Case study: claims advocacy achieves results in commercial property insurance matter

Bellrock has previously reported on the trend of insurers changing their approach to claims management in the current ‘hard market’ and strategically denying claims when they should be in fact indemnifying them. See our article here.

Our claims team recently acted for a client in a commercial property and consequential loss of profits claim which was met by an initial denial by the insurer. This example demonstrates how crucial the role of the broker can be in securing a positive outcome for the insured. By working diligently with the client and stakeholders, not taking an initial ‘no’ for an answer, and looking at the individual merits of the claim, an excellent outcome was achieved.

Our client is a large online retailer with multiple distribution centres located around the country.  It suffered a loss at one of its warehouse locations due to power surge causing damage to cold-rooms and subsequent loss of profits and perishable stock.  The total amount claimed was approximately $140,000.

The cause of the power surge was tree roots impacting underground power lines beneath the road outside of our client’s property boundary. The insurer initially denied the claim on the basis that the proximate cause of the loss was damage by tree roots.  In the context of property insurance, tree root exclusions are so ubiquitous that a policyholder could be forgiven for assuming there is no cover whatsoever where tree roots are involved in the loss.  However, the coverage position is generally much more nuanced and requires careful examination of the individual policy wording and circumstances of the loss.

Our client had an Industrial Special Risks commercial property policy that did not contain a specific clause excluding damage caused by tree roots. However, the insurer’s appointed loss adjustor sought to exclude the claim under a gradual deterioration exclusion. The rationale for these types of gradual deterioration exclusions, which encapsulate causes of loss such as rust, fair wear and tear, and seepage, is that these types of losses are foreseeable and are generally preventable through diligent repair and maintenance. The relevant clause provided that the insurer would not be liable in respect of:

Physical loss, destruction or damage occasioned by or happening through…wear and tear, fading, scratching or marring, gradual deterioration or developing flaws, normal upkeep or making good.

Provided that this Exclusion…shall not apply to subsequent loss, destruction of or damage to the Property Insured occasioned by a peril (not otherwise excluded) resulting from any event or peril referred to in this exclusion

However, in this case there were extenuating circumstances that we believed the insurer had failed to consider, namely:

• The tree that caused damage to the underground power lines in the street was not owned by the insured and was the property of others.
• The power lines were not owned by the insured nor were they on their property.
• The damage being caused to the power lines under the road was not visible.

Bellrock argued that the actual proximate cause of the loss which occurred at our client’s property address was in fact power surge and that the cause of that power surge was not relevant in this case because it did not occur on our client’s property and furthermore the damage being caused was not detectable or preventable.

The second point that we argued was that the loss to our client’s property was “sudden and unforeseen” as a ‘reasonable person’ could not have been aware of the damage caused by the tree roots as this was occurring under the ground and was not visible.

Generally in such matters, we would also advise that when damage has occurred through an excluded cause, property owners should always consider whether there is any ‘resultant damage’ that can be isolated from the excluded portion of the loss.  For example, damage caused to drainpipes due to encroaching tree roots is commonly excluded, as are the costs of repairing the pipes.  However, if those tree roots lead to pipes becoming clogged and water building up, causing water damage to other areas of the property, the resultant water damage is still covered.  Whilst the total claim may not be covered, it is important to seek to maximise the cover under the policy by identifying where there may be some, albeit limited, cover.

Upon raising the above arguments with the insurer’s loss adjustor they maintained their position that the claim was excluded.  Formal recommendations were made to the insurer to deny the claim on the basis of gradual deterioration. Bellrock subsequently appealed directly to the insurer, discussing our understanding of the events and putting forward our interpretation of the policy wording. The insurer’s claims manager was more receptive to our arguments regarding policy interpretation and, although the loss adjustor’s final report recommended declinature, senior claims managers at the insurer accepted that gradual deterioration was not relevant to our client as they had no control over the damaged asset.

The insurer ultimately accepted that the damage to our client’s cold-room equipment was purely resultant damage and we then worked with the loss adjustor to get the maximum benefit out of the policy by exhausting all sections of the coverage and assisting in the quantification of the claim.

Whilst these types of claim disputes are an everyday occurrence, this case study highlights the importance of having skilled representation from your broking team and claims department.  Without advocacy, this claim would have been automatically declined leaving the insured with a major loss.

In the event of a claim, our clients benefit from access to Bellrock’s highly experienced claims team who act as your partner & advocate throughout the entire claims process. From notification right through to final payment, our specialised team of legal and insurance professionals manage the process for you, prioritising sound commercial outcomes and rapid resolution.

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