Vagueness must be avoided when drafting Policies

For the experts, the Insurance Policy is crucial in order to be able to adjust a loss event.  Therefore, when the Policy is “made to measure”, that is to say, when it is tailored to the risk it is intended to cover, the process of the loss adjustment is usually straight forward.

The problems arise when this is not the situation, especially in covers for SMEs, when often the Policy fails to cover the Insured’s basic risks or even the Sums Insured are not updated and results in underinsurance.

However in many cases, both in Policies that are tailored to the risk they were intended to cover as well as those that are not, added complications arise such as vagueness and poorly drafted wordings, not to say ambiguities in many of the Policy clauses, particularly in those to do with the exclusions.

It may exclude corrosion and erosion, but neglects to indicate that this refers to that corrosion and erosion that originates in a slow and gradual manner but not to that which arises accidentally and unexpectedly.

The same thing happens when the loss event is caused by a defective item.  The Policy fails to clarify that the rest of the damage brought about to other parts of the machine or installation by this defective item could be afforded cover thereunder.

Again the same occurs with the Consequential Loss covers.  Normally, regarding the time Deductibles, they do not specify just how the days indicated therein must be considered:  Are they working days? Calendar days? The initial days after the occurrence?  Are they to be allocated pro rata?  This lack of definition causes, at least in Spain, many problems when it comes to adjusting a claim.

Neither do these LoP Policies normally specify what percentage of Gross Margin must be taken into account when calculating the indemnity:  Is it that of the year the loss event occurred? That of the previous year? And if the loss event affects two accounting years, which one should be applied?

Likewise the Policies do not define who must be responsible for the extra expenses, since they do not indicate that these should be assumed pro rata to the benefits that may accrue to each party from the same.

Lastly, nor do they usually specify how the costs of recommissioning the damaged piece of equipment or installation must be treated once it has been repaired.  Should this be done under the Material Damage cover or under the Consequential Loss cover?

In the opinion of VANTEVO CLAIMS ADVISORS, the drafting of the wording of the Policies is unsatisfactory and Insurers ought to improve the clarity and accuracy of the same, avoiding any vagueness and possible disputes that in many cases harm them.

How should an Expert Report be structured?

It is very important and desirable that the information provided by the expert to the Insurance Company and/or the Insured, depending upon who they were contracted by, is well organised and above all, that the Report is clear, concise and verifiable and accompanied by the most relevant documentation used by the expert.

The structure normally used by the different firms is:

  • The Insured.
  • Description of the Risk.
  • Circumstances and discovery.
  • Spread and extinguishing (in the case of a fire).
  • Cause
  • Nature of the Material Damage.
  • Extent of the Consequential Losses.
  • Measures adopted following the loss event.
  • Cover under the Policy
  • Liability on the part of Third Parties (if applicable).
  • Other Insurance (if applicable).
  • Reserve (in the Preliminary and Interim Reports).
  • Appraisal of the Loss and Damage (in the Final Report).
  • Indemnity (in the Final Report).

We have highlighted in bold those sections of the Expert Report that we consider to be the most important.

In general terms, the Preliminary Report should be concise and issued as soon as possible, since it is important that the Insurers should know promptly the amount of the Reserve.

On the other hand, the Final Report should be as complete and fully documented as is possible, in such a way that it is verifiable by whoever has to read and approve it.

At VANTEVO CLAIMS ADVISORS, besides striving to reach agreement on a figure that is acceptable to both the Insured and the Insurers, something that we manage to achieve in the vast majority of the claims, we also suggest measures for improving the safety conditions of the risk and so as to prevent any similar losses in the future.

We also try to obtain a “payment on account” early on for the Insureds so that they might defray the costs of the repairs and the measures undertaken to minimise the Consequential Losses.