Mitigating Loss Costs

For most risk managers, the majority of claims that come across the desk are casualty losses. They are of higher volume and more time-consuming than property losses, James Giffen, director of the Global Technical Services (GTS) division at Crawford & Company (Canada) Inc., said during a seminar at the RIMS Canada Conference. Property losses, however, while less frequent, tend to be more severe and garner more publicity.

Giffen outlined four scenarios to guide adjusters and risk managers in mitigating claims costs:

• It is important to pay attention even when investigating small matters

• Work with your adjuster by disclosing and discussing all aspects of the loss

• What to think about when a severe loss doesn’t fit into the regular mould

• The appraisal process

We got it, we don’t got it

A 20-year-old 400-unit building underwent renovations seven years prior to a loss, including a complete renovation of the industrial kitchen. A meal service for the residents and a restaurant ran out of the kitchen. Two years after the kitchen was redone, part of the laminate floor was bubbling up. Over time, the floor began to peel away further and started to lift. Building management contacted the risk management department. The situation was noted, but it was determined it was not a big issue for the facility itself, and a few more months went by, Giffen said.

The kitchen staff began noticing an odour. Again building management called risk management, which said the matter should be looked into. When the crawl space under the kitchen was looked at, a pvc pipe joined at to a copper pipe was found to have been dripping and leaking for years. “They needed to get in a significant amount of restoration and remediation and abatement firms in to work on it,” Giffen said. “Finally, at that point, clearly the risk management [department] needed to get very well involved. They were now in a crisis situation, where they were going to have to rip out all of the supports below the kitchen, take out the kitchen, replace the entire kitchen and start again.”

Effectively, this has become a situation in which a potentially minor loss had turned into a serious financial factor for the corporation. “I think it’s paying attention to these little issues and looking into them and making the insurers aware of them at an early stage,” Giffen said. “Insurers these days tend to be a little more lenient on fre- quencies versus payouts so it tends to be better safe than sorry.”

Group hug

A manufacturing facility suffered superficial damage to its building, as well as very minor damage to the manufacturing equipment during a rainstorm. When adjusters went it to investigate, the insured presented them with vague answers, focusing instead on a desire to fix the building. The insured gave no firm information about any other aspect of the loss that was of concern to the insured. “We went through whether they had been shut down and how badly their equipment was affected and we’d get answers such as ‘We’ll you know,’ ‘The machines are running a little slow’ and ‘We’ll work on them, it’s no big deal’,” Giffen said.

The insurance company and adjusters dealt with fixing the loss. They restored the facility and made some minor repairs to the equipment. As the insurer was having what it thought was its final meeting with the insured, the matter of business interruption and an extra expense claim was raised. The insured noted there had been some extra expenses and some lost revenue; all told, the insured said, was $650,000. “Nobody likes surprises,” Giffen said. These cases often end up taking far longer to finalize because of the nature in which information is presented and developed.

The big guns

A fire burned through the open roof trusses of a 110,000 square foot shopping plaza, demolishing the building in roughly three hours. The insured and the insurance company both spoke to two different contracting companies, their estimates ended up being roughly $7 million apart. It was ultimately determined that the proper route was to hire a company that specialized in building large buildings. A well-known construction firm was brought in on a consulting basis to sit with the insured, the architects and the engineers to price out the job. The company was able to put together a building scope and a survey and narrow down the to initial estimates. “When it came time, at the end of the day, to meet with the broker and the insured and their team with regard to reconstruction, we really found the firm like that, when they are sitting at the table, can’t be ignored,” Giffen said.

Antique road show

On occasion the insured and its insurer(s) reach an impasse with regard to quantum of the loss. At this point, litigation tends to be the most popular approach. The appraisal process is one of the most effective tools of the Insurance Act when two sides can’t agree on a value, Giffen said. It is not a very complicated or time-consuming event; either side can elect to go to appraisal. It supercedes all other manner of litigation with regard to quantum.

A proof of loss needs to be filed. The election must be made in writing by either side. Once the notification has been received, each side has seven days to choose an appraiser. Within 15 days of choosing an appraiser, an umpire must be agreed upon otherwise the court will appoint one. The appraisers meet and try to resolve the issues together. Failing that, each appraiser will submit their brief to the umpire and set a hearing date. During the hearing, positions are put forth and the umpire decides on each of the items involved. If two of the three parties can agree on what the umpire is leaning towards, it is signed off on and the agreement is binding, Giffen said. It tends to be completed within a day or two.