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Floods a ‘Catch 22’ for business insurance clients

February 7, 2011: Insurance companies offering cover targetted at professional photographers and photo retailers are among those rejecting claims resulting from the devastating floods in Queensland and Victoria.

Professional Photographers Insurance Brokers (PPIB) which offers discounts to AIPP and ACMP members, and is an AIPP sponsor, confirmed that the accidental theft and damage policies they handle do not cover flood damage.

Guild Insurance, PMA’s recommended insurer, has thrown up a brick wall, with general manager David Brown – the insurer’s only authorised spokesperson – declining to be interviewed, and the PR department refusing to even supply details of their policies.

This lack of transparency and failure to communicate is also a characteristic of the Guild website, which is extremely frugal in sharing policy information with potential customers. One thing which is clear (by omission) is that photo retailers seem to have slipped off Guild Insurance’s ‘Christmas card list.’ While business insurance is offered to a range of identified health-related categories from pharmacy to chiropractors, there is no longer any specific offer to photographic retailers on the website.

More broadly, while some insurers’ policies explicitly exclude flood damage from their cover, the issue with other policies is the specific definition of what constitutes a flood.

While consumers might be able to seek redress by arguing that the terms of their policies weren’t easily understood or adequately disclosed, business insurance policy holders are unlikely to have success with the same argument, according to leading law firm Clayton Utz: ‘In the context of household building and contents insurance policies, issues are likely to focus on how clearly and obviously the Policy and its Product Disclosure Statement make plain that the insurance does not cover flood, what the Insurer means by flood, and whether this was properly explained to the consumer at the time they bought the Policy.

‘In the case of commercial and industrial property, the debate is more likely to be around matters such as whether all of the water which caused the damage was, in fact, flood water as the Policy defines it, whether there was actual physical damage to the Insured’s property or the property of one of their suppliers or customers, how many excesses should apply, how policy entitlements are calculated and the like.’

Phil Gresham, whose FotoFast retail outlet in the Myer Centre, Brisbane (pictured above right in pre-flood preparation), is (was?) insured by Guild Insurance, was disappointed to discover his business interruption policy would not cover losses related to the Brisbane flood as the interruption was not directly due to damage to insured property or equipment!

While the FotoFast premises escaped flood damage Mr Gresham was forced to shut down for several days as the city recovered, with a loss of turnover in the tens of thousands of dollars. – even though one of the key features promoted by Guild for its Business Insurance products is Business Interruption cover: ‘Loss of income as a result of interruption to your business.’

‘Read the fine print!’ Mr Gresham urged fellow retailers. He said he would probably not pursue the matter.

‘We just won’t get anywhere with these people,’ he said.

It seems that many business insurance policies have put customers into a form of insurance policy ‘Catch 22’ in the aftermath of the floods: If they have suffered flood damage, it is either explicitly not covered or more often a claim is not accepted because of a narrow definition of flooding; if they haven’t experienced flood damage, business interruption insurance extensions tend to require both damage and interruption to qualify for a claim. So for instance an extended power outage would not necessarily qualify as business interruption in the terms of a policy.

A similar scenario occurred in Christchurch, New Zealand last September, when retail business in the CBD plummeted following the earthquake, as potential customers stayed away, fearful of another eathquake. As it wasn’t direct earthquake damage interrupting business, hundreds of retailers are now in dispute with their insurers.

According to Clayton Utz again: There is unlikely to be cover for a loss of turnover or sales, however substantial, which occurs merely because the insured, their employees and/or customers are denied access to their business premises or because state-wide infrastructure has been shut down or compromised.’

Insurance action list

Businesses in Queensland and Victoria should be prepared for follow-on effects from the floods, particularly supply chain disruptions, which could affect or delay the return to normal business operating conditions, according to leading insurance broker, Marsh

‘Businesses will benefit by taking early action to probe the extent of loss and damage under their property and business interruption policies,’ said Richard Lance, head of Claims for Marsh in the Pacific.

‘It is entirely likely that businesses that have not suffered damage directly will still have their operations affected by disruptions higher up in their supply chain,’ he said.

He provided a 7-point checklist for businesses pursuing a claim with their insurer:

– Appoint a key contact for the claim;
– Take photographic and video evidence to show an item’s existence and condition;
– Quarantine your information for maintenance records, financial data, meeting notes on the business and any capital improvement plans;
– Back up computer files, and keep copies separately;
– Capture your costs. Each claim disbursement should include description of the disbursement, copies of purchase orders, invoices. Ask suppliers to quote on a special purchase order. Also create a general ledger for permanent repairs and replacement costs, and for motor vehicle expenses relating to the above or any temporary hire of equipment;
– Employees should be instructed to file separate expense reports for all costs incurred relating to the ‘loss event’;
– Maintain records for the chronology of events, and the impact of the loss on operations, and diary notes of phone calls and discussions with customers and suppliers.

A useful and readable outline of the issues which have emerged around business insurance and the recent floods can be found on the Clayton Utz website. Click here.

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