Additional Financing Costs
An additional interest expense is often incurred following an insured event such as a fire. This arises when it becomes necessary to extend loan facilities which can be caused by one or more reasons e.g: -
- The fire may adversely affect sales reducing the cash available to meet ongoing expenses and some time may elapse before progress payments are made.
- A multitude of contractors including builders, architects, engineers, plumbers, electricians may submit invoices for property reinstatement. A large volume of invoices from suppliers for replacement of contents may also be received. The time required to accumulate and verify the charges may exceed contractors and suppliers settlement terms.
- The unfunded GST component of invoices from contractors or suppliers may be paid up to one quarter before receiving a corresponding Income Tax Credit.
- Suspicious circumstances may surround the cause of the fire and lengthy investigations may be required to eliminate the Policyholder as a suspect.
- The risk may be heavily co-insured and the policy may not contain a lead insurer clause. Some time may elapse before all co-insurers are in a position to fund their portion of the risk.
- One of the co-insurers may have become unfinancial e.g. collapse of HIH Insurance, leaving the insured to fund a portion of the claim.
- The risk may be inadequately insured and the application of an under insurance penalty may also mean that the Policyholder must fund a portion of the claim.
Claims for additional interest often meet with opposition – why?
Item 1(b) of Section 2 of the Industrial Special Risks policy covers additional costs necessarily and reasonably incurred for the sole purpose of minimising a Reduction in Turnover. Item 4 – Additional Increase in Cost of Working, extends this cover to respond to additional costs incurred to maintain normal business operations.
In some instances these clauses may respond to the additional interest cost of financing a loss until the insurance policy responds and a progress payment is made.
An additional interest expense is often a reality and should not be ignored.
Author
Published with permission of Claim Solutions Pty Ltd.
Insurance Policy
Country: - Australia.
Policy Description: - Mark IV Industrial Special Risks (ISR) policy and many Composite or Businesspack policies.
Insurer: - Various.
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