Written by Andrew Sawkins
Part Two – Read part one here
The recovery of property damages by general and commercial insurers is often neglected, principally as a result of the more complex factual scenarios and laws involved. The fact remains, overlook property recoveries, and you disregard a significant, reliable income stream for your business.
Ligeti Partners has a dedicated property recovery team which has handled thousands of these claims over our 45 year history. We regularly hear many novel, dubious or just plain wrong statements when pursuing recovery.
In Part 1, we discussed myths surrounding establishing your property recovery claim. Part 2 deals with myths surrounding quantum.
1. Liability is admitted but we will deduct 50% of your claim for depreciation.
Manufacturer/supplier representatives will often attempt to “discount” claims by an arbitrary deduction for depreciation. There is normally no formula or methodology to this calculation, simply a “thumb suck” by an assessor providing, for example, a 20% deduction for the first year and 10% for the next three years, on a 5 year old item. Heard this before?
Do not accept this argument. Aside from the fact the insured is entitled to the cost of replacement, each item will have a different “age”, and you cannot have a blanket approach. The courts simply do not make arbitrary deductions for depreciation. The measure of damages is what is fair and reasonable. An insured is entitled to be put back in the position they were immediately before the incident. If that means new contents, so be it.
2. Liability is admitted but we will reduce your claim by 50% because of “betterment”.
Manufacturer/supplier representatives argue the contents/building at the time of the incident were not new. The replacement items are new. The insured is therefore in a better position. Therefore “betterment” applies and the claim should be reduced. Heard this before?
This is not correct. There is significant case law on point and the common law is clear. Generally, if there is no “reasonable market” for secondhand goods, the insured is entitled to recover the cost of new replacement items.
3. Liability is admitted but your claim should be reduced as we are not responsible for updated planning/compliance costs.
After a major event (e.g., bushfires/floods) changes are often made to planning and compliance, which increase, often substantially, replacement cost. Arguments are made the at fault party should not have to pay these increased costs as they were not applicable at the time of the incident, and as a result, your insured ends up with a better product. Heard this before?
This is not correct. The common law is clear, the at fault party has to pay these costs as they are simply incidental to putting the insured back into the position they were immediately prior to the incident.
4. Liability is admitted but we’ll reduce the amount payable given yours is an indemnity policy.
As an insurer, you agree to indemnify your insured for losses which normally entails replacing contents with new items. The opposing party will say this indemnity cover does not apply to them and they are obliged to pay the actual cost of the old item only before damage. Therefore, the claim amount should be reduced. Heard this before?
In practice, this argument is flawed. There is no reasonable market for “five year old” kettles, toasters, curtains, furniture and the like. Accordingly, the only feasible way to put an insured back into the position they were in prior to the incident is to pay for the cost of new replacements.
5. Liability is admitted but the claim should be reduced as your insureds undertook works themselves.
Following a claim, an insured is often “cash settled”. The insured may elect to undertake some of the repairs themselves. The opposing party will argue the insured is not entitled to the quoted costs. Heard this before?
Courts have held in this instance, insureds are entitled to be compensated for their labor and efforts. The fact an insured, for example, elects to repaint their property themselves as opposed to using a painting contractor, does not mean they are not entitled to compensation.
6. Liability is admitted but we will not pay your assessor’s and investigation fees.
The opposing parties in a property recovery claim will normally argue assessment/investigation fees are not claimable as they are a cost of you doing business. Heard this before?
Whilst courts have in certain scenarios agreed with this argument, these fees should be considered on their own merits. They should certainly not all be abandoned.
These are just some of the many “myths” put forward in an attempt to avoid/reduce payment on a property recovery claim. By simply accepting arguments avoiding payment of claims or to reduce your quantum, you will significantly reduce your recovery options. Do not be misled.
The scenarios set out above are general in nature. If you wish to discuss your specific recovery claims or have any questions arising from this article, please contact Andrew Sawkins on 03 9947 4550 or Sindri Bergsson on 02 9044 3263 at Ligeti Partners.
