Informal Settlement Conferences

By Derek Blackwell

As well as undertaking factual investigations of liability matters, loss adjusters can engage in investigating a claim and running a claim to a resolution whether that be a claim settlement with a third party or denying liability to a third party. As part of this process we regularly attend Informal Settlement Conferences.

The Process

The first part of the process is when information and instructions are received from the insurer. After reviewing this, a factual investigation is carried out so that all of the facts are known and can be substantiated. This is particularly important so that I am well prepared as to what to expect. Contact is then made with the claimant and/or their lawyer with a view of arranging a settlement conference. I always insist that the claimant is there as well as their lawyer so that we can get a better feeling for what the claim is all about. There is nothing like eyeballing someone to know what the truth is likely to be.

I have attended hundreds of settlement conferences during my life as an adjuster. On one occasion I attended the offices of a solicitor in Geelong. His client  had consumed cleaning fluid which was somehow mixed into her morning coffee. On the way to work the claimant became seriously ill and when at work an ambulance was called and she was transported to St Vincent’s Hospital in Melbourne. The outlet where she had purchased her coffee refused to disclose the product data sheet to the treating doctor. She was just about to undergo a stomach pump when the insured’s head office made contact with the hospital, providing all of the necessary details.

Most of the above was not known to me at the time of the conference, or included in the claim notification papers. Adding insult to injury, the insured had mislaid or lost several demands from the third party, making the third party even angrier, and forcing her to the services of the solicitor.

When I arrived at the claimant’s solicitors’ office his file was somewhat larger than mine! I only had instructions to settle for $5000, though it was clear the extent of the injuries suffered were not appreciated at that time. The claimant was thoroughly annoyed, not having received an apology or assistance. Following several phone calls with my instructing principal that matter resolved at $20,000 all inclusive. This was considered by all to be a very fortuitous outcome.

On another occasion I attended the claimant’s solicitor’s office where the “claimant” was both mother and son. The son had crushed his fingers (but fortunately not broken them), in the doorway of a shopping centre. The Insured had sensibly assisted in the resolution process by apologising and delivering a Tonker Truck on the second day of my informal meeting. What was not known to me at the time was that the mother suffered from depressive anxiety disorder and was hospitalised for 2 days as a result of this incident. The matter settled at $3,000 all inclusive.

The above two examples demonstrate the importance of disclosing all information before the settlement process can begin.

In another incident I was acting for an engineering company who had provided defective bearings to a government research vessel who claimed $360,000 for repairs and lost revenue. We identified the bearings that damaged the propeller seals and the vessel had to be dry docked. The claim consisted of both insured and uninsured components of the claim.

An Informal Settlement Conference was held at the government contract shipyard and government representatives were present via telephone conference. After one and a half days negotiating we shook hands at $175,000, which was a great outcome.

Some time ago I was involved in a matter where a child pricked his finger on a syringe in an Adelaide cinema where the syringe had been left on a cinema chair. I made contact with the parents showing empathy and ensuring that all of out of pocket expenses will be met and that we will do whatever we can to assist the medical process. It was an agonising nine months for both the family and the writer until the medical all-clear was given. The parents were clearly relieved, and at my final meeting I admit to having a tear in my eye also. I had a telephone conference with the claims manager, and as a result of that discussion we agreed to fly the whole family (mum and dad, son and daughter) to the Gold Coast Sea World Nara Hotel. Insurers paid for air flights, accommodation, and theme park entries. “Mum and Dad” agreed not to pursue the matter further.

This highlights that by showing empathy for a legitimate claim, and becoming involved in the process, that a good and acceptable outcome can be achieved to the benefit of everyone.

In another matter, and whilst on holiday in Adelaide, I had become aware that a statement of claim had been issued in the magistrate’s court for $80,000 in a matter I was handling for a hire car driver who slipped and fell. An appearance needed to be filed in court and the insurer had asked me to make urgent contact with a solicitor who agreed to an impromptu Informal Settlement Conference. I had no instructions from London Underwriters. It was always understood, though, that when underwriters had been put on notice that it was a matter for settlement on best possible terms rather than attempt to defend it. I lined up lawyers just in case conference “fell over”. Whilst I had no instructions, I counted the claimant’s expectations of $80,000+ costs with an offer of $20,000 all inclusive, which quantum was in my view reasonable. What transpired was that the lawyers that I instructed gained an extra 28 days before we needed to file an appearance in the court.

The liability loss adjusters at Technical Assessing are proactive and can jump in and assist in an urgent situation, and settle while the court process is going through, making the whole process more efficient.

We are also proficient at professional indemnity claims. In one case a building consultant gave a pre-purchase inspection report to a propose purchaser saying everything was fine with the home, except it wasn’t. It was subsiding badly.  We were of the opinion that the insured was clearly negligent despite the insured having the opposing view. At that informal settlement, the third party was represented by both a solicitor and a barrister. Their expectations were of a settlement of well in excess of $100,000, acting on behalf of a third party. We settled at $90,000, based upon inspection reports, claims for out of pocket expenses and repair costs. Had this proceeded, the costs alone could have exceeded this.

The clear advantages of a settlement conference include:

-        A quick and speedy resolution of the claim;

-        At the best possible cost to insurers; and

-        The ability to close a potentially long-tail claim in the most economical way.

All our liability team at Technical Assessing are experienced and knowledgeable in this process, and our clients can feel comfortable with us handling their Informal Settlement Conferences where applicable. 

Who is Insured – and Why?

By Steve Nance 

Unlike most other policies, the Contract Works Policy insures a number of parties. The purpose of this is because there are a number of parties involved in any one construction Project that are required to successfully complete that Project.

The Parties involved extend from the owner of the Project, as well as their financiers and directors/employees, as well as the architect, a bevy of engineers, quantity surveyors, and then you can even throw in a Project Manager. Then there is the main contractor and his consultants, a number of subcontractors, suppliers of materials (some of this being included in the above subcontracts), employees, executive officers, directors, and sometimes the mandatory “any other interested party” in the works.

Historically Insurers have accepted that multiple Insureds are required to be covered under the Contract Works Policy. By far the majority of Insurers have drawn the line at providing professional indemnity cover for the likes of architects and engineers, and as such, usually restrict cover for these parties to their onsite activities. For example, if an engineer knocks over a heat gun which causes a fire and burns the building down, then he would be covered for that. However, if the engineer provided a design which was faulty and caused damage to the building, then cover for the engineer would not be afforded in that instance (albeit that other parties would be covered), and subrogation against the engineer would be available.

Of course the case of GPS and Gardner Willis highlighted the ability of one party to be considered as another. In that case Gardner Willis, a consultant to the Project, was also deemed by the Courts to be a subcontractor, and as such was afforded the rights under the Policy as a subcontractor, which did not have a restriction for onsite activities only, albeit that there was a further clause in the definition of Insured under the Policy which specifically nominated engineers, restricting cover for them to onsite activities. As a result, many policies now have a clause which clarifies that architects, engineers and the like, for the purpose of the Policy, are not considered to be subcontractors as defined.

In this regard waiver of subrogation clauses also (sometimes) clarify this point.

Many policies now attempt to differentiate between the party who is purchasing the Construction Policy, often referred to as the “Named Insured” or “Primary Insured”, and everybody else. Usually the Policy includes the Principal as a “Primary” or “Named” Insured, and then qualifies the cover for the balance of the Insureds.

Many policies now restrict the cover for subcontractors to the extent that insurance is required under contract. In this regard, as to what contract is being referred to can sometimes be confusing. For example, some policies include the term “Insured Contract”, and then define this as being the contract entered into by the Named Insured. This of course will vary depending on the tier of Named Insured. For example, if a Head Contractor, then this will be a contract which was entered into between the Head Contractor and the Principal.  It will often be based on an Australian Standard (AS2124, AS4000, or the like) or other common forms of head contract. Most of these, whether realistic or not, requires the contract works insurance to include all contractors and subcontractors of both the Principal and the Head Contractor.

What then if a Principal contracts with one party, say a builder, to build a structure in which electrical components are to be installed, but then contracts separately with an electrical components manufacturing firm to manufacture and install the components. Does the Policy extend to include the electrical components manufacturer, even though it does not form part of the building contractors works, albeit that the components manufacturer is a “sub” contractor to the Principal.

Another tier of a Named Insured could be, say, a plumbing subcontractor. If this organisation is the Named Insured, then the Insured party would extend to include the Head Contractor (and arguably the Principal) and if the wording is such that subcontractors of the Principal are also covered, then arguably all the subcontractors of the Head Contractor, could be covered.

Indeed, the writer has seen wordings where, although clearly not the intent of the cover, has arguably included a number of parties outside of the scope of works of the subcontractor.

Another issue in relation to the idea of a Named or Principal Insured is that this party is usually defined in the schedule of the Policy. The theory is that if XYZ Constructions Pty Ltd has purchased the insurance Policy, then XYZ Constructions Pty Ltd would be the “Named Insured” in the schedule and that the definition in the Policy would then extend to include the Principals, their subcontractors, suppliers and the like as required.

Over the years, however, a number of schedules sighted by the writer (probably the majority of them) defined the Named Insured as not only the party which was intended to be deemed to be the Named Insured, but also “Principals, contractors and subcontractors, and other parties with an interest in the property”. If therefore the Named Insured in the schedule is defined as all of these parties, then clearly it is arguable that the extent of cover provided to a number of non related entities is also provided.

The other issue in relation to this is of course the requirement of the client. This is often forgotten. Indeed, the writer has had many discussions over the years with various clients who purchased insurance and, as a result of one of their subcontractors’ actions, has caused considerable damage. When the client, often the main contractor, is made aware of the fact that as subcontractors are covered under the Policy, and there is a valid waiver of subrogation clause, that subrogation against the subcontractor won’t be possible, and as such that the loss will go to the client’s loss record, which in turn will affect their future premiums, then this is not always accepted in “acceptable terms”.

Further, especially when subcontracts specifically require subcontractors to purchase their own insurance, as the client requires most of the risk to be transferred to others, the provision of a broad cover for all parties under the Policy seems unrealistic.

Of course the advantage of having everyone insured under the one Policy, without rights of subrogation, means that the Project will have some degree of certainty in relation to continuation, as if there is an occurrence, then a single Policy can respond without the potential ongoing conflict of subrogation between the parties.

From an Insured’s perspective, and in order to both minimise premiums and disruption/confrontation on a construction site, but also to provide the maximum cover should it be required, then not only does significant thought need to be put into who is to be an Insured party under the Policy, but also this needs to be coordinated with the head contract and/or subcontracts to ensure that a consistent and uniform understanding of cover exists.