imua annual meeting session lessons from losses annual meeting/lessons...lessons from losses - risk...

IMUA ANNUAL MEETING SESSION

LESSONS FROM LOSSES

May 20, 2014

Fine Arts and Superstorm Sandy Case #1

Loss: October 29, 2012

• New York City, Chelsea Gallery District

• Manuscript Form (Fine Art Floater)

• Flooding from Superstorm Sandy – substantial damage to fine art

dealer inventory (owned, sold and consigned)

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About the loss:

• Unexpected nature of the loss paired with unprecedented scale of flooding

• Legal complications of settling personal dealer consignments

• Suspicious valuation claimed for consigned inventory

• Multiple bases of valuation required as all types of inventory was

affected

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Lesson Learned:

• Require greater detail of inventory records (valuation and consignment

agreements)

Minimize the Loss:

• Better documentation of consigned inventory prevents time consuming

settlement issues

• More articulate language in policy- Agreed Value is the best (with an

actual dollar amount stated)

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Loss: October 29, 2012

• New York City, Chelsea Gallery District

• Manuscript Form (Fine Art Floater)

• Flooding of gallery basement as a result of Super Storm Sandy

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6/5/2014 6 Title of presentation and name

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About the loss:

• Unexpected nature of the loss paired with

unprecedented scale of flooding

Lessons Learned:

• Art should not be stored in basements,

especially if located in a flood zone

• Underwrite the peril of flood

• Contingency plans for extreme weather

events are critical

6/5/2014 7 Title of presentation and name of speaker


Minimize the Loss:

• Alternate storage locations

• Separate deductibles and loss limits for flood on All-Risk broad, fine art forms

6/5/2014 8 Title of presentation and name of speaker

Lessons from Losses - (10) ten examples

Importance of Accurate Risk Assessment – Valuation

• off premises power/service interruption considerations

• a marine pier/dock Super storm Sandy loss

Transportation/Logistics

• high value specialty rigging loss

• underwriting third party logistics carriers and risks

Lessons from Losses – (10) ten examples

Builders Risks

• residential/commercial multi-story construction

• residential/commercial renovations

• bridge construction including demolition work

• Delay in Opening – Soft Costs

Fine Arts and Super Storm Sandy

• underwriting Fine Art dealers

• contingency planning

Lessons From Losses - Risk Assessment/Valuation

Case #1

Super storm Sandy Utility Service

Interruption

Business Income/Extra Expense Claims


Case #1 – An Overview of the Cause(s) of Loss

o Hurricane Sandy claims presented a host of coverage questions:

o Mass flooding – does policy cover Flood?

o Widespread power outages:

o Utility Service Interruption – is it a covered peril?

o Sub-limits?

o Transmission Lines Included?

o Con Ed estimates 1,000 poles and 900 transformers to be replaced

o Cause of Loss to off-premises location?

o The Trump Soho vs. Con Ed – Flood or Fire/Explosion?


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Case #1: Lessons from Losses – Transportation & Logistics

Transit of a wind turbine blade

Transit of a wind turbine tower base

Driver arrives at site to pick up wind

turbine blade

Driver facilitates loading of blade onto

trailer

Driver follows manufacturers directives

in loading and securing blade to trailer

During the time the blade was being

secured it moved and rolled off the

truck hitting the ground.

Case #1: Transit of Wind Turbine Blade

131 foot long blade/specialty trailer used

to haul blade

What happened?


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Case #1: Transit of Wind Turbine Base

Driver arrives at site to pick up wind turbine base

Driver facilitates loading of base onto specialty trailer

Specialty split trailer which clamps onto front and rear flange of the base used

Securing device not properly secured to front of base and as trailer began to

move it pulled away from base causing it to fall to ground


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Case #1: Lessons from Losses – Transportation & Logistics

Loss investigation, what we know:

• Insured had specific loading and securing protocols for each component

• Followed manufacturers instructions in loading and securing blade and base

• Drivers were properly trained and up to date on the procedures

• Relied on the experience, knowledge and training of their drivers

• Company has 25 years experience in specialty rigging and transportation


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Case #1: Lessons Learned and Corrective Actions

Lesson Learned:

• Formal training not enough!

Corrective Action:

• Drivers now follow and complete step by step written checklists for each/every load

Lesson Learned:

• As technology evolves procedures must evolve with it

Corrective Action:

• Revisit and revise all guidelines and procedures for continuous improvement


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Case #1: Lessons Learned and Corrective Actions

Lesson Learned:

• Specialized loads require oversight

Corrective Action:

• Don’t just rely on one person to handle the loading of high valued/specialized

loads

Lesson Learned

• Warranties matter when assessing damage to specialty property

Corrective Action:

• Understand what causes a warranty to be voided and how that will impact a loss


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Case #2: Transportation & Logistics/Supply Chain

1. 3PL Company– is contracted separately by Mfg #1 & #2 to pick up and deliver two

separate loads of equipment

2. 3PL Company “tells” Transit Broker to tarp both load #1 and load #2

3. Transit Broker – places a “one load, two stop” shipment on a load board

4. An independent Motor Carrier takes the load and transit broker fails to tell the

carrier of the need to tarp

5. Carrier picks up load #1 at loading dock #1 and does not tarp

6. Carrier goes to pick up load #2 at dock #2 and is told load #2 must be tarped

Mfg #1 Destination #1

3PL Transit Broker Motor Carrier



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What Happened?

• Load #1 rejected for water and debris damage- $150,000 Loss

• Load #2 damaged by load #1 during unloading- $25,000 Loss


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Who’s at fault and why???

• 3PL – No written instructions for tarping loads to broker

• Transit Broker – failed to tell Motor Carrier to tarp Equip #1 ($150k)

• Motor Carrier damaged Equip #2 while unloading ($25k)

Who’s actually liable and how???

• 3PL – damaged business relationship with Manufacturers

• Transit Broker – Either sues 3PL for lack of written contract or files contingent cargo claim for

$150,000

• Motor carrier – denies liability for load #1 because tarping instruction were not provided, on the

hook for $25k damage to load #2


(contract) 3PL - ABC Transit Broker - XYZ Motor Carrier - JLK

Mfg #2 (verbal) (verbal) Destination #2


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Lessons Learned:

• Find and identify the critical or weakest link in the logistics chain

• Understand all parties involved in your risk. The more hands that are

touching the cargo, the higher the probability for a loss

• In this example, success hinged on verbal communications instead of

paperwork and documents.


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Case #1 – Impact of Coinsurance Clause

o Insured “Loses”

o For policies containing coinsurance clauses, coinsurance calculations were

seen in the 90%+ range

o Policyholders without coinsurance often have inadequate limits for extended

periods of restoration (businesses tend to underestimate time to fully resume

operations)

o The Insurer “Wins” and “Loses” when a coinsurance penalty is assessed:

o Fewer claims dollars paid

o Insured feels cheated after paying premiums; unhappy with company/broker


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Case #1 – Impact of Blanketing Limits & Bad ITV

o Insurer “Loses” – a case for accurate exposure analysis!

o Underwriter presented with schedule of locations outlining an income limit for

each premises, but a “blanket” limit of $1mm is purchased/applied to the policy

o Loss occurs at a location indicated on application with only $250k income limit

o No coinsurance

o Period of restoration was less than a week

o In the covered period, insured proved loss of $900k

o Annualizing their loss yields potential income exposure 50 times greater than

the figure that UW rated against

o Insured is likely VERY happy to get full benefit under the blanket limit after

paying pennies on the dollar for their true exposure base, but what if POR had

been even a few days longer??


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Case #2

A section of floating docks

under repair post Sandy –

coast of CT

State of the art - new

Bellingham wave attenuator

floating dock section

A 15 year old concrete

floating dock section


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Lessons From Losses - Risk Assessment/Valuation Case

#2 – Marinas Are Unique (Just Like the Rest of Your Book)

o Various components can carry different valuation clauses (Buildings, BPP, Docks,

Equipment, etc.)

o Agreed Amount, RCV, ACV – When and who handles negotiation of value?

o AA – Pre-negotiated

o RCV – Surveyor carries burden of proof

o ACV – Adjuster must negotiate depreciation

o Where’s that blue book when you need it?

o Adjuster’s experience in Sandy was that most policy values were inadequate.

Worst case being that Agreed Amounts were underestimated and RCV and ACV

adjustments were heavily negotiated (often to avoid suit).


Case #2 – Arrrr! Here Be the Lessons

o Consult with experienced marine contractors and design engineers

o Values must take into account condition, construction methods, age,

manufacturer, and maintenance (especially Agreed Amount values)

o Insured is often buying based on premium savings vs. potential impact of what

valuation clauses and scheduled values will have on a loss (read also: duh)

o If policy contains coinsurance clause, written examples of the application of

coinsurance within the policy form are especially handy (read also: things that

help in court)

o Survey of docks, bulkheads, and equipment can put the company and insured

out in front of potential problems

o Individually scheduling components (ex: building value vs. dock value) lessens

chance of dispute

o Adjuster quoted $15k-20k in survey/adjustment expense to reach settlement –

spend now to save later?


Case #2 – Arrrr! Here Be the Lessons (continued)

o Coinsurance penalties can be severe and shocking to insureds

o Normal deterioration and pre-existing damage/condition. Very difficult to

differentiate and distinguish between these and damage from cause of loss.

o Usually negotiated by experienced examiners in order to reach compromise.

o Should have gotten that survey, huh?

o Real life example:

o Insured requesting $9mm constructive total loss settlement (Sandy damages)

o Significant pre-loss damage and normal deterioration

o Company adjuster determined $3.7mm loss due to claim covered by policy

o Face to face with insured, agent, and surveyor to establish expertise

o Avoided arbitration and potential suit

o Negotiated final payment of $4.3mm.

Lessons from Losses – Builders Risk

case #1

Residential/Commercial Multi-Story Construction

• 10 story, MNC condominium

• $50,000,000 TCV

• (2) two weeks from completion

• Overnight 4th flr wet sprinkler piping joint leaks

• Faulty work results in flrs 1-4 water damage

• $420,000 loss, approx $100,000/floor


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case #1

Water Damage Lessons Learned

• Water Damage is key concern on high rise,

MNC/FR construction - consider higher

deductibles.

• Underwrite subs and sub-subs in addition to

general contractor, especially if named

insured on policy.

• Do the parties performing the work have

experience working together?

• What loss control measures are taken by

the GC to minimize/avoid water damage?

• Loss Control inspections should flag and

address water damage exposures


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case #2

Commercial Building Renovation Theft of Copper Wire and more……..


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case #2

Renovation Guideline Change:

• Risks vacant for 60 days or more require:

• Pictures of both the building interior and

exterior

• Receipt and approval by the Underwriter

prior to binding the policy


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case #3

Two bridge construction claims – Additional Insureds

<insert a picture of a bridge under construction with an existing bridge in the

background (if possible). Otherwise just a bridge under construction works>


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case #3

• Project involved demolition of existing bridge, and new construction of adjacent

bridge.

• Subcontractors named as Additional Insureds on policy.

• Demolition subcontractor caused damage to new bridge during demolition of

existing bridge.

• Typically, carrier would have been able to subrogate against liability carrier;

however, not in this case due to AI wording.

• Lessons Learned:

• Be careful about how you add AI’s.

• Guideline change: Add subcontractors ONLY as respects new work being

permanently installed.


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case #4.a

Soft Costs and Delay in Opening – Agree to the coverage details prior to binding

Here is what the underwriter knew:

• Project: (2) Two new frame buildings A & B plus infrastructure work

• Total PD values: Bldg A - $25m, Bldg B $40m and Infrastructure $5m

• Total Soft Cost total values $1.5m + Rents $500k

• Project starts 4/1/12 with completion 12/1/13

Here is how the policy was written:

• $70m PD plus $2m Soft Costs/Rents with 30 day deductible

• PD values stated in the policy as $25m, $40m and $5m; $2m Soft

Costs/Rents

• Policy period 4/1/12 to 12/1/13


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case #4.a


Here is what the underwriter did not know or pursue:

• The construction schedule –

Bldg A – September completion date

Bldg B – October completion date

Infrastructure Work – December completion

• A breakdown of the soft costs by building


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case #4.a


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Underwriting unknowns and the resulting confusion:

• Soft Cost breakout by building

• Insured completed Bld A early and requested limits be lowered and return

premium be given.

How much of reduction in soft costs?

• No Construction timeline -

• Bld B had a fire loss in October: the insured tried to claim a 3 month delay,

but since policy had 2 months remaining, carrier only gave 1 extra month.

How do you determine the true delay w/o initial timeline?

Conflict in claim resolution b/c parties not on same page.


case #4.b


• In a separate scenario, a key producer or insured decides to add “contingency

time” to a builders risk policy period

• Producer’s thinking is to guarantee pro rata extension terms

• Is there a common understanding as to soft costs coverage impact?

This contingency may essentially cancel out time element coverage


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case #4. a&b

Lessons Learned:

• Ask Questions UP FRONT so you can:

• Establish with all parties how phasing/deletion of completed buildings will

work on the policy.

• Establish with all parties the soft cost / delay coverage types desired.

• Avoid surprises and claim adjustment conflict.

• While claims will eventually be resolved, it is important to be clear up front

to avoid conflict between parties involved.


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For further information contact:

Inland Marine Underwriters Association

Kevin O’Brien, President

Lillian Colson, Vice President

Eileen Monreale, Education/Training Specialist

IMUA \ 14 Wall Street \ Suite 820 \ New York, NY 10005

Phone: 212-233-0550

Website: www.IMUA.org

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