures, the possibility of new competitors entering the market and all other factors to see whether the position I have adopted in my calculation of the claim is fair and reasonable to all parties concerned.

I have never attempted to cut off an Indemnity Period without any reasonable foundation for doing so. It appears that we will be taking at least one of our current claims to court to examine this whole issue of onus of proof and I look forward to the outcome which may resolve this, to me, inequitable position that many insureds are confronting.

 

Read Me View comments

Are we just giving lip service to the customer experience?

I attended an insurance breakfast last week and heard a number of people talk about the customer experience. I thought I would share just two claims that have crossed my desk.

Yesterday, one of the LMI team attempted to report a landlord claim on behalf of a family who have lost a loved one. He thought he was speaking with the insurer but it appears that it was a joint number of the international insurance broker and the insurer. On the one hand, the person taking the call asked the full name of our team member, the name of our company and then sought to get the date of birth of LMI team member. This is after refusing to provide his full name to us for our records. All we know is that it is Tom.

Clearly, the person would not allow us to report the claim but insisted that one of the executors do it. The executor thought this was a complete waste of time when he had provided authority to us to act on their behalf and he was also put through the same experience. The executor, concerned of identity theft, refused to provide his date of birth, he knew neither his sister’s broker nor the insurer would have his date of birth to check against anywhere. He too could not believe that despite asking all this information Wayne from the insurance company would not provide his surname so that he had a record of who he was talking to. He hung up in disgust.

Attempt three, the executor emailed the notification of the claim through to the insurer, only to have someone from the Philippines ring our office asking for “Wayne”. Our office was not permitted to report the claim, Wayne was not the executor but the second claims officer spoken. To my knowledge the claim has still not been set  up, none of us know a claim number nor if an adjuster is to be appointed. All I know is that any insurance, both personal and business, the executor has with that insurer will be reviewed on renewal, and to be fair so it ought to be.

Not for the first time since it was announced has an insured said to me, a full enquiry into the general insurance industry cannot come soon enough.

I try to defend our industry but how do I justify this stupidity.

In another example, a long standing client has been financing a personal loan of $500,000 to have their home fixed. The Insured has invoices for all trades totalling over $400,000 and we had a test quote from a builder who we know well and has done a thorough scope of works which has come in higher. The issue is the cash settlement offer is around $250,000, naturally the Insured will not accept it.

While this goes through the disputes process it means the client has had to find the extra funds to meet the repayments which means no treats, no holidays, no nothing. There is no doubt in my mind that what has happened is that a builder who knows they will never have to do the repairs and is on the insurers panel has provided an unrealistically cheap price to win favour with the insurer and the insurer are trying to force the client into accepting a low ball offer. This insured will not do so and will tough it out and again is anxious to make a submission to the enquiry.

Here I think it is down the actions of one person within the insurance company who appears from our side not to be treating clients close to fairly.

Whether the inquiry goes to this level is unlikely but we ought not be surprised if we continue to fail Insured’s when they need us that we will be faced with enquirers and greater regulation.

Addendum

Within minutes of posting this I received the following email which I have since received the okay to publish without any names.

Confidential

Hi Allan,

That is just disgusting.

I also happen to be [X]’s Claims Manager as well as running my own book as an Account Manager.

Confidentially I can tell you that no less than 6 times in the last 2 months I have had the identical ridiculous situation with [Y] of all Insurers.

3 claims were landlords. 3 claims were motor vehicle.

Again; the attitude displayed by the person on the other end of the line was nothing short of arrogant…and again no names were forthcoming from them.

I was a little sarcastic a couple of times, & mentioned that my own personal details (DOB etc) were of no assistance or consequence to them.

What is frightening is that, if your issues were NOT with [Y], then are we facing an endemic problem starting to materialise across our whole industry??

It is just so disappointing.

Keep up your good work.

Cheers – [Z]

Sadly I had to write to [Z] that our experience was not with the insurer he named! Clearly this is more wide spread than I appreciated. Why are they collecting all these dates of birth when the risk of cyber attacks is on the rise and at least with the claim we are dealing with inexperienced people cannot even read an email?

Read Me View comments

Product Recalls Australia – 14th December 2017

This week’s product recalls includes the following:

IPD Group Limited — Salzer DC Enclosed Isolators

Read more

Daimler Truck & Bus Australia Pacific Pty Ltd — Mercedes-Benz Atego 970 Truck

Read more

Warburn Estate — Bottled Wine

Read more

FCA Australia Pty Ltd — 2012-2013 (KK) Jeep Cherokee

Read more

Toyota Motor Corporation Australia — Corolla ZZE122 & Avensis Verso ACM20

Read more

Toyota Motor Corporation Australia Limited — Toyota Echo NCP1 & RAV4 ACA2

Read more

Nissan Motor Co (Australia) Pty Ltd — N16 Pulsar, Y61 Patrol, D22 Navara, A33 Maxima & T30 X-Trail

Read more

Nissan Motor Co (Australia) Pty Ltd — N16 Pulsar, D22 Navara, Y61 Patrol, X-Trail

Read more

BMW Australia Ltd — BMW 3 Series – E46

Read more

Kia Motors Australia — 2017 YP Carnival

Read more

GlobalOutlet.com — Car Towing Strap

Read more

VTech Electronics (Australia) Pty Ltd — VTech Baby Pack & Go Travel Mobile

Read more

VTech Electronics (Australia) Pty Ltd — VTech Baby Shake and Sing Elephant Rattle

Read more

Mercedes-Benz Australia/Pacific Pty Ltd — Mercedes-Benz Passenger Cars “C” Class 63s

Read more

Gapfiller Pty Ltd — Discoveroo Magnetic Stacking Owl

Read more

Aldi Stores — ‘Berg Smallgoods’ American Style Skinless Hot Dogs 375g

Read more

 

Read Me View comments

SCAM WARNING

I recently received an email warning about a new credit card scam. Read below so you don’t get stung.

 

The following is a recounting of the incident from the victim:

Wednesday a week ago, I had a phone call from someone saying that he was from some outfit called: “Express Couriers,”(The name could be any courier company) He asked if I was going to be home because there was a package for me that required a signature .

The caller said that the delivery would arrive at my home in roughly an hour. Sure enough, about an hour later, a uniformed delivery man turned up with a beautiful basket of flowers and a bottle of wine. I was very surprised since there was no special occasion or holiday, and I certainly didn’t expect anything like it. Intrigued, I inquired as to who the sender was.

The courier replied, “I don’t know, I’m only delivering the package.”

Apparently, a card was being sent separately… (the card has never arrived!) There was also a consignment note with the gift.

He then went on to explain that because the gift contained alcohol, there was a $3.50 “delivery/ verification charge,” providing proof that he had actually delivered the package to an adult (of legal drinking age), and not just left it on the doorstep where it could be stolen or taken by anyone, especially a minor.

This sounded logical and I offered to pay him cash. He then said that the delivery company required payment to be by credit or debit card only, so that everything is properly accounted for, and this would help in keeping a legal record of the transaction.

He added couriers don’t carry cash to avoid loss or likely targets for robbery.

My husband, who by this time was standing beside me, pulled out his credit card, and ‘John,’ the “delivery man,” asked him to swipe the card on a small mobile card machine with a small screen and keypad. Frank, my husband, was asked to enter his PIN number and a receipt was printed out. He was given a copy of the transaction.

The guy said everything was in order, and wished us good day.

To our horrible surprise, between Thursday and the following Monday,  $4,000 had been charged/withdrawn from our credit/debit
account at various ATM machines.

Apparently the “mobile credit card machine,” which the deliveryman carried now had all the info necessary to create a “dummy”  card with all our card details including the PIN number.

Upon finding out about the illegal transactions on our card, we immediately notified the bank which issued us a new card, and our credit/debit  account was closed.

We also personally went to the Police, where it was confirmed that it is definitely a scam because several households had been similarly hit.

WARNING: Be wary of accepting any “surprise gift or package,” which you neither expected nor personally ordered, especially if it involves any  kind of payment as a condition of receiving the gift or package. Also, never accept anything if you do not personally know or there is no proper identification of who the sender is.

Above all, the only time you should give out any personal credit/debit card information is when you yourself initiated the purchase or transaction!

Read Me View comments

Having the right values

I was honoured to be invited to a retirement function for Bruce Mather, who I’ve worked with since the start of LMI Group.

Bruce has had an impressive career with nearly 50 years within the insurance industry and all but 5 of them as an insurance broker.

I was most impressed with his speech in which he always appreciated how much risk his business clients had taken on just starting the business, often mortgaging their homes and putting so much time and energy into developing their business and he took it as a grave responsibility to ensure that they were well protected with their insurance program.

I could see this with the quality of the programs his clients had and the interest that he took in ensuring that his clients received a fair and equitable settlement to any claim. His settlements mirror my own when I take on the responsibility of assisting an insured with a major claim which can undo all the good work of the business owner in literally a heart beat.

I wish Bruce a long, healthy and enjoyable retirement, one that is certainly well earned and deserved.

Read Me View comments

Product Recalls Australia – 5 December 2017

This week’s product recalls includes the following:

Nissan Motor Co (Australia) Pty Ltd — Nissan D23 Navara & R52 Pathfinder Series 1 Models

Read more

Husqvarna Australia Pty Limited — Selected 2015-2017 TS 242 and TS 246 Lawn Tractors

Read more

Toys “R” Us — Totally Me Clay Studio

Read more

Nissan Motor Co (Australia) Pty Ltd — Infiniti V37 Q50/Q60

Read more

LEADER Systems Pty Ltd — AFI-HD-AU Router and mesh point kit

Read more

Apotex Pty Ltd — Apo-Perindopril Arginine 2.5 mg, 5 mg and 10 mg tablets (bottle) – extended recall (new batches)

Read more

Telwater Pty Ltd — Quintrex, Stacer & Savage Boats

Read more

Eco-Farms Pty Ltd — Ground cinnamon

Read more

Yale Prima Pty Ltd — Moretti 11 Fin Oil Column Heater

Read more

Riebeck Pty Ltd t/as Little Zebra Chocolates — Chai Supreme Dark Chocolate

Read more

Audi Australia Pty Ltd — MY2018 Audi Q2 (GA) & A3 (8V)

Read more

For more recalls please visit: https://www.productsafety.gov.au/recalls

Read Me View comments