Underinsurance

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Weather Events Demand a Closer Look

Following on from the previous article in the last edition of Brokerwise, we continue to focus on the impact of Co-Insurance or “Underinsurance” as it is more commonly known.

The importance of considering and selecting appropriate and adequate Insurance Policy Limits or sub limits of liability are paramount and should always take into account any possible ‘Underinsurance’ potential impact.

The latest weather perils that have impacted Queensland and Australia generally over the past few months highlight the need to look at various points that require consideration. These are:

  1. Current relevant Laws
  2. Replacement Material Costs
  3. Removal of Debris.

Point 1: There have now been changes to both State and Federal Laws regarding the required ‘wind rating’ of roller doors used in commercial buildings. Following the various cyclones and storms, insured clients discovered that because they had ‘old’ roller doors that didn’t comply with the new building laws, they didn’t have an adequate sum insured to pay for replacement with new ‘legally compliant’ doors.

Point 2: Both local and imported building materials have risen in cost due to demand after the various weather events. As such, insured clients have experienced first hand the impact of not ‘setting’ an adequate Sum Insured only to find that they were sometimes grossly underinsured, and as such, had claim payments and settlements considerably reduced. Consideration also needs to be given to both the a) extra time and b) extra costs related to imported materials.

Point 3: In this scenario, the Removal of Debris limit becomes applicable. As there are many buildings that still have varying degrees of asbestos sheeting or materials as part of their overall construction there is large cost associated with both the a) removal of debris (following an Insured loss) and b) the replacement of the damaged area. Further, there can be a ‘flow on’ effect where Increased Cost of Working Policy sub limits may also be required to be utilised following this kind of loss.

Your insurance broker can advise on policy coverage and adequate Limits of Liability required for your circumstances. Following your broker’s advice will result in better outcomes during the claims process.

Closing your Business?

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Don’t Cancel Your Cover

The business has closed, it’s no longer trading, no more parts or products being manufactured or imported. No more installations or maintenance. No goods for sale.

So, time for retirement or a change in direction. We just need to cancel the insurance.

Well, not exactly. There is an element of insurance risk for a business once they have ceased trading. For a tradesman it would be the work they have installed and maintained which may cause an incident at a later date. An example would be a switchboard that causes a fire due to faulty wiring. The loss may cause subsequent damage to a building or worst case, death or injury. The time of loss is determined to be the occurrence date, therefore cover may have existed when the switchboard was installed but it should have still been in force when the incident occurred.

For the manufacturer of goods, their products may be discontinued but the element of risk remains if they cause damage or injury at a later date. So how long do you maintain run off cover?

Ideally, up to seven years is the industry standard. But not all businesses need cover for that long. For example, a restaurant would know within days or weeks of potential claims rather than years. Various States have their own legislation requirements and these would need to be addressed to clarify your situation.

Examples of run off cover for classes of insurance would include Public and Products Liability / Professional Indemnity / Directors & Officers Liability (Management Liability). Advice from your broker should be sought in these cases as to which basis of wording applies and any interruption to cover should be avoided so a claim won’t be jeopardised.

When a business is sold, the risk of potential future claims may be transferred to the new owner but this can’t be assumed, it would be negotiated and details of the sale would need to be reviewed with legal opinion.

The good news regarding run off cover is that it does get cheaper year after year due to decreasing exposure, subject to no claims activity. You can also negotiate a number of years up front with an insurer. This is suggested if a sale of the business occurs or retirement beckons. Be sure to get both legal and insurance advice for peace of mind. You can then close the door with confidence.

Workers Comp in QLD

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Changes on the Way

With the recent election of the Labor government in Queensland, the repeal of the impairment threshold for access to common law claims arising out of workplace injuries seems imminent.

Changes to the WorkCover scheme, introduced in October 2013, meant that workers assessed with 5% impairment or less do not have access to claims for common law damages against their employers. Consequently, injured workers who do not meet the threshold are more likely to make direct claims against other parties, such as host employers, occupiers and contractors. Those parties in turn will inevitably seek indemnity and contribution from employers, where they have a right to sue under the contractual agreement between the parties.

The introduction of the threshold was intended to reduce common law claims for employers, thereby resulting in reduced workers’ compensation premiums. However, in practice, it has caused problems for employers in other areas.

Notably, in many instances, employers may be uninsured for claims by third parties because other insurance arrangements that employers have in place, such as public liability policies, may not respond to these claims.

The repeal of the impairment threshold will give back to workers the right to access common law damages against employers. This will likely reduce issues for employers regarding claims made under contract by third parties, and transfer the exposure back to WorkCover Queensland.

While the repeal of the threshold appears to be imminent, it remains to be seen whether the Labor government can or will remove the threshold retrospectively.

It is important for employers to ensure they understand their rights and obligations under the workers’ compensation regime, and are aware of how contractual agreements with third parties may impact on these rights and obligations, and what additional insurance arrangements may be required to adequately protect themselves against third party claims.