Victorian Bushfires February 2009

MODIS Land Rapid Response Team, NASA GSFC, Saturday 8 February 2009

This is an ongoing blog of the recent, and continuing, bushfires in Victoria.  It will be updated regularly as information becomes available.

To assist in navigation the following areas are discussed:

GENERAL
DOMESTIC
MOTOR VEHICLE
COMMERCIAL
RURAL
OTHER SPECIFIC TOPICS & BUSINESSES

The satellite photo above taken on Sunday 8 February 2009 shows the smoke from the fires as it blew eastward over the Tasman Sea, reaching as far as New Zealand. Image courtesy of MODIS on the Aqua satellite. There is a satellite image below of the damaged Kinglake area.

Update 12 May 2009  SP Australia Networks (Distribution) Limited released its results for the year ended 301 March 2009.  These disclosed the writ served on SP Ausnet  on 16 April 2009 alleging "faulty and/or defective power lines" caused loss and damage. While considering the claim inappropriate it stated "SP AusNet has liability insurance which provides cover for bushfire liability. SP AusNet reviews its insurance cover annually and ensures it is commensurate with the scale and size of its operations and the risks assessed to be associated with its operations and with industry standards and practice."

Update 30 April 2009 The Insurance Council of Australia advised approximately 10,200 insurance claims had been received with an estimated insurable cost of AUD$1.2 billion.

The Insurance Council of Australia reported at 4 March 2009:

• 8,150 claims have been lodged including residential, commercial, motor vehicle, industrial and farming;
• Total claims lodged to dates are estimated at $1.02 billion;
• 80% of domestic and commercial claims received have been assessed by the general insurance industry; and
• 2029 residential properties were destroyed but only 1,468 claims have been made to date, suggesting the difference are not insured.

GENERAL

Following 11 years of drought and tinder dry countryside, conditions were exacerbated when 47+ degree celsius temperatures were experienced on Saturday 7 February 2009.  The event is the worst fire disaster in Australian history and fires continue to burn at the time of writing.

Considerable information is being reported about the devastating loss of life and enormous domestic (including homes, motor vehicles and other assets) losses.

This article does not seek to reiterate that information but consider the insurance claims including Domestic, Motor Vehicle, Personal Lines and Commercial losses in the various areas.  The timing is such that this blog will be compiled over time.

Fairfax Digital media report losses are expected to exceed $500 million but that the wider impact to the economy could be more than $2 billion as lost crops and damage to public infrastructure is quantified.

On the flip side re building devastated areas is expected to provide a boost to the slowing economy.

On Monday 9 February, IAG shares fell by 10.33% during early Monday morning trade and Suncorp's by 30%, although whether this was solely related to the fires is debated.

From wineries to petrol stations and seasonal tourist hamlets, the full extent of the effect on business is yet to be fully understood.

The longer term impact of higher insurance premiums, risk-based pricing and compulsory insurance in bushfire areas is being discussed.  Along with the heatwave prior to the fires and flooding in Queensland, the cost of fruit, vegetables and meat are also set to rise.

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DOMESTIC

As at 4 March 2009:

• 2,029 homes had been destroyed.
• 1,468 claims had been lodged.
• suggesting the balance of 561 homes or 28% are not insured.

MOTOR VEHICLE

The first reported bushfire claims and settlement of same came from Motor Vehicle Insurers.

PERSONAL LINES

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COMMERCIAL LOSSES

General

Insurance cover differs from one policy to the next and it is important to obtain specific independent advice.  The comments which follow relate to a Mark IV Industrial Special Risks Policy.  This type of cover may respond to the Loss of Property and Loss of Profit for many of the commercial risks which have suffered physical loss or damage from the bushfires.

Loss of Property

Section 1 of the cover is headed Material Damage and responds to the replacement value of property which has been destroyed by bushfire or the reinstatement of property which has been damaged. Property is often classified into three broad categories i.e. Buildings, Contents and Stock.  Reinstatement and replacement conditions apply to buildings and contents.  An insured must comply with these conditions to allow the replacement or reinstatement value to be paid.  If these conditions are not met the claim may be settled on an indemnity basis.  Indemnity value may be less than reinstatement value.

While reinstatement is usually conducted on the fire damaged site it is important to recognise that one of these conditions specifies the work of rebuilding may be carried out upon any other site provided the liability of the Insurer is not increased.

In relation to stock the impact of smoke and/or water damaged stock as opposed to fire damage should also be understood.   See our previous article regarding the Basis of Settlement in relation to Stock. 

If upgrades beyond the reinstatement of the existing property are required to meet current building regulations these may be covered under a sub-limit for Extra Cost of Reinstatement.  News reports indicate a new Australian Building Code for bushfire areas may be fast tracked. 

The Material Damage section of the Mark IV Industrial Special Risks Policy also contains Additional Benefits.

Loss of Profit

Section 2 of the cover is headed Consequential Loss and aims to cover the Loss of Profit resulting from the property damage payable under Section 1.  If a business has sustained property damage as a result of the bushfire the Loss of Profit that flows from that property damage is covered. 

The recent bushfires may result in Loss of Profit independent of any direct damage to property.  For example Loss of Profit may arise from:

(a) The closure of roads.

(b) Interruption to utilities such as power or water.

(c) Damage to customers or suppliers premises.

The cover may contain extensions or endorsements which respond to the Loss of Profit from the above risks.  The clauses to look for in your policy are:

(a) Premises in the Vicinity or Prevention of Access.

(b) Private or Public Utilities Extension.

(c) Customers Suppliers Premises Extension.

The wordings attached to these clauses must be examined carefully and considered on a case by case basis.

It is also important to consider that a Loss of Profit may be sustained beyond the risks mentioned above.  Once the direct property damage is restored, access is possible, power and water are available and customers and suppliers premises are reinstated an ongoing loss may be sustained.  For example this may arise due to depopulation of the area or loss of attraction. The Loss of Profit associated with these risks may not be covered under an insurance policy.  Each policy and its response to the nature and extent of each loss will need to be considered.

It is also important to recognise that if a decision is made to terminate the business any ongoing Loss of Profit may not be covered.

This is a complex area of Business Interruption insurance and specialist advice is required.

A previous case study considered on Insuropedia considered a hotel in a bushfire zone.  To jump to this article click here.

When assessing the Business Interruption aspect of a bushfire claim Loss adjuster queries are likely to include:

• What was the direct property loss?
• How long was the business closed?
• When was access possible?
• When were services reinstated?
• Have customers and/or suppliers premises been affected?
• How long was the general area closed?
• How has the fire impacted the business beyond the initial closure?

Documentation

Many insurance policies require reasonable proof to be presented to substantiate a claim.  Considerable documentation may have been destroyed by the bushfires e.g. invoices, cash books, records, bank statements, financial statements.  Reconstruction of records may be necessary and it may be necessary to request copies of records from accountants and copies of bank statements from financial institutions.

Application of an insurance policy often depends on interpretation.  These interpretations can be narrow or broad.  The magnitude and devastation caused by the recent bushfires is certainly a time for broad interpretations to be applied.

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RURAL

The following is a summary of reports by the Department of Primary Industry as at 3 March 2009

• 12,450 stock losses
• 3,683 properties across a damaged area of 82,796 hectares
• 2,622 buildings lost including dairies, hay and machinery sheds (excluding houses)
• 11,410 kilometres of fencing (including private and crown boundary fences)

Specific region information from the Department of Primary Industy as at 12 February 2009:

Beechworth:

• 350 sheep
• 1000 head of cattle
• 818 dairy cattle
• poultry
• 2 horses
• Death of fish in fish farms due to heat
• Fodder, hay or silage losses over 2000 tonnes
• 500 km of fences

Murrindindi fire - too dangerous to assess the damage

Victorian Farmers Federation is prioritising fodder distribution service, agistment and critical infrastructure replacement including fences.

The Department of Primary Industries provides a booklet on its website called "Recovery after fire: Practical steps for landholders".

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For more specific discussions see our previous articles on:

Actions Required by a Policy Holder Following Damage
Stock Claims
General Area Damage 
Historic Buildings - Material Damage & Business Interruption
Hotels and claims for Material Damage & Business Interruption
Claims and the Importance of Communication
Underinsurance - Property and Business Interruption
Opportunity from Adversity - Re Building to a Different Configuration
Bushfires - Immediate, Short and Long Term Insurance Impact

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Author

Claim Solutions Pty Ltd.

Insurance Policy

Country: - Australia

Policy Description: - Domestic, Motor Vehicle, Personal Lines, Commercial

Insurer: - All Australian Insurers

External Links

The Department of Primary Industries