Accidental Damage v Unspecified Damage v Specified Damage
This is the second in a series that looks at just some of the issues that I found in reviewing a ISR schedule for an Insured. During my review I noticed that under the Limits of Liability there was what was supposed to be a Sub-Limit of Liability for $1,000,000 for Accidental Damage with no definition for ‘Accidental Damage’ on the Schedule and then later under the heading of Sub-Limit of Liability there was a sub-limit, with a definition for Unspecified Damage, $1,000,000.
Was this a double up or was it intended that 2 separate limits were to apply and if so were they to be aggregated or work concurrently. This was not clear to me but had been accepted by both the broker and underwriter.
It is not of course not unusual for an underwriter or broker to include a Sub-Limit for Accidental Damage. The problem is that neither the Mark IV Advisory or Modified wordings (nor the Mark V wordings for that matter) provide a definition of Accidental Damage. Therefore, Accidental Damage would take on its ordinary, everyday meaning. What is ‘accidental’? The Macquarie Dictionary defines it as: “happening by chance or accident, or unexpectedly…”.
The fact that the words will take their ordinary meaning has been strengthened by the introduction of the Insurance Contracts Act (1984) and, in particular, Section 37 – Notification of Unusual Terms.
Fire, impact damage and many other perils that are otherwise insured by the ISR policy, would fall within the ordinary meaning of the words ‘accidental damage’.
Therefore, I recommend that the term not be used either to explain the type of cover provided or to impose a Sub-Limit or Deductible.
Another reason is that just like the industry did away with the term ‘all risks’ and ‘contractors all risks’ as it was confusing and may fall foul of the Competition and Consumer Act (formally the Trade Practices Act).
The Mark V modified policy overcame both issues by introducing a new term ‘Unspecified Damage’. The version that I recommend is reproduced below.
UNSPECIFIED DAMAGE, for the purpose of any Limit or Sub-Limit of Liability or Deductible as shown in the Schedule, means damage caused by any peril or circumstance not more specifically covered or excluded by this Policy other than fire, lightning, thunderbolt, explosion, implosion, collapse, earthquake, subterranean fire, volcanic eruption, impact, aircraft and/or other aerial devices and/or articles dropped therefrom, sonic boom, theft, breakage of glass, loss of money, the acts of person taking part in riots or civil commotions or of strikers or locked-out workers or of persons taking part in labour disturbances or of malicious persons or the acts of any lawfully constituted authority in connection with the foregoing acts or in connection with any conflagration or other catastrophe, storm and/or tempest and/or rainwater and/or wind and/or hail, water or other liquids or substances discharged, overflowing or leaking from apparatus, appliances, pipes or any other system at the premises or elsewhere.”
Note that if the policy is to include flood or any other additional peril and it is not the intention to have a loss arising from that peril to be subject to the Unspecified Damage Sub-Limit or Deductible, then the peril(s) needs to be added to the above definition.
I would explain, that the Mark V Advisory wording introduced the term ‘Specified Damage’, which was altered to ‘Unspecified Damage’ in the Modified wording as it is technically more correct. I agree that this was a good change and as I say, I use this term in any ISR policy that I draft.
I believe the double up in this case where there is both an Accidental Damage and Unspecified Damage Sub-Limit has occurred due to the fact that the brokers cluster group has recently updated their ISR policy and he has taken bits from the old wording and tacked them into the new wording without appreciating that they are in fact one and the same thing under a different name.
Having said this, whatever it is called, it should be treated as a Sub-Limit with a definition attached and never shown as a Limit of Liability.
Many clients, brokers and underwriters engage me to review larger more complex ISR policies finding that a fresh pair of eyes uncovers issues which are much better found before a claim than after. This is certainly the case here.