Why an oil transfusion can save you money and a lot of heartache

By Richard Kranz

People regularly have blood transfusions! Why do people have blood transfusions?  The people who have blood transfusions are those people who usually suffer from an illness that does not repair the blood or replenish various parts of the blood naturally.

The oil in an internal combustion engine such as a diesel engine, petrol engine or LPG fuelled engine is the life blood of your engine. The oil circulates throughout the engine providing lubrication to bearings, turbo charges, rings and the like and to a lesser extent cooling in some engines. When the oil is in poor condition containing contaminants such as water, excessive carbon deposits, acidic products among other nasties, then rapid wear and tear on the engine occurs and also the engine is not working to its desired level of efficiency.

In simple terms oil changes are absolutely necessary because the oil in an engine does not repair itself automatically or naturally like it does with many human beings. Oil changes need to be carried out on a regular basis. Generally oil changes are required on a time basis, such as every three months or six months or on usage of the engine, such as hours or kilometres travelled.

When the oil exceeds its shelf life, then it begins to deteriorate, thus not allowing the various parts of the engine to be adequately lubricated. The most important aspects are lubrication of the bearings in engines and when the oil has deteriorated it is no longer capable of providing adequate lubrication. Oil additives included with most oils are designed to protect the engine against corrosion, oxidation and wear and tear, so new oil protects the engine much better than old oil. Old oil that has gone past its shelf life starts to break down and also includes contaminants such as soot and carbon.  The oil starts to produce acidic products that cause damage to metal components within the engine. The viscosity of the oil also starts to deteriorate, thus meaning the oil no longer has lubricating qualities.

Manufacturers of engines in their guidelines to engine operation always have instructions regarding engine oil and engine oil filter replacement.

The engine oil that circulates throughout the various galleries of the engine passes through an engine oil filter. The engine oil filter is designed to capture many of the contaminants and unwanted products within the oil. After a given period of time the engine oil filter becomes clogged with the contaminants and the engine oil filter also needs to be replaced.

When changing the engine oil it is important to ensure that no oil is spilt and that the oil is disposed of correctly. The oil should never be thrown away in the rubbish bin, poured down a drain or thrown onto the ground. The oil should be captured and then returned to a suitable recycling facility. Oil is able to be recycled thus we are all looking after the environment by disposing of it correctly.

It is important to select the correct engine oil. Diesel engines require a different oil to a petrol engine. Often different oils are used in summer and winter. Because ambient temperatures are higher in summer it may be prudent to have a thicker oil to cope with high summer temperatures and conversely during winter it may be more expedient to have thinner oil so that the cold temperatures do not reduce the properties of the oil thus the oil becoming too thick.

Manufacturers’ guidelines need to be checked to ensure that the correct oil is used in terms of viscosity and performance characteristics. One also needs to ensure the oil is added to the correct level. Oil should never be filled up too high or too low. If the oil is too high in a sump then there is a danger that the crankshaft could touch the top of the oil surface, thus causing extensive damage to the engine and conversely if the oil level is too low, then insufficient oil circulates in the engine, this causing insufficient lubrication.

When doing oil changes it may also be necessary to use flushing oil that is poured into the engine once the old oil is removed. The engine is run for a certain period of time, as recommended by the manufacturer of the flushing oil. The flushing oil allows almost all the oil in the engine to be removed. The flushing oil then removed and this way most of the oil that was originally in the engine is removed.

New oil of the desired viscosity, and performance characteristics then needs to be added to the engine. When the oil level is at the correct mark then no further oil needs to be added. A certain period of time needs to be allowed so that all the oil is able to drain down to the sump. When the oil has drained to the sump and one can discern on the dipstick that the oil level is correct, then the engine can be started. The pressure gauge needs to be checked followed by a check of any leaks around  the engine.

Do your oil changes regularly and replace the filter regularly and you will get maximum life out of the engine.

This brings us to the insurance implications. Most insurance policies will not cover breakdown of internal combustion engines, however machinery breakdown policies may be selected by the owner of equipment and if the owner of equipment selects to have such a policy the underwriter needs to be certain that correct maintenance is undertaken. Good maintenance relates to fewer breakdowns, thus fewer claims.

Many insurance policies, specifically machinery breakdown policies will not cover the aspect that has deteriorated due to wear and tear/corrosion and general degradation. The policy covers the consequences of wear and tear/corrosion and gradual deterioration. In other words a 50 cent bolt may break, this causing extensive damage to the engine. The 50 cent bolt is not covered, however the resultant damages that the breaking of the bolt causes is covered under the policy. The consequences are very severe and expensive.

From a policy view point the oil that has deteriorated is not covered, however the consequences of the poor quality oil causing damage are high and this aspect may be covered under the policy, unless of course it can be shown the damage was due to continued wear and tear.

Before insuring internal combustion engines and other systems that use oil for lubrication such as compressors, steam turbines, gas turbines and hydraulic systems, it is prudent to make enquiries regarding maintenance undertaken and also ask for tax invoices and evidence that the maintenance has been carried out.

Just remember good maintenance results in fewer breakdowns, less downtime and fewer insurance claims. 

Contribution

By Steve Nance

Contribution between two policies applies when both policies tick all the right boxes, these boxes being that the same loss is covered against the same asset which is damaged, owned by the same insured and the like. Easily put, if two policies cover the same loss, then contribution can apply between the policies.

To avoid any confusion, this is addressed in Section 76 of the Insurance Contracts Act. It is quite clear. If there are two policies, then the insured is able to pick which policy he wishes to claim against, and once the insured is indemnified, then that insurer has a right of contribution against any other insurance which may have provided cover.

This is commonly encountered in construction policies, specifically as most construction policies cover a number of parties, either specifically or otherwise. As to who was covered, of course, will depend on the definition of “the Insured” under the policy. This in turn can sometimes depend on the “tier” of the party who has purchased the insurance. For example, a “Principals” policy will often include the Principal/Owner, the main contractor, subcontractors, and others. The main contractor’s policy is likely to do likewise, though may not include sub-contractors. However an annual contract works policy for, say, a plumbing subcontractor may only cover the plumber themselves. There may be cover for “Principals”, but maybe not to subcontractors. It is therefore important to look at who is covered under each policy when looking at the aspect of contribution.

The next thing to look at is  the insured property that is covered under each policy. For instance, the plumber’s policy will only cover the plumber’s works. The main contractor’s policy, however, will cover all of the works, including that of the electrician, plumber, Carpenter, concrete, and the like. From the standpoint of the main contractor’s policy, therefore, a number of applications for contribution would need to be made for any particular claim where multiple trades assets have been damaged.

This brings us to the interesting point of when contribution would not apply. Let’s say the main contractor’s policy has a “DIC” (Difference in Conditions) clause which, still commonly, says that if there is another policy of insurance (whether specified as being undertaken by a Principal or not) exists, then the policy will only act in excess of or as a difference in cover and/or difference in excess policy to that other policy. Ah yes, the discussions I’ve had.

Section 45 of the Insurance Contracts Act renders such “other insurance” clauses void, except if the other insurance is specified. This in turn raises the issue as to what the term “specified” means. There are a number of texts by various authors, and also a case from the New South Wales Court of Appeal, being HIH v Pluim. In this case the judge rightly pointed out that the second contract of insurance may not even have been formed at the time the first one was taken out, and as such could not be specified in any detail. He suggested that it is possible that a clearly defined class of insurance such as “X’s standard Construction Policy with an excess of Y” would suffice.

It seems from this that other means of satisfying Section 45 could include anything from specifying a policy number (of the other policy) to providing a brief description of that policy.

What is unlikely to satisfy Section 45 would be broad terms which do not indicate to a reasonable person that the author was aware of the existence of the other policy. Such possibly could include terms such as “any Principals policy”, or perhaps even “any policy that may have been purchased by the Principal of the XYZ project”, this being more a stab in the dark as opposed to specifying the policy which is known to exist.

Maybe one way of getting around this is to include a clause of a general nature which refers to an attached schedule which in turn  specifies the various contracts to which the DIC provisions would apply. It would also help if you could be shown that the premium paid for the DIC contracts were less than the full cover contracts, otherwise any sceptic could infer the schedule was nothing but an attempt to prevent contribution.

Clearly the above is not legal advice, which should be obtained when drafting such clauses.