Blog question – Possible time gap in coverage when changing insurers
One of the questions I received yesterday read:
“I seem to recall a case where a customer switched insurers, neither insurer’s policy specified a start or expiry time, only a date. A incident causing rise to a claim occurred on that specific date and both Insurer’s were passing responsibility to the other. What I can’t recall is the outcome, which insurer was ultimately responsible and why?
Sandra [surname and email provided]
I was not sure if Sandra had heard one of my training sessions where I discussed this issue, if she had experienced it herself or had heard of the potential problem from someone else.
As you can imagine, a lot of problems are brought to me to try and resolve and I have come across this issue twice where I was involved or was brought in to resolve it and in a third was told of the problem after it had been resolved. A total of 3 in over 47 years of claims. The point is that this is not an every day occurrence but nevertheless it is something we need to be mindful of to avoid a potential issue for our clients and ourselves.
The issue is not having a time but having the time without a time zone. For example, Period of Insurance: 30 June 20XX at 4pm to 30 June 20XX+1 at 4pm.
The first case I was involved in was as a loss adjuster where the loss was said to occur at 4pm on the date of expiry of the old policy and the start of the new policy, with the loss occurring in Brisbane. It was during daylight savings. The expiring insurer was based in Victoria and the said that the loss had occurred at 5pm their time and so they had been off risk for an hour. The new insurer, a WA based underwriting agency advised that the loss had occurred at 2pm WA time and so they where not on risk as yet. The Insured said that the loss had occurred at 4pm at their time and as the customer that time should be the time stated.
To complicate this further the Insured’s head office and the broker were South Australian based and this brought in a different time zone again.
With many Australian companies having offices, warehouses, shops or any other asset in multiple states, not having a time zone can cause a problem as to when the switch over of insurers takes place. Many brokers I work with have interstate clients with the state being in a different state to the broker. With on line placing portals, exactly where the insurer is based is not always that easily known either. Is it their local state office or is it their head office which in some cases can be spread across multiple states anyway.
I think I have painted a sufficient picture to highlight the problem.
When I was asked to draft and then negotiate one of the first commercial property policies, I discussed this issue with 5 different insurers underwriters and the common consensus was that they did not mind which time zone was used, but what they did not want was for a single policy, say and lndustrial Special Risks (“ISR”) Policy to in effect have multiple expiry times, by having the risks in each state start and end at different times. Multiply this across all the clients they have and it would be a nightmare trying to work out the reinsurance.
The answer, one single time, 4pm in Australia but with a stipulated time period. For example: Period of Insurance: 30 June 20XX at 4pm Australian Eastern Standard Time to 30 June 20XX+1 Australian Eastern Standard Time.
AEST is sometimes used and most times it will be fine but the date can vary for the change over date for either the start or end of daylight savings. Does the S stand for Standard or Summer during that change over period.
And who says insurance is simple!
The other thing that came out of these discussions that no one really understood what local time meant. Ie 4pm local time. Was this 4pm at the Insured’s head office, 4pm at a interstate office where the loss occurred, 4pm at the insurers local office or 4pm at the broker as agent of the insured’s local time. In other words, the use of the words ‘local time’ did not clarify exactly whose local time was to be used. It has no special legal meaning that would help to my knowledge and so my advice has always been to show 4pm and then the one time zone which is clearly stated on the schedule so that everyone, insured, broker, underwriter and claims officer all know when the policy starts and finishes.
Two final points. Some policies written out of London do not have 4pm as the finish time. Some use midnight. This could be that they are a global hub of insurance and use Greenwich Mean Time. Greenwich Mean Time (GMT) being the mean solar time at the Royal Observatory in Greenwich, London. GMT was formerly used as the international civil time standard, but has now been superseded in that function by Coordinated Universal Time (UTC).
The last point was that in the case I used as example to highlight the issue, the two insurers ultimately paid 50% each on the claim but only after 9 months. This of course left the Insured frustrated and starved of cash with a very stressed out insurance broker worrying how it would all end.
I do cover all of this in great detail in my book: Understanding the Industrial Special Risks Policy. As with all my books they are available from the LMI Group website.
So the take-away point if you have not already got it is ensure that the full time zone is shown on all quotation and placing slips and is recorded on the policy schedule.