ISR Additional Benefit # 3 – Fire Extinguishment & Mitigation Costs

This week we look at the 3rd of the additional benefits provided by the Australian Mark IV Industrial Special Risks (“ISR”)Policy.

The wording of this benefit reads:

“Subject to the liability of the Insurer(s) not being increased beyond the Limit(s) of Liability already stated herein, the Insurer(s) will also indemnify the Insured for:…

(c)       Costs and expenses necessarily and reasonably incurred for the purpose of extinguishing a fire at or in the vicinity of property hereby insured or threatening to involve such property or for the purpose of preventing or diminishing imminent damage to property hereby insured by any other peril insured against by this Policy, including damage to gain access and the cost of replenishment of fire fighting appliances and charges incurred for the purpose of shutting off the supply of water, or other substances following accidental discharge from any fire protective equipment or otherwise escaping from intended confines.”

This section addresses quite a few similar, but different, circumstances involving the fighting, containing or extinguishment of a fire. It goes on, however, to cover the prevention or diminution of damage from any peril insured by the policy. In each case, the additional cost must be both necessarily and reasonably incurred. As stated above, “necessarily” refers to the circumstances in which the costs are incurred, while “reasonably incurred” means that the cost itself will also need to have been reasonably incurred and the amount (quantum) of the costs must also be reasonable for the work required.

One area where disputes can arise is in the cost of locating a leaking pipe. Many believe that the cover here includes exploratory costs to seek and find a burst pipe, to the full extent that such costs are necessarily and reasonably incurred to diminish or avoid water damage to Insured Property. Remember that under the definition of Damage, the fact that a wall or floor is wet, means it is damaged. The fact that it can easily be repaired (that is, the water mopped up and the area dried) is immaterial – it is damaged. However, a specific Endorsement has been prepared by Mr David Goodlad for such instances: Not merely as words of reassurance to policyholders but because unfortunately, coverage disputes over exploratory
costs are not uncommon under ISR policies
[1].

This is one of those covers which many insurance intermediaries mistakenly believe need to be sub-limited in order to be covered. This is clearly not the case. The cover is automatic up to the overall Limit of Liability, unless the cover is subject to a specific Sub-Limit. Therefore, from the Insured’s point of view, it is better not to have the item sub-limited.

It is important that if a Sub-Limit is to be imposed, then such Sub-Limit has to be reasonable to cover the full cost of a loss under the item. It needs to be understood that the cover is not just to recharge a fire extinguisher or two. As was just explained, Additional Benefit (c) – ie. Sub-Clause 3.2(c) – also includes cover for the purpose of preventing or diminishing imminent damage to property hereby insured by any other peril insured against by the Policy...”.

In some States (eg. Victoria where, in Melbourne, the Metropolitan Fire Brigade provides the service delivery for the Environment Protection Authority), the Fire Services Levy that an Insured pays with his or her insurance premium does not cover the cost of these services. An example of what can occur comes from a claim arising from an incident at a waste disposal site, where an industrial chemist had his decimal point in the wrong place and allowed a highly acidic product to enter the storage tanks. The result from the chemical reaction was that tanks were coated with a highly corrosive substance and the Fire Brigade cleanup costs were around $75,000.

The ISR Insurer initially rejected the claim for mitigation costs on the basis that there was no Damage, but later accepted that an event had occurred that was not excluded, and the corrosive coating from the chemical reaction was the same as smoke and aggressive residues from a fire (chemical reaction). The claim was finally paid, subject to the Sub-Limit. In such a case, a $5,000 or $10,000 Sub-Limit would, of course, be completely inadequate.

In all Australian jurisdictions, regardless of the method of funding, the only service provided is the fighting of a fire. Other services, such as attending a false alarm, pumping out a flooded basement or cleaning up a chemical spill, may, and often are, charged for seperately. If this is caused by a peril not otherwise excluded, this cost will be indemnified by this important additional benefit.


[1]
Goodlad D., 1996, The ISR Book –
The 1996 Supplement to the Mark IV Edition
, Risk Technologies Pty Ltd, The
Patch, Supplementary Endorsements Section, p.3.

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