March 2010 Issue
28 March 2010
Our first newsletter of 2010 reflects our growth into the areas of Personal Accident and Property claims. We are excited at the expertise and processes we have developed in these areas and believe we can add significant value to our customers in these shorter tail classes of business. To bolster our Property team we welcomed Stuart Greaves as Manager, Property in September 2009. Stuart brings 20 years of high end property expertise with him, as well as a great understanding of the Lloyds’ market where he previously worked as Claim Manager, Property for Catlin. State of the Market - 2009 revisited with Jon Broome Can the industry be happy with a combined result of 104%? That is where we were in Australia on current estimates in 2009. The result, given diminished investment returns, is marginal. Further deterioration into 2010 would not be good news for insurers in Australia. State of the PI market – Proclaim observations In 2009 we saw a further increase in professional indemnity notifications and claims - a trend that was pronounced in 2008 and continued into 2009. By virtue of the global financial crisis we also saw an increase in D and O claims. The D and O market is hardest hit in economic downturns as shareholders take class actions against companies who collapse or who have had share price collapses. Inevitably this rebounds on the PI market when professionals such as auditors are joined to some of the class actions. In tough economic times fraud also increases so fidelity and crime claims tend to increase as well. Litigation funding appears part of the landscape now, so class actions are a risk exposure that was not in play 15 years ago. The shame of these funded class actions is that the punters who suffered the losses tend to stand in line behind plaintiff lawyers (who tend to get more than 30% of proceeds) and the funder (who tend to get around 40%) leaving the smallest portion to those who suffered the losses. State of the Liability market Continued claims inflation across the eastern states means year on year for the last 3 years we have seen double digit cost increases on liability claims. This has been exacerbated in Victoria by a more liberal use of a Judge’s discretion to award general damages. In NSW both legal and claims costs are increasing, and Queensland’s paper chase from the PIPA regulations seems to have created a regime that may challenge NSW as the most expensive in Australia. Globally the catastrophes in 2009 were significantly under average, primarily due to the benign hurricane season. However Australia suffered more than most with bushfires and floods. This in part explains the local 104% loss ratios. We are seeing a push in the property area for higher premiums. There has also been some shifting of capacity away from unprofitable business. However there still appears to be strong capacity for good risks. How do Disputes Arise The most common areas of dispute occur when a property is damaged by both storm and flood waters and insurers seeking to exclude damage by virtue of the flood exclusion. Evidence gathering remains critical. As a general rule a hydrologist should be brought in to provide early views and opinions on the cause. Several cases can be cited where an Insurer has prevailed with strong technical evidence from a hydrologist when the Insured has not countered with his own expert. The Ombudsman’s decisions have shown a tendency to support this form of technical evidence. Conclusions The application of flood exclusions remains a difficult area in which to resist claims. To exclude a claim, evidence is required to ensure that it can be demonstrated either it is all flood water or a mixture of storm and flood, and that it has escaped from an excluded source. (a) The claimant was clearing the property and had several horses on the property and two horse floats. Proclaim asked why would a person with a Chronic back complaint have horses on his Property. Who was riding the horses? (b) We later found out that the claimants wife did not ride and his young children were not old enough to ride. (c) We also found out that the claimant was a regular rodeo rider prior to the accident. Proclaim asked the Investigators to contact the Rodeo Association to ascertain whether the claimant has had any previous back Injuries due to accidents. (d) The Rodeo Association advised the Investigator that they had no record of the claimant sustaining any serious injuries whilst performing in a Rodeo. (e) Proclaim considered placing the claimant under Surveillance but the Property was in the open and anyone new in the area would be easily spotted. (f) The Investigator then mentioned to Proclaim that on the following Saturday there was a Rodeo meeting in the area and Proclaim instructed the Investigator to attend the meeting and to take his movie camera and see if the claimant turned up. (g) The Investigator also obtained a record of the people participating in the Rodeo on the day of the Rodeo and the name of the claimant appeared. (h) At 10.15 am the Investigator notice a Four Wheel drive pulling a horse float being driven by the claimant entering the Rodeo Showground (i) The claimant was observed taking the horse out of the float, saddling the horse and riding the horse around the showgrounds. (j) The claimant was entered in the calf roping event and the Investigator was able to take film of the claimant and his horse chasing the calf, the claimant jumping off the horse and roping the calf by its legs. Not bad for a guy who received a $700,000.00 pay out by Workers Compensation because he had a Chronic Back Complaint and would never be able to work again. The claimant actually came fourth in the Event and was paid $40.00. After the film was sighted by Proclaim, Proclaim immediately contacted the claimant and after three interesting conversations with the claimant he withdrew his claim for Permanent Disability as he was afraid that the Workers Compensation Insurers would ask for their money back. In what circumstances does the court allow plaintiff’s to side-step the “middleman” ... Jacqui Steffen, Account Manager, Professional Risks Mr Gould held professional indemnity insurance with Lexon. Lexon submitted that it should not be joined to the proceedings because the insurance policy, indemnifying Mr Gould, did not cover the period during which the events giving rise to the claim occurred and, the conduct of Mr Gould was dishonest and/or fraudulent and the relevant insurance policy excluded cover for acts of dishonesty. Proclaimer News from Michelle Young, Manager Organisation and Development Introducing our newest Proclaimers - As Proclaim continues to expand and develop our expertise across the various areas of the claims industry , this is reflected in the growth of our team. Our aim is to employ the best people in the market, with excellent skills, knowledge and attitude regarding what they do, so we can continue to drive the best possible solutions for our customers. Introducing our newest team members – Allison Wallace Nick Jones Jacqui Steffen Karly Gillett Shannon Hughes Vicki Jovanovski Maureen Ung Jillian Porter Other Team News Matilda Keenan (formally Luff) Ryan Francis Jorja Stone It is on again...AFL Footy tipping 2010, with bragging rights and a dozen bottle of premium Australian wine for the winner of the Proclaim footy tipping comp. Will the Saints fire again, are the Cat’s at the end of the line or do they have one more in them, are the Doggies the ones to watch, who will emerge from the pack? To join the Proclaim footy tipping competition go to footytips.com.au, register and join our competition with the password zebra....or follow the link below. Good luck and Go Saints!
We are also excited to welcome Kate Ellis to our Accident and Health team. Kate comes to us with great experience at Ace in Accident claims and will be working with Russell Walker as Kate transitions to the role of Manager of the Accident and Health Unit. Russell will stay with us in a mentoring and senior consultative role as his experience in PA claims remains invaluable for us.
In this edition of the Newsletter we look at the state of the market, where claims seem on the up but rates remain competitive. Stuart Greaves then looks at the topical issue of when a flood is covered in the view of the Ombudsman. Russell Walker gives us an example of an Accident claim that went horribly wrong for the claimant and one of the new members of our Professional Risks team, Jacqui Steffen, looks at a recent decision impacting insurers. We conclude with some information on a number of new hires at Proclaim and a reminder footy tipping for the AFL season starts now!
The good news is that there were modest increases in premiums in 2009, so the market has bottomed (we hope) and the softening cycle seems to have ended, although there are still stories of indiscriminate pricing on competitive risks . This seems to be a function of capacity which is still in good supply as the market enters 2010.
The industry did see a large increase in claims in Australia from 2007 to 2008 – from $12bn to $16bn – a significant shift. Losses remained at this level in 2009. With the fallout of the global financial crisis the areas of D and O and Trade Credit were had hit.
Globally 2009 was a benign year for catastrophes – according to Munich Re stats, global cats in 2009 were around $25 bn, as opposed to the 10 year average of $40bn. Interestingly Munich Re’s view was that a $5b n event is considered significant enough to have an impact on global capacity. Locally a $2 bn event like the bushfires has the ability to impact the local market. Already in 2010 we have had a large earthquake catastrophe in Chile (estimates - $US9 Bn and rising) which looks certain to have an impact on reinsurance rates, at least in South America. Not to mention the quake in Haiti and the floods in Europe. Not a promising start to the year.
The liability market in Australia will also be feeling the impact of the bushfire losses – which may have started as property claims, but the industry is bracing itself for claims for recovery against Government, Councils and power companies. Stay tuned, with more than $2 bn at stake, this is destined to be a headline loss with huge legal overlay.
Property
2010 has not started well either worldwide with earthquakes and floods, or locally with floods and storms. The recent hailstorm in Melbourne will likely be much more costly than first estimates suggest. Therefore pressure will remain on underwriters’ margins.
With so much local storm activity, it is timely that we had an article on the perennial question – when is it a flood? , and how the Ombudsman tends to view it.
Property claims: Flood Exclusions –Navigating treacherous waters? Stuart Greaves- Manager, Property
Following recent incidents of storm experienced across the country we thought it may be of interest to provide some views and thoughts surrounding the Ombudsman’s determinations on the difficult issues surrounding the application of the Flood exclusion.
The Ombudsman continues to maintain its position consistent with legal precedent that if damage is caused by initial entry of
storm water inundating the floor of a building the insurer is liable for that damage even if further damage is subsequently caused by flood. On the other hand if the damage was caused by initial entry of floodwater or a mixture of flood and storm water then the insurer is excluded from liability under the policy.
In the first instance however it is unlikely an insurer will prevail in gaining even a reduction in damage costs if it can be shown storm waters initially caused damage unless clear markings can be shown to demonstrate where flood waters exceeded the storm flow.
The second common dispute is over the definition of flood. Under the ISR policy this is defined as
“Flood means the inundation of normally dry land by water escaping or released from normal confines of any natural watercourse or lake whether or not altered or modified or any reservoir, canal or dam”
The most contentious area seems to arise from establishing what constitutes a water course. Once again the Ombudsman seems swayed by the long standing legal view from Gartner v Kidman:
“A watercourse consists of a stream with a bed with banks and water. That the flow of the water in the stream is intermittent or seasonal will not prevent what would otherwise be a watercourse from being accounted such: but though it is quite true that a watercourse may exist though its bed be dry for some periods the watercourse must exhibit features of continuity permanence and unity…. It must essentially be a stream and be sharply distinguished from a mere drain or drainage depression in the contours of the land which serves to relieve upper land of excess water in times of major precipitation.”
The relevance of this should not be overlooked in that the Ombudsman will at all times point out that if an insurer is seeking to impose a flood exclusion the onus is on the insurer to show it meets the definition. Any sense of division in expert evidence on the nature of the “watercourse” from where the water escaped will often be persuasive to the Ombudsman supporting the consumer.
What can Insurers do?
We have seen that in major events like cyclones, when several claims might arise, not only will the ombudsman often visit a site but will take into account all the expert evidence it is presented with regarding such an event. For instance they will often meet with as many experts/ hydrologists as have been instructed on the event and even if a specific report was not introduced on an individual case have been known to take this into account when reaching a decision.
Accordingly the advantage of sharing experts with other insurers cannot be underestimated in gaining consistent views before the Ombudsman.
Water testing has also been seen to be a useful tool in proving the origin of water when considering the extent of any flood or storm waters.
In the face of contrary evidence from experts exists regarding either of these questions then the ombudsman has by and large fallen back on the position regarding the onus of proof being on Insurers.
There is also the ever present pressure on Insurers to look after people who have been caught in what no doubt amounts to tragic circumstances. However, as tragic as it is, if insurers cannot rely on their rating systems when it comes to flood risks, we could end up as in some other countries where high risk areas are in pools or regulated so insurance is available….and I think we’d rather not go there. If the weather is changing and increasing the risk, then this may be inevitable.
If Insurers would like any further information on this or specific case rulings from the Ombudsman please Contact Stuart Greaves, Our Insurance Property Claim Manager, on 07 3232 3503
Accident and Health claims – experience and investigation can pay dividends
A new claim was reported to Proclaim by a London Insurer instructing Proclaim to attempt settlement of the claim on the best terms possible up to the Policy Benefit of $ 250,000.00. The Policy covered Permanent Total Disablement.
The individual who was injured was involved in an accident at a mining site and severely injured his back. He was examined by the Workers Compensation doctors who came to the conclusion that the claimant was suffering from a Chronic Back condition caused by the mining accident plus he was also suffering from Major Depression Disorder. The opinion was that he would never be able to work again.
At the time of the accident, the claimant was 43 years old and was earning $ 120,000.00 a year.
Workers Compensation Insurers decided to settle the claimants claim for $700,000.00 as they considered he was permanently disabled and would not be able to work again.
What surprised us about this claim was the lack of investigation carried out by the Workers Compensation Insurer. There was certainly medical evidence on file but given the size of the claim the insurer had done little to test the veracity of the claim.
Although Proclaim was instructed to settle the claim, the Underwriters agreed with Proclaim’s recommendation that we should instruct an Investigator to ascertain a history on the claimant’s background and to determine what he was actually doing now.
In the course of investigations Proclaim ascertained that that the claimant had just purchased a 5 acre property in Cairns. This flagged an indicator for investigation- how can a person who is permanently disabled maintain a property of that size?.
After a short investigation we determined the following:
Good Claim Handling and a little bit of luck in catching the claimant out, saved the London Insurers from paying a claim that should not have been paid – amounting to a saving of $250,000.00.
In a decision handed down late last year from the NSW Supreme Court, the court granted leave for a plaintiff to join an Insurer in circumstances where the plaintiff was aware that the defendant would not be able to meet a significantly large award of damages if it was successful at trial.
The plaintiff, Provident Capital Ltd (“Provident”), sought to join Lexon Insurance Pty Ltd (“Lexon”) to the proceedings, pursuant to the provisions of s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (“the Act”). Provident sought to rely on the position of Lexon as the insurer of the defendant, Mr Gould, who is sued in his capacity as a solicitor. Provident was seeking damages from Mr Gould alleging negligence, misleading and deceptive conduct in relation to his client’s financial standing, and breach of an undertaking.
Provident Capital loaned approximately $7mil for a development project. Before doing so it required “satisfactory evidence that all 6 lots had been pre-sold on unconditional contracts with a 10% deposit.” The developers arrived at a creative way to satisfy this condition. They paid the 10% deposit themselves, totalling $1.12 mil, using ‘trade dollars’ from a barter scheme (monopoly money) and transferred the trade dollars to the account of their solicitor, Mr Gould. He then wrote a letter to Provident stating “we confirm we are holding in our holding account the following amounts in respect of the deposits for the sale of the following properties totalling $1,120,000”. This was followed by an irrevocable undertaking to Provident promising not to release deposits, being deposits “held in our Trust Account”. Based on these and other assurances Provident advanced the funds. After the development was complete, each of the purchases of the six lots defaulted under the contracts for sale and accordingly, Provident asked Mr Gould to account for the $1.12 mil, which he could not.
The NSW legislation, which has also been passed in both the Northern Territory and the ACT, is based on an “event” occurring during the policy period of insurance which triggers the policy. With the rise of “claims made and notified” policies, a tension has been created with the operation of section 6 because the statutory trigger and policy trigger are no longer both concentrating on the happening of the event and may not always occur simultaneously.
This tension was clarified by NSW Court of Appeal where the court held that the charge arises on the happening of the event giving rise to the claim for damages or compensation. S6 is directed to those cases where the “event” happens after the entry into the contract for insurance.
In Provident, the court examined the factual basis as to whether Mr Gould’s professional indemnity insurance (which was a “claim’s made” policy) was in place when the “event” occurred. The court indicated that the “event” referred to in s6 occurs when the plaintiff has suffered some actual, measurable damage and that damage is beyond what is negligible.
In this case, the court found that the first time at which damage was suffered was when the purchasers of the units defaulted, not when Mr Gould made the misrepresentations. The court found that Mr Gould’s professional indemnity insurance was in place at the time that the plaintiff first sustained damage.
In relation to the exclusion for dishonesty, there appeared little doubt that the case against Mr Gould for misleading and deceptive conduct was very strong. However, the test was subjective:
“Dishonest conduct, of which the policy speaks, must be deliberate in the sense that there was an intention on the part of [the Insured] to deceive. Knowing that statements were false and might deceive, but being reckless or careless about whether they might have that effect was not enough.
Judge Rothman did indicate that the trial judge may find it difficult to believe that when Mr Gould made the representations of his client’s financial status he did not intentionally intend to mislead however, that was an issue for the trial judge.
Regardless, Judge Rothman held in favour of the Plaintiff allowing Lexon to be joined to the proceeding pursuant to s6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (“the Act”).
It is clear from this decision, and previous decisions in relation to s6, that in some jurisdictions, the court will consider granting leave to join a professional indemnity insurer where the “event” occurs after policy inception. However, the section expressly states such a proceeding requires leave of the court and leave will not be granted if the court is satisfied the insurer is able to deny indemnity under the terms of the contract of insurance.
Administration Assistant (Part time)
Melbourne
Currently studying a BA in Media and Communications at the University of Melbourne, Allison joined us in November 2009 as a part time Administration Assistant. Key tasks include entering claims, reception duties and generating reports and graphs as well as other ad hoc administration duties. In her spare time Allison teaches piano and is an online writer for www.footyheads.com.au.
Account Manger – Property
Brisbane
Starting in January 2010, Nick comes to Proclaim with an extensive claims experience having worked for Gallagher Bassett, Vero Insurance and NRMA Insurance in Brisbane. His specific commercial property claims knowledge is a tremendous asset to our growing Property team, as Nick manages a growing portfolio of property incidents and claims. Originally from the UK, and with a keen interest in music, you may find Nick performing as a DJ at various venues in South East Queensland or even making a guest appearance to spin some discs on local Brisbane radio.
Account Manager – Professional Indemnity (Part Time)
Melbourne
After being admitted as a Barrister and Solicitor of the Supreme Court of Victoria in 2003, Jacqui worked as a solicitor in two Melbourne firms until she moved to Canada with her husband and young daughter at the end of 2006. While in Canada, Jacqui had a son, before her family decided to return to the sun and beaches of Australia at the end of 2008. Jacqui joined Proclaim in January this year in a part time capacity and is truly enjoying the challenging work of her major client Dual and being an integral part of our growing Professional Indemnity team.
Account Manager – Insurance
Melbourne
Relocating from the Sunshine state to Melbourne in early 2010, with an Admission to the Supreme Court of Queensland in March 2009, and over two years as a Claims Consultant looking after the liability cover to 124 Local Governments in Queensland, Karly is a great fit for our Insurance team. Karly’s key responsibility is to manage a portfolio of Club and Crafts claims and incidents. Karly is currently enjoying discovering more about her new home town of Melbourne.
Administration Assistant
Melbourne
Shannon started as our Full Time Administration Assistant in February and after a short training program has been thrown in the deep end with the recent introduction of our centralised phone system. Responsible for reception duties, our mail and data entry among other tasks, Shannon is also busy assisting the Property team with nominated administration requirements including manning the 1300 number and some incident entry. Shannon started her working career spending 3 years as a receptionist and mail clerk at a Barristers Clerk, before she joined Proclaim. In her spare time Shannon enjoys soccer and rugby league, spending time outdoors and reading.
Claims Technical Assistant
Melbourne
With a Certificate IV in Legal Services and currently undertaking an Advanced Diploma of Business (Legal Practice) at Victoria University in her spare time, Vicki started with us in March this year as a Claims Technical Assistant. Supporting the Account Manager’s in our Insurance and Corporate teams, Vicki assists with the drafting of key documents including release agreements, letters of instruction , following up excess and payments, completing Medicare Notice of Settlements and data entry and general administrative support. An extensive background in Administration across a number of industries has helped Vicki quickly grow into this diverse and challenging role
Account Manager – Corporate
Sydney
Since graduating from a Bachelor of Law/Bachelor of Commerce from Sydney University in 2008, Maureen worked as an Assistant Company Secretary in a large ASX public company. Whilst studying Maureen was a weekly volunteer as a paralegal at the Immigration Advice and Rights Centre and undertook a winter internship in a law firm in Shanghai. Having commenced in Proclaim in March, Maureen is very excited and enthusiastic about being a dedicated Account Manager for a number of our key corporate clients. As well as speaking fluent Chinese- Mandarin, Chinese – Cantonese and basic German, Maureen also plays the cello and piano and describes herself as a passionate traveler.
Account Manager – Insurance & Corporate (Part Time)
Melbourne
Jillian has recently re-joined our Proclaim team in a part time capacity after spending the last four years raising her family. Legally qualified, and having worked in private practice before joining Proclaim, Jillian has noticed a number of key changes and growth in the systems, processes and people at Proclaim since re-commencing with us in March. As an Account Manager in our Insurance team, Jillian brings a wealth of experience and knowledge to the team. Jillian enjoys riding her bike and spending time with her busy family when she is not in the office.
Melbourne
In January Matilda returned from Maternity Leave after taking some time out after having a beautiful little boy last year. Matilda resumes her position of Manager of the Corporate Team in Melbourne and Account Manager for Centro which is a key corporate account.
Sydney
With Marianne Lim taking some time away from the business, Ryan has recently stepped up into the Manager, Corporate role. Ryan holds responsibility for the day to day management and leadership of the Corporate team in Sydney as well as looking after the account needs of his nominated clients.
Melbourne
Jorja has recently been promoted to Administration Manager. As well as continuing her varied administration duties for the Management team, reception support, IT support, data entry and assisting with marketing initiatives, Jorja is now responsible for the day to day Management, leadership, training and support of the growing Administration team.
Footy Tipping Jon Broome
http://www.footytips.com.au/comps/Procla&p=zebra
The Super 14 competition is also underway with Marcus Loomes the early leader – if you are tipping Super 14 on the footytips.com.au site it is not too late to join this competition.