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For any business, insurance can be critical to ensure the timely and efficient resumption of normal operations following a loss. Establishing an effective claims management approach at the outset is important for this process, both to enable the prompt resumption of operations, as well as to ensure all potential costs recoverable under an insurance policy are pursued.
Prompt notification of loss or potential loss to insurers is a standard policy obligation.
Insurance companies have mobilised teams of loss adjusters to damage affected areas to enable the assessment of damage to be undertaken. Loss adjusters are engaged by insurers for the benefit of insurers which is why we recommend our clients retain their own loss adjusters and/or legal counsel to compile the necessary documentation with respect to any claim and deal with insurers and their loss adjusters. The costs of engaging loss assessors, accountants and other professionals to assist in the compilation of a claim are often recoverable under Industrial Special Risks (ISR) policies.
Particularly relevant in the current context is the potential insurance recovery for any business interruption loss caused by the disruption or cessation of suppliers operations which impact on mine operations. Typically ISR policies make provision for such loss under an ‘unspecified suppliers and/or customers’ extension. This extension provides cover to an insured when physical loss or damage occurs to property owned by suppliers and/or customers, which would be covered by the ISR policy, and which impacts an insured’s operations. Such an extension usually applies to key suppliers and/or customers and can include electricity, water and other utility suppliers and freight and/or rail companies.
What you need to do – the claims processAny major loss, particularly after significant weather and/or flooding events, necessarily requires the compilation of voluminous amounts of documentation to substantiate and demonstrate the loss. At the outset, photographs should be taken to capture evidence of the extent of damage. Depending on the circumstances of the loss, witness statements may also assist and prove critical in any insurance policy coverage determination.
An effective claims documentation process needs to be established at the outset to ensure all relevant costs are captured and included in any claim submission. This is particularly relevant if costs are incurred to protect or mitigate against any further loss or damage occurring. Such costs could include the temporary hire of plant, dewatering costs if a site has been inundated by water or costs incurred in erecting temporary protection barriers. The costs incurred and coverage available under ISR policies typically specify set limits for these types of expenses so it will be important to ensure dollars are spent wisely and any necessary policy trigger to enable these costs to form part of the claim is satisfied.
As has been demonstrated by the response of insurers to the January 2011 flood events in Queensland, disputes with insurers can arise on the interpretation of the actual loss events be they storm and tempest, rainwater or flood, each of which can have prescribed definitions which must be satisfied to enable recovery under ISR policies. Evidence may therefore be necessary to support the nature and/or cause of the loss which can include seismological or hydrology data or reference materials.
Business interruption claims, by their very nature, can be complicated and require the specialist input of accountants, forensic accountants or business interruption claims specialists. The necessary precursor to triggering cover for any business interruption loss is satisfaction of the policy coverage triggers for the actual property damage loss.
The purpose of business interruption cover is to provide recovery of the loss of profits or revenue following a loss until the point in time when the business has resumed the pre-loss operational capacity. This should correspond to the indemnity period nominated under the policy, but in many instances may not.
Typically for mining operations, a ‘time deductible’ is often imposed for cyclone and/or storm peril claims. Unlike set dollar deductibles, these deductibles, as the name suggests, require a designated period of time to elapse prior to cover being triggered under the policy. Further, for weather type events, ISR policies also usually include a loss continuity clause which distinguishes individual claims by the exposure to the same cause of loss for a 72 hour period or greater. This clause is significant to the potential application of multiple deductibles if more than one ‘event’ is deemed to have occurred. There are a variety of wordings imposed by insurers for both of these clauses, with few being in simple and concise terms to enable certainty as to the time periods imposed and the necessary triggers to be satisfied to enable cover to be provided under the policy. We therefore recommend these clauses be carefully reviewed to ensure accurate interpretation in order to maximum coverage under ISR policies.
Ensure you are adequately insuredAn unfortunate consequence of recent major weather events which have caused significant property loss has been the inadequacy of insurance to provide recovery to the full extent of the loss. Sometimes the response and/or responsiveness of insurers can also adversely contribute to the loss recovery process. Underinsurance has been identified as a significant contributing factor to the inadequacy of insurance protection. This can arise from the disparity between the insured value and the actual replacement cost of property but also within the context of the breadth and scope of cover provided under an ISR policy.
If we can be of any assistance in your claims management process or in providing advice on the coverage provided by your insurance policies, please do not hesitate to contact us.
Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.