Claims Management

When the difficulties are inversely proportional to the amount of compensation

Claims Management
Is it easier for a broker to face a natural disaster or manage a chemical reaction?
When it comes to claim practices the first consideration of a Claims Office is to evaluate the application of the policy. To do this it is essential to discover and define the cause of the damage that has occurred to the client. When damage is caused by acts of God, insurance contracts have limited exclusions.

Therefore the main task of the practitioner will be to identify the Quantum (An), as the problem represented by the insurance coverage is practically negligible. When damage is caused by human activity (for example malicious acts or construction errors) it becomes considerably more likely that the event will be excluded from coverage, as there will be a significantly higher number of possible causes.

In this case the identification of the An will have the overriding importance, as it must be determined whether the particular case falls within the coverage of the policy.

In order to shed more light on this complex issue we will describe how the PCA claims office handled two very diverse events, one relating to property and the other to engineering , where the difficulties in the management of these cases were inversely proportional to the amount of compensation.

Lower indemnity/greater level of complexity
We will now set out the first case where the extremely complex evaluation of the cause of damage will be apparent. This event concerns a viaduct on a motorway. The viaduct in question presents five prestressed concrete spans, with coated steel box girder and concrete slab. The internal cables, embedded in the upper slab, are made up of 19 strands inserted in galvanized steel sheaths injected with cement grout. The external cables are made of 27 strands set in high-density polyethylene sheaths injected with cement grout. The strands (diameter 0.6 mm , section 139) are made of 7 carbon steel wires (C80D2) with guaranteed minimum breakage point and yield stress of 1860 MPa, respectively, and 1670 MPa.

The stressing tensions were of 1350 MPa for the external cables and 1419 MPa for the internal ones and also those in counterweight on one side. The grout filling is made with Portland cement limestone, with a water/cement ratio equal to 0.32 , with the addition of a specific additive with a dosage of 6-7% compared to the cement mass. The filling of the outer sheaths of the cables was always performed in the same direction of the span. The stretching of external cables was carried out in April 2006.The filling of the sheaths was performed subsequently. The viaduct was designed with a nominal design life of 100 years.

The event and the first intervention by the Broker

In July 2008, during an inspection of the viaduct’s interior, a rupture of the left cable 32 of the span was found. The contractor, our client, contacted us as soon as the rupture was found on 09/07/2008. After a full investigation both our client and our technicians agreed that the rupture represented a serious threat to the stability of the structure, especially in consideration of the fact that at that moment the cause of the rupture was unknown and this led to fears for the safety of the remainder of the structure.

There was a real concern that other cables could be affected and subsequently tear resulting in catastrophic damage to the viaduct. Having analysed the event we then focused our attention on the insurance contract, a Contractors All Risks (C.A.R.) policy in extended maintenance phase. Under the terms of the policy, damages caused by events occurred during construction were eligible for compensation, as well as damages caused during maintenance work, but this does not apply in this case.

Our next priority was to assist our client both with technical and insurance expertise and with regard to technical adjuster considerations. We advised our client to appoint an adjuster to work on their behalf as it was a condition of the policy that such fees would be refunded.

At this point, understandably, there were two complementary and necessary aspects for our client to consider: · To intervene as quickly as possible on the structure; · To receive compensation from the insurers as soon as possible. Given these two objectives, several meetings with experts of international standing took place, in order to identify the causes of the accident and allow the client to intervene in the most efficient and correct way. There was no time to lose.

How the accident happened: an almost unique case 
During the period following the accident, testing was carried out on portions of the broken cable, including those parts not affected by damage. In particular, based on observation of the wires of the strands involved, the fracture surfaces were classified in three types: · failure due to corrosion; · mechanical failure; · mechanical failure as a result of corrosion.

The evaluation of the causes that led to corrosion of the wires was complex, making the accident an almost unique case, with the exception of a viaduct in France. After extensive analysis, it was suggested that an electrochemical mechanism had triggered corrosion at the grout defined as 'white' and ' spotted white '.

These two grouts, having excessive amounts of alkali and sulfates, generated a very basic environment, with a degree of alkalinity of more than 13,8. The latter element associated with the low presence of oxygen caused the corrosion of the strand. Once the described phenomenon was triggered, the spread grew rapidly, due to the formation of a macro pair between corroded and surrounding areas.

From the moment that the causes of the event were identified, the client carried out a thorough check of all the cables and discovered that there was the risk of rupture in about 15 additional cables. A quite unusual and unexpected chemical reaction had therefore undermined the stability of a colossus. At this point work started to recover damages and to ensure the safety of the entire structure. 

Policy coverage and settlement of the claim

As mentioned in the introduction, the difficulty of this practice was not so much the identification of the Quantum but of the An, or rather the applicability of the policy, since the insurance contract appeared to exclude damage caused by corrosion. However, having analysed the clause in question literally, it was understood that it excluded damage due to corrosion only when it referred to the part directly affected.

With regard to the case in question, the areas directly affected appeared to be a few centimeters or meters of a few strands that made up each individual cable. Only a minimal part of the damage and not the whole damage was thus excluded. In light of the above and following several meetings between the parties involved, after just two years a settlement was finally reached with an amicable definition of 1.200.000,00€.

Nature Rebels

On 25/12/2009 a river broke the levee flooding a large area of approximately 31 km2, threatening to flood the lake located nearby. A crisis unit set up by the Civil Defence was immediately created. Houses in the area were evacuated and displaced persons given accommodation in hotels. The Army and volunteers placed thousands of sandbags along the banks of the lake, in order to strengthen them. Mobile water pumps were used with the intention of helping the discharge of lake water.

The first operations described were carried out as an emergency, in the pouring rain, because the state of alert was extremely high. The highway located in the affected area was closed because of flooding of the road surface, caused by heavy rains during the night. In that stretch of road, a dozen motorists who were stranded, or had preferred not to continue their journey considering the conditions of non-viability of the highway, were rescued by firemen using helicopters.

The highway was surrounded by water for four months, which lead to its full closure for two months and partial closure during the following months, to allow water to flow off. As a result of what happened, there was a complete erosion of the highway’s embankment in two areas, and in addition, significant damage to various parts of the street and other installations occurred.

The indemnity paid out reflects the extent of the loss 

In this case the cause of damage was obvious and undoubted and fell under the coverage of an All Risks insurance policy. Our client was advised to nominate a party appointed adjuster, since the policy contained a clause in force of which the expert’s fees were refundable. Photos where collected through the press and provided by the client.

The latter also supplied detailed reports regarding the reinstatement of the highway’s facilities and safety measures. The interventions included the following specific damages: · rupture of the highway embankment; · damage to street structure and installations; · blockage of ditches and road drainage wells; · landslides; · damage to the vicinity of the tollgates.

We provided our client with the necessary assistance in obtaining the relevant documentation proving the damaging event and we also participated in drawing up the final draft of the statement of financial losses they had incurred, in close collaboration with the adjuster working on their behalf. Once the dossier had been prepared a period of intense negotiations took place. Following the analysis carried out by the insurance adjuster definition was reached within a year of the client’s report. Around 4.500.000,00 € was paid out.

Conclusion: new challenges are always welcome

To achieve a successful settlement of both claims a series of analogous steps were taken in order to assist the client from the point of view of: · technical/insurance competence; · technical/expert competence; · commercial and negotiation skills; · identification of the Quantum and claim definition. In the narration of these events, primary attention was paid to the analysis of the effectiveness of the policy in the first case history, while in the second case we have concentrated on the consultancies and investigations that were carried out to evaluate the extent of the loss and to define damage assessment.

Having read both accounts, the reader should not mistakenly believe that the risk assessment and realization of the Quantum was undertaken with more or less attention depending on the scale of the event. On the contrary, to arrive at a full assessment of loss and damage recovery, the same attention is paid to every phase of the claim practice.

It is also clear however, that a claim practice may require particular attention due to the complex nature of the event. This enables the Broker to improve his know how by gaining experience in other sectors that overlap with an insurance perspective. This is the case in the engineering event that we have described here, the difficulty of which lay in the identification of the cause of the damaging event.

This made the claim practice more complex with regard to defining the perimeters of the policy and as a result, led to a collaboration with experts in the scientific sector. As a conclusion we cannot but appreciate challenges of this nature which enable us to develop not only our technical expertise but also a more eclectic frame of mind.

By Roberto Armana, CEO at PCA and Fabio Covello, PCA claims office team leader
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