How long can an act of bad faith have repercussions for the Insurer?

I was invited to a get together on insure-tech on Friday which I found extremely interesting.

While waiting for proceedings to start I was chatting to the gentlemen next to me, an experienced and well seasoned broker. We were talking about an insurer and I recalled my very first encounter with them.

It would have been in the early to mid 1980’s and I was acting as an adjuster on a marine claim for a large well known mining company that had large operations in Queensland. The claim centred around the boom of a brand new drag line that was dropped during shipment. The marine policy had as the basis of settlement: cost + insurance + freight (“CIF”)+ 10%.

The Insured’s risk manager was a pleasure to do business with and acted very fairly. He explained that they had a second drag line on order and this was already on a ship and he would therefore use it to get the first one up and running on schedule and that by ordering the replacement now he would be able to schedule that to arrive in time for the commissioning of the second drag line. As such, there would be no loss of expected production, there was no exchange rate loss and he was happy to limit the claim to CIF.

I thought this very fair and said so in my report to the insurer. The claims officer rang me and said that the client could have their cheque tomorrow less a further 10% or have the full amount in 6 months. To say I was flabbergasted is an understatement.

I expressed the view that this was totally unfair after the Insured had acted so much in Insurer’s favour when there was a documented formula setting out the basis of settlement. Their approach had therefore already saved insurers close to $70,000.

The claims officer screamed down the phone that I was not to talk down to him and that my instructions were to do as I was told.

I will not go into what happened next but the Insured received the full amount as they had claimed within a week.

Over the years, whenever a client has indicated that they are thinking of insuring with that company I relay this story to them. Some take it on board and do not take the risk others take the cheaper price.

It got me to thinking how much that failed attempt to save $70,000 has cost that insurer in the past 30+ years.

The irony is that dealing with the same insurer in other countries I have had nothing but good experiences with.

On the other side of the coin, I know that as an adjuster I acted honorably and pointed out to the Insured that they had forgotten to claim an item, what great loyalty that gesture, typically a very small amount in the scheme of things, has built for the insurer.

After this reflection, I looked at some of the ads on TV for some insurers and an airline for that matter and asked myself what is the use of spending all that on advertising if you go out of your way to upset the clients you have.

More on this, to me, interesting topic tomorrow.