Loss Adjusting 101 from the Trainee Adjuster

By Tulay Tuzun

In this article we’ve decided to move slightly away from the title ‘Technically Speaking’ to ‘Trainee Adjuster Speaking’!

The aim of this piece is to provide readers with an overview of my educational/professional background and how I ended up becoming a Loss Adjuster, along with my understanding to date of Loss Adjusting.

So you’ve completed your Bachelor of Civil Engineering and decided to move overseas for a year or two… You have all these big dreams about becoming a famous Project Manager but you’ve moved to Turkey where there aren’t as many women in the Engineering industry as there are now, then what? This is the exact question that I was pondering, when I stumbled across a position in Reinsurance Broking. It sounded quite interesting but what on earth is “reinsurance”?

I am sure all those working in the Insurance industry know that many people associate the term insurance with domestic and motor vehicle insurance ONLY, let alone have an understanding of reinsurance! Over a year and a half I gained a thorough understanding of insurance and reinsurance and it did prove to be very interesting role. I had the opportunity to get involved in the reinsurance placements for a fleet of ferries, large airport construction projects, a personal accident program for pilots and political risks’ to name a few.

It was then time for me to move back home and having enjoyed my time in the insurance industry, I decided to continue down this path and create a career for myself in insurance. I worked for several years in the corporate areas of two large broking firms and then became curious about what things were like on the client’s side of the fence. I was able to secure a position at one of the Universities, looking after their insurance program but still didn’t feel it was the right fit.

I found myself back at square one and asking myself, now what? I had approximately eight years experience in the insurance industry, a degree in Civil Engineering and wanted what everybody else wants, a job where I can utilise all of my skills, a job that I enjoy, a job that is constantly challenging and a work place that I actually and want to go to when I wake up in the morning. Most thought that I was dreaming too big and my “wants” were not overly realistic. Well they were after all because they appear to have been fulfilled.  Following several discussions with mentors in the industry, various recruitment consultants and hours of research I found where I thought I may finally fit in – LOSS ADJUSTING!

So what on earth is Loss Adjusting?! By definition a Loss Adjuster is “an insurance agent who assesses the amount of compensation that should be paid after a person has claimed on their insurance policy”. It was also described to me as an investigative type role. I have learnt that it is all of this and so much more.

A Loss Adjuster is a CSI Agent, a shoulder to cry on, an insurer’s eyes and ears, the broker’s informant and an impartial party when dealing with all parties!

I thought I possessed all the skills I would require to become a Loss Adjuster but even continue to improve in this regard. A successful Loss Adjuster needs to have a wide skill set;

• Excellent communication skills, both written and verbal – I thought I possessed good written communication skills but have found out otherwise after having to work with a mentor of English descent (their English language skills are honestly much better than us Aussies!). On a more serious note, a Loss Adjuster is in constant communication with insurers, insureds, brokers, repairers, third parties etc and therefore need to possess excellent communication skills to ensure all parties clearly understand how the claim is progressing

• Ability to think critically – It is “critical” that a Loss Adjuster has this ability in order to achieve the outcome most appropriate for the claim in question. Each and every claim is different; therefore a Loss Adjuster needs to have the ability to improve their own process of thinking

• Problem solving skills – a claim is obviously a “problem” which requires “solving”. A claim may also appear simple on first glance but problems can arise throughout the course of the claim,  and without problem solving skills is not likely to be settled efficiently and effectively

• Organisational skills - A Loss Adjuster will usually manage a large number of claims at the one time, which would have all been lodged at different times and therefore at different stages. It is therefore essential to have excellent organisational skills in order to effectively manage each of the claims and ensure that they are all attended to within a reasonable timeframe

• Excellent time management - This ties in very closely with organisational skills. Again, with numerous claim files open at the one time, a Loss Adjuster needs to be able to effectively manage their time at all times

• People skills – I believe this skill set is the most critical to not only Loss Adjusting but almost all professions. A Loss Adjuster is constantly dealing with ‘people’ and these ‘people’ can sometimes be very frustrated as a result of what has caused them to lodge a claim. It is therefore extremely important to possess these skills and be tactful, sympathetic and patient, especially when dealing with insured’s

Almost two years on and dissimilar to most other roles, I am still constantly learning. In fact it looks like I will continue learning until the day I retire. Every day is a different challenge, I have not come across any claims that are the “same” and don’t think I ever will. There is no set process, each and every claim unfolds differently, one can’t simply follow a Step 1 – 10 approach.

Calling out to all potential Loss Adjusters!!

DE3 vs LEG 2 exclusions

By Gareth Barnes
 

It is common that in the majority of policy wordings that anything defective, whether it be related to design, workmanship or materials is likely to be excluded. The extent to which an exclusion will apply will depend on the type of exclusion used.

There are two types of exclusion which are most common on contract works policies. The first we will look at is the DE3. A common example of this is as follows:

“This Policy excludes loss of or damage to and cost necessary to replace repair or rectify:

1. Property insured which is in a defective condition due to a defect in design plan specification materials or workmanship of such property insured or any part thereof;
2. Property insured lost or damaged to enable the replacement repair or rectification of Property insured excluded by (1) above.

Exclusion (i) above shall not apply to other Property insured which is free of the defective condition but is damaged in consequence thereof.

For the purpose of the Policy and not merely this Exclusion the Property Insured shall not be regarded as lost or damaged solely by virtue of the existence of any defect in design plan specification materials or workmanship in the Property Insured or any part thereof.”

Basically what this says is that the insurer will not cover the repairing or rectifying a defective part (or any property lost or damaged in rectifying the defective part, but will cover the damage to other parts of insured property which is damaged as a result of the said defect.

The second exclusion we will look at is the LEG 2, an example of which is as follows:

“The Insurer(s) shall not be liable for:

All costs rendered necessary by defects of material workmanship design plan or specification and should damage occur to any portion of the Insured Property containing

any of the said defects the cost of replacement or rectification which is hereby excluded is that cost which would have been incurred if replacement or rectification of the Insured Property had been put in hand immediately prior to the said damage.

For the purpose of this policy and not merely this exclusion it is understood and agreed that any portion of the Insured Property shall not be regarded as damaged solely by virtue of the existence of any defect of material workmanship design plan or specification.”

In general terms, what this is saying is that the total cost of rectification is covered however the cost to rectify or repair the defect immediately prior to the loss occurring is the cost that is excluded.

Although both exclusions appear similar they can give very different results when put into practice. It will be noted that the DE exclusion talks about the “part” which is defective and the “parts” damaged, and the LEG exclusion talks about the “cost” and “costs” of the rectification of damage and defect.

It must also be noted that the LEG exclusion also imports a further factor, being time of the damage.

Take for example a defect relating to a chemical bond breaker used in constructing a building out of precast “tilt-up” concrete panels. The common method used involves constructing formwork to the shape of the desired panel, installation of reinforcements and then pouring of concrete into the form work to create the desired panel. Once the process is complete it is repeated, one panel on top of the other, until a number of concrete panels are poured in layers. In this scenario, the lower panel effectively acts as the bottom formwork of the panel poured above.

A chemical “bond breaker” is applied to the upper side of each panel before the pouring of the next to ensure the panels separate with no damage when the upper panel is lifted of the one below.

In this example the concrete panels have not separated properly and as a result they have cracked and broken beyond use. It is later found that the bond breaker chemical used was defective causing the concrete panels to break when separated.

If we are to apply a DE3 exclusion then it is likely that the exclusion would extend only to sourcing and re applying a new non-defective chemical. The cost to rectify the resultant damage (reconstruction of the panels) is likely to be covered.

However if we are to apply the LEG 2 exclusion we need to establish what could have been done to rectify the defect immediately prior to the loss occurring as it is this cost that is excluded. Just because there is a defect in the system, being the defective bond breaker, does not mean that the policy will respond (as clarified in the proviso to the exclusion). Clearly when the panel is lifted, the damage occurs, being the cracking. In this case the Insured would need to apply a non-defective chemical to the concrete prior the panels being separated, however this would be impossible as the panels would first need to be separated to do this. The only way to replace the defective chemical would be to demolish both panels, rebuild the first panel, apply the non-defective chemical, then reconstruct the second panel. Therefore it is likely that it is these costs of rebuilding the panels and reapplying the chemical which is excluded (i.e. the whole claim).

It is clear that when applying the DE3 and LEG 2 exclusions the extent to which a claim is covered can differ considerably. The DE3 is more based on the “parts” of the loss whereas the LEG 2 is more based on the method and “costs” of repair. The above example however is based on applying both exclusions to the same incident.

In the next example we will apply the exclusions to 2 separate claims where the extent of damage and cause of loss are identical but applying the LEG 2 policy can have different results.
It is noticed that a number of tiles have cracked on a newly installed 1^st floor veranda and the whole veranda floor will need to be ripped up and retiled. On closer inspection there appears to be a faulty joist below the floor which has slipped causing the floor to sag and crack the tiles. Immediately prior to the defective joist slipping what would have needed to be done to prevent it or “put it in hand”? As the veranda is on the 1^st floor, the Insured could have obtained access under the veranda, located the faulty joist and replaced it. This is the cost that is to be excluded and the cost to rectify resultant damage (removal and replacement of the tiles, etc) would be covered. It should be noted that in this particular instance if a DE3 exclusion is applied it is likely similar same costs would excluded as with a LEG 2.

However let’s assume that the veranda is on the ground floor. Exactly the same thing happens, however the joist is not accessible from underneath as the veranda is on the ground floor. Therefore in applying a LEG 2 exclusion, immediately prior to the loss the only way to rectify the problem is to rip up the floor to access the defective joist, repair it, then relay the floor. This is the cost that is excluded and as this is what is being claimed then all of the repairs are likely to be excluded. If a DE3 were applied then the cost excluded would just be the cost to rectify the damaged joist once the floor was ripped up and all the other costs to repair and retile the floor are likely to be covered as they are a consequence of the defect.

So based on the repair method required the LEG 2 exclusion can operate in very different ways even when the cause of loss and the extent of damage are similar.

The Importance of Pragmatism

By Andrew Buchanan

It is generally accepted within the Insurance Industry that, all else being equal, claims grow more expensive with age.  Technical arguments always have their place but the bottom-line is that such arguments must always be justified by saving more than they cost to run. The pragmatic approach can often result in less overall expenditure, as illustrated by the following two cases recently adjusted by me.

In the first case, my Principals Insured were Scrap Metal Merchants who had a permanent presence on a Steelworks site owned and operated by a third party.  The Insured controlled a large stock-pile of scrap steel, when they would deposit into vehicles operated by various third-party hauliers using a crane-grab.  An accident occurred when a piece of steel fell from the stockpile and struck a third-party driver, resulting in him sustaining a fractured spine.

The accident was caused by a combination of the stock-pile being too high and a failure to ensure that drivers stayed away from the “danger zone” during the loading operation.  The Insured, as the party in ultimate control of the stockpile, had a clear liability.  The Site Owners also had a liability due to their failure to instruct and direct third-party drivers entering the site.  The Haulier also had a liability given they had not adequately trained/instructed their drivers .

Prior to litigation commencing, I wrote to the Opposing Insurers recommending that liability be shared between the three Insureds/Defendants, but neither Opposing Insurer was willing to compromise and admit even partial responsibility.

In the absence of agreement, the case litigated and I immediately instructed a firm of Solicitors.  By co-incidence the two Opposing Adjusters (without realising) also sent instructions to the same law firm.  The Solicitors quickly identified the conflict of interest and sought my instructions.

Having been the first to instruct, I had the opportunity to tell the Solicitors to cease acting for the other two Defendants, whose Insurers would then have to appoint alternative Solicitors.  Instead I proposed that I would permit the Solicitors to continue to act for all three Insurers provided that agreement could be reached on liability apportionment between the three Defendants within a fortnight.

As a result, a one-third/one-third/one-third share was agreed between the three Defendants/their Insurers within one-month of litigation commencing.  This  prompt agreement, which in turn enabled swift settlement of the claim, resulted in a significant saving in Solicitors’ Costs (both Defendants’ and Claimant’s).

It is strange (and unfortunate) that such a pragmatic solution could not have been reached prior to litigation, and it is highly unlikely that it would have happened for some time had three different firms of Solicitors been appointed.  Had the case gone to Court, it is probable that at least one of the parties would have been held to contribute less than one-third, but that would clearly have been a pyrrhic victory.

The second example involved a Products Liability claim relating to the supply of game-bird feed.  The feed (which was produced on a bespoke basis for the Claimant) was allegedly defective, resulting in the birds rejecting it, which caused them to become under-nourished, allowing disease to set in and thousands of birds to die.

Aside from numerous issues regarding whether the feed was indeed defective and whether it was causative of the birds’ deaths, a significant problem arose due to the Insured having changed Insurer at the worst possible time: the preceding Insurer had been on cover when the Product was supplied to the Claimant and he had first started to feed such to his birds, but their cover terminated (and my Principal’s began) prior to the birds starting to die in significant numbers.

The Operative Clause of both Policies was written on a “Damage Occurring” basis, but when did the damage occur: when the birds started to reject the feed (and started to become malnourished)? At the point when they actually became medically “malnourished” and required veterinary treatment?   When death occurred?  

Clearly no loss or damage occurred straight-away: it would take some time for the lack of food to have a negative impact on the birds’ health/development.  Conversely, it is clear that the birds had sustained “damage” (even if their malnourishment was treatable, their development would have been set back) prior to their deaths.   The situation was further complicated by the fact that the affected birds numbered in the tens of thousands and the “occurrence” date would differ between birds.

So what should the percentage split be between the two Insurers?  There was, quite simply, no precise answer on the available evidence.  Both Insurers could bring to bear justifiable arguments that the other should contribute the lion’s share.

However, it was recognised that the increased legal costs resulting from delay would likely exceed the savings available and both Insurers were persuaded to agree a 50:50% proportionate share of all outlays. 

This spirit of pragmatic compromise extended to both the Insured and Claimant.  Through open discussion it was recognised that the Insured, who had raised debt-recovery proceedings against the Claimant, would be happy to have their outstanding debt (owed by the Claimant for unpaid feed) cleared and that the Claimant would be willing to walk away from his claim in the event the debt was written off: this being a fraction of the sum claimed (as supported by Veterinary Reports).

Ultimately, both the Insured and Claimant seemingly walked away happy with the outcome and each Insurer’s total outlays measured just into five-figure sums (when the potential combined claim value, inclusive of litigation costs had been approaching six-figures).

At Technical Assessing, we often say that our aim is to settle claims for the “right amount”, but the right amount must always take into account cost implications.   Our aim to settle claims quickly and pro-actively with the aim of avoiding unnecessary legal dispute and associated cost.

T&C, smoke grenades and the bathtub curve

By David Outred

Many many years ago, when I was a young tradesman, I found myself working with a team designing smoke alarms for long distance passenger trains. You see, traditional smoke alarms can’t be used because the fumes from the train engine, even if too faint to be sensed by people, would set the alarms off. Finally, a solution was found, a sensor designed and manufactured and then installed in four carriages, each representing a different type in common use. It remained only to test them. A young engineer was given the task, and a smoke grenade, and sent off to the station yard where the newly modified carriages were parked alongside platform 4. Unfortunately, there was also another set of very similar carriages parked at platform 3, being readied for passengers, and indeed, some passengers had arrived early and already embarked. Obviously, this story does not have a happy ending, the grenade was placed in a carriage entrance and set off, and when the hapless passengers and staff ran screaming from the train, the engineer’s stomach turned to water.

It may be an extreme example, but the story is a demonstration of the pitfalls of Testing and Commissioning, and the potential for a simple T&C process to impact on a much wider scale than just the item being commissioned. Not all T&C losses are due to a gormless graduate equipped with explosive ordinance though; most arise when there is the initial application of energy to complex and expensive machinery, sometimes with unexpected and catastrophic results.

In a standard Contract Works policy, Machinery Breakdown, or Derangement is generally an exclusion. Testing and Commissioning is usually available as an endorsement, which effectively removes the policy Machinery Breakdown exclusions during the commissioning period. Underwriters will often want the T&C period well-defined, perhaps to the extent of nominating specific dates and specific commissioning processes, and it will generally carry a large deductible, to reflect the increased risk to plant during the commissioning period. And quite an increased risk it is too. The installation of complex plant and equipment is fraught with dangers. For starters, the machine may very well have left the factory with an inherent defect, which doesn’t manifest until some load is introduced, or the installation process may include a careless moment, or a fitting that is not quite right. The fact is that most machines are never more at risk than those moments when they are first switched on, or first experience load conditions, except as they near the end of their working life, when wear and tear starts to contribute to breakdowns.

This increased rate of breakdown at infancy and again at the end of the working life of a machine can be expressed graphically in what engineers commonly refer to as The Bathtub Curve, and I have included just such a graph below for you. The horizontal axis represents the age of the machine, the vertical, the failure rate for like machines. In terms of the infancy of the machine, it can be seen that the potential failure rate is extremely high at very early stages, then falls as the machine overcomes what may be referred to as teething problems and settles into a steady and efficient working life. If the curve was applied to, say, a refrigeration sealed unit compressor, the yellow section would span about 5 months, the green about 15 years. For a large electric motor running a relatively constant load, it would more likely be 1 month and 30 years. 

As I mentioned before, there are a number of factors which contribute to the increased failure rate of an infant machine and below are a few examples, from my own personal experiences, that might highlight those factors.

The Factory Fitted Fault: Commissioning of an air compressor in a medium sized workshop, installed, and power supplied. On start up, the compressor ran for a few seconds and then the cylinder head, about the size of a small suitcase, fragmented and exploded across the workshop. The largest piece slammed into an overhead crane cab and, unfortunately, a smaller piece travelled about 40 metres and sliced through tendons in the elbow of a workshop employee. Subsequent investigations revealed that an internal valve plate had been fitted back to front, although how it escaped quality control has never been adequately explained.

The Careless apprentice:  A very large Diesel powered generator set was being installed in a remote town. During erection, an apprentice was given the task of fitting lagging to the exhaust manifold, to quieten the engine a little. To make it easier to get access, he removed the governor linkages, attached the lagging, and then reattached the linkages – upside down. When the engine was started for the first time, because of the wrong linkage position, it immediately ran to full speed. By the time the kill switch was activated, the engine had almost self destructed, and had to be replaced. 

Who Needs Instructions: A large freezer installation was finally finished, and although it was late on a Friday, it was decided to give it a quick test. The control panel was energized and the compressors operated and everything cooled down nicely. It was knockoff time so the plant was then shut down and everybody left the site, for the weekend, overlooking the fact that the control panel still had power to it. In that control panel was a timer, in that timer was a small plastic pin, attached to that small plastic pin was a tag, which read for factory testing only, remove before commissioning. As nobody had read the instructions, the pin remained in place, allowing the defrost heaters to run all weekend, melting the insulated sandwich panel forming the walls of the freezer rooms.

You Forgot WHAT?:  A ball mill was erected at a gold mine and had been tested without load. It was then loaded with dead weight and the bearing deflection calculated, and the bearings set up accordingly. The Mill had a capacity of 50 Tonne and so 50 Tonne of deadweight was used. The test engineers overlooked however, that the mill still hadn’t had its liner installed, which weighs another 10 Tonne, so their calculations were out by that amount. When it was commissioned with a full load, the bearings failed and the repairs took 4 months, triggering a major Advanced Loss of Profits claim.

Is it any wonder then, that Insurers and reinsurers exercise great caution when endorsing a policy for T&C? Brokers and their clients are well advised to ensure a T&C endorsement is given consideration for every Contract Works policy written where the works include anything where mechanical, hydraulic or electrical forces are applied. They should also have a thorough understanding of the T&C process and how timelines will impact on policy response and premium. In some cases, an independent pre-construction survey may be invaluable in getting the right cover.

What's in a statement?

By Stefan Lakomy

From the viewpoint of a Liability Adjuster, a well written Statement goes a long way in verifying the facts of a case and “putting the pieces of the puzzle together”.

A Statement is a first person account of a subject’s knowledge of an incident; a means of recording the subject’s “recollection of events”. For that reason, a Statement is considered by the courts to be a reliable tool of evidence.

Comments in the Statement should be limited to fact, and comments based upon opinion should be kept to a minimum. The Statement must be in the subject’s own words, no matter how unusual or grammatically incorrect the word or the phrase may be. In fact, the language that the subject uses will add body and authenticity to it.

A “good” statement will not only capture a first hand account of the circumstances of the incident, but will also provide a background to the events leading up to it, therefore providing for a “total picture” of what has occurred. As an example, take the scenario where a contractor is excavating below ground with a directional drill and impacts with a telecommunication cable. Not only do we want to substantiate the actual happening of the event, but we also want to establish why the contractor was excavating at the site, who the contractor was undertaking the excavation for, what measures were taken by the contractor (or any other party) to check for the location/existence of underground utilities, under what instructions the contractor was undertaking the drilling (and by whom), and a series of other facts which need to be established to determine liability, and in most cases, proportionate liability.

A Statement will add “weight” to an investigation (without shying away from the significance of the traditional factual report), as the information contained within a Statement is a direct witness account and in most cases, will preclude any uncertainty.

In many cases, especially where conflicting opinions exist, a Statement is invaluable. It is important, therefore, to ensure that the Statement is accurate and comprehensive as possible.

A Statement is generally signed with a “statement of truth”, essentially an oath to validate its authenticity. Proceedings for contempt of court may be brought against a witness who makes, or causes to be made, a false Statement. Section 335 Crimes Act (NSW) provides penalty of up to five years imprisonment for giving a false statement or believing it not to be true.