High risk with sub-standard products

High risk of sub standard products

In recent weeks the news media in Australia has reported many examples of inferior products being used in the building industry. The reports document the use of non-compliant products, such as cladding, cabling, wiring and lighting being installed in domestic and commercial buildings. Some suspect installations have resulted in serious damage with ongoing fire investigations but all products reviewed by authorities have been exposed as potential risks to either cause fire or act as an accelerant.

Trends in consumerism is to make a product cheaply for a shorter shelf life knowing it can be replaced cheaply in a ‘buy and replace’ purchase cycle. For building products however, we also want the assurance that our houses are long term secure in their construction and internal fit-out.

The cause of these building material risks can be traced back in some cases to inferior products being imported that are not meeting Australian Quality Control measures. An added problem is that designs are specified with materials which are then replaced with a replication of the intended original material or product. In a lean economy the temptation exists to look for cheaper alternatives to combat narrow profit margins.

This may also muddy the water with the rating of insurance premiums. Property risks are calculated on the materials of construction so it does have a bearing if the materials are combustible, mixed or of inferior construction. This must be assessed, declared accurately and obviously, if a fire risk is increased, it must be addressed.

Australia’s reliance on offshore manufacturing has caused the transfer of responsibility to manufacturers with various importers and distributors proving difficult to supervise and monitor to appropriate standards.
The manufacturer / importer has a responsibility not only as a measure
to sustain a reputable business, but also as a community responsibility to put stringent measures in place which would prevent property loss and worst case scenarios.

Industry and Australian Standards exist and have individual rating codes for applicable products. The importer must have a testing protocol and recall procedure that can be demonstrated. Associations such as Master Builders, Master Electricians, Housing Industry Association etc., also provide a forum for the members and the public to highlight issues and all are proactive in raising concerns and bringing problem cases to light.

The risk exposure would also be assisted by having adequate Product Recall insurance to cover incurred costs which are not limited to the product, but may also include advertising, recall notifications, repairs, loss of profits and rehabilitation.

Across the Claims Desk

Offbeat, unusual claims that cross insurers desk‘s everyday!

SPLASH OF PAINT

Unrestrained items in the back of a vehicle can cause more damage than a collision. The claimant driver of a car had a minor collision resulting in tins of paint on the back seat moving freely around the inside of the vehicle, flipping their lids and coating the upholstery with an attractive but unwanted colour scheme. The cost of replacement of the interior resulted in the car being uneconomical to repair.

Outcome: Car written off. Claim accepted.

PLASTERED!

Dinner at home was an interesting occasion for one family when parts of the ceiling fell in on them. It seems that the glue holding the plasterboard ceilings in their older home did not have a lifetime serviceability.

When their house was built, ceilings were held in place by both screws and glue and if there was a shortage of screws, the ceiling fixing would rely on the glue, which can deteriorate over time.

Generally, unless there has been a contributing factor e.g. water ingress, these repairs tend to be excluded under ‘wear and tear’ gradual deterioration exclusions.

Outcome: Claim rejected.

UNBROKEN… BUT REPLACED ANYWAY

With the recent replacement of many hail damaged roofs in the Brisbane area, it is interesting to note that whilst many solar panels survived the impact of the hail, some had to be replaced anyway because were not fire rated.

Outcome: Claim accepted.

Fair Employment Seperation

Made redundant or fired?

When contemplating firing an employee, proper process must be followed otherwise there is the real risk of the employer facing an unfair dismissal claim.

To avoid the risk, some employers use ‘redundancy’ as an alternative to firing. It’s quicker, sounds nicer and is less painful to all concerned but often has a very poor outcome as happened in a recent Federal Court case.

The employer had sought to argue to the court that their principal motivation for making the employee redundant was financial, in that the Division in which the employee worked was running at a loss. It was claimed that they needed to make the employee redundant to cut costs.

Previously, the employee had had an ‘impressive’ career, but there had been some tension between the employee and their supervisor. A number of written complaints, including two accusations of bullying, had been made by the employee about the supervisor’s management practices.

Unfortunately for the employer, there was some evidence of animosity and information was found on the supervisor’s computer confirming that he had already begun making preparations for the redundancy of the employee.

The Federal Court found the employer had breached the Fair Work Act, fined them $37,000 and ordered them to reinstate the employee. The Court’s conclusion was the employee had unfairly been made redundant…”at least partly because they had been prepared to exercise their workplace rights by making complaints about the behaviour of their immediate supervisor”.

In a final observation, the Court warned the employer that the employee could have been entitled to compensation of up to almost $2million if she wasn’t reinstated.

Work Experience Liability

Differences in Liability

When employers provide work experience to school age students and unemployed people there are distinct differences with liability issues between the two groups.

With school students the employer is normally indemnified by the school that the student attends, together with relevant State Government authorities indemnification, in respect of any injury sustained by the student during the course of work experience.

That situation isn’t the same when it comes to providing work experience to unemployed persons to help them gain future employment in the workforce. Authorities such as WorkCover Queensland specifically exclude coverage for ‘non paid’ employees, other than full time school students, under the employers normal WorkCover Queensland Policy.

Employers should advise their insurance broker of their work experience engagement practices so that the existing Broadform Liability Insurers are made aware of the circumstances and can extend their Policies accordingly to note the inclusion of unpaid labour.

Employers should also advise the ‘unpaid worker’ of the potential exposures should they suffer a workplace accident or incident that results in their own injury. Consideration should be given to other policy coverage.

Policies such as Personal Accident & Illness or a similar product may then indemnify the ‘unpaid worker’ against injury or illness.

In all cases it’s prudent for any insured person or business to advise their insurance broker of any material changes to their business operation so that
the Insurers are made fully aware and coverage can then be tailored accordingly.

Trademark Infringed

An Expensive Oversight

A small chocolatier based outside of Adelaide, Chocolate @ No. 5, has been forced to redesign its logo after multinational fashion giant Chanel claimed a trademark infringement of its perfume, Chanel No. 5.

Chanel disputed the use of ‘No. 5’ in the chocolatier’s logo when the chocolatier recently applied for a trademark registration. The chocolatier maintains that the number five in the logo refers to the number of its street address and is not used because of any potential connection to Chanel.

Chanel’s lawyers sent the chocolatier a ‘cease and desist’ letter demanding that the chocolatier withdraw its registration, ditch its logo and to rename the business if it was to move from its current address.  The chocolatier has since spent thousands of dollars changing the branding of the business in order to avoid a legal battle with the luxury retailer.

Amidst the many challenges entrepreneurs face when starting a business, it is not hard to see how many overlook the need to register their business name and branding as trademarks.  However, they can pay a high price for the oversight.

To ensure a new business has the best chance of success, entrepreneurs must be aware of what is involved.  As a starting point, they need to consider which business structure best suits their needs, apply for their Australian Business Number, check that their chosen business name is available and register their business name and branding as trademarks, preferably before the business commences trading to ensure interests of the enterprise are covered.

Large companies are often vigorous in protecting their trademarks and intellectual property and Chocolate @ No. 5 is not the only one to pay the price. There have been many instances of small companies being forced to relinquish their logos, business names and web domain names on the basis that they potentially infringe a large company’s trademark rights.

While it takes forethought and planning to address these risks from the beginning, the eventual payout is sweet.

Good staff

How Do You Keep Them?

The common misconception is that all you have to do is pay well. Many studies have found that this is simply not the case… in fact, it generally comes in around third or fourth on the employee list of ‘job satisfaction’ priorities. Paying a fair and reasonable salary is expected but of high priority is the need to provide a great company culture. What that really means is provide a great company atmosphere. Make it a happy place to be and strive to create a culture where everyone gets along and helps fellow employees – cultivate real team spirit. Also have a company-wide rule – ‘always do the right thing by our clients’. Maintain a positive ethos at all levels of the business and recognise the value of good humour.

Doing as much as you can to create a great atmosphere at work goes a long way to retaining quality staff.

On the relationship building and work side of things, here are more suggestions to help develop the desired culture in your business:

Get to know your staff: Although you need to be mindful of privacy considerations, try to find out what drives them…. different people have different triggers and finding out what they are will help in your relationship.

Develop their skills: Training is a critical factor, as it not only provides benefits for your business but also identifies a career path for them and can help develop their aspirations.

Engage them in the business: If people feel connected with the values and direction of the business, they will be comfortable putting forward their views. By having the opportunity to ‘have a say’, they see that their work and they themselves are important to the business. It takes appreciated, valued employees to ensure long-term success for any business.

Provide feedback: Not just the traditional annual Performance Review and measuring of KPI’s… it’s an ongoing position of providing feedback; positive and appreciative feedback when it’s due and swift course correction in areas that need improvement.

Remember, times change, so don’t expect to keep good staff forever. It’s unlikely that you will be able to offer the flow of opportunities that the really good ones will be seeking. But they will contribute their energy and passion while working with you, provided you fulfill your side of the relationship.

Pollution Liability Insurance

A Must-Have For Many Businesses

Many business owners are unaware their standard business package insurance will not cover pollution remediation. It’s likely that contractors and other professionals working on major infrastructure and construction projects will have appropriate cover, but the cover is not just for heavy industry. Businesses with high risk include dry cleaners and hair salons due to chemicals they store and use. Service stations are vulnerable because of the potential leakage from underground storage tanks and pipes corroding over time.

Recently there was a $300,000 clean-up claim from a contractor that had serviced pipes at a petrol station. An explosion at a sewerage plant, some kilometres away, was traced back to the service station, and it was discovered that pollutants had flowed into the water table.

Pollution incidents are not confined to heavy industrial sites, they can also be caused by small businesses or individuals such as contractors or subcontractors – for example, due to a failure to install proper sediment controls while undertaking earthworks.

Independent contractors need to protect themselves against any claims of damage caused by the work they do or have done. One type of cover that may be suitable is pollution liability insurance. This cover protects an entity against liability from damage caused by hazardous waste materials. The reality is that environmental clean-up projects can cost millions of dollars.

It’s too late to buy cover if you cause an incident and you should be aware that pollution liability is not covered under a general liability policy. Some policies may provide coverage only for sudden and accidental events, but exclude gradual pollution events and the cover may specifically exclude clean-up costs.

Mould, Legionella, noise and odour are also considered pollutions and may be covered by an environmental insurance policy.

If you think you may have a risk of hazardous waste exposure in your business operations, it is a good idea to consult with your insurance broker about the need for pollution liability insurance.

Underinsurance

Weather Events Demand a Closer Look

Following on from the previous article in the last edition of Brokerwise, we continue to focus on the impact of Co-Insurance or “Underinsurance” as it is more commonly known.

The importance of considering and selecting appropriate and adequate Insurance Policy Limits or sub limits of liability are paramount and should always take into account any possible ‘Underinsurance’ potential impact.

The latest weather perils that have impacted Queensland and Australia generally over the past few months highlight the need to look at various points that require consideration. These are:

  1. Current relevant Laws
  2. Replacement Material Costs
  3. Removal of Debris

Point 1: There have now been changes to both State and Federal Laws regarding the required ‘wind rating’ of roller doors used in commercial buildings. Following the various cyclones and storms, insured clients discovered that because they had ‘old’ roller doors that didn’t comply with the new building laws, they didn’t have an adequate sum insured to pay for replacement with new ‘legally compliant’ doors.

Point 2: Both local and imported building materials have risen in cost due to demand after the various weather events. As such, insured clients have experienced first hand the impact of not ‘setting’ an adequate Sum Insured only to find that they were sometimes grossly underinsured, and as such, had claim payments and settlements considerably reduced. Consideration also needs to be given to both the a) extra time and b) extra costs related to imported materials.

Point 3: In this scenario, the Removal of Debris limit becomes applicable. As there are many buildings that still have varying degrees of asbestos sheeting or materials as part of their overall construction there is large cost associated with both the a) removal of debris (following an Insured loss) and b) the replacement of the damaged area. Further, there can be a ‘flow on’ effect where Increased Cost of Working Policy sub limits may also be required to be utilised following this kind of loss.

Your insurance broker can advise on policy coverage and adequate Limits of Liability required for your circumstances. Following your broker’s advice will result in better outcomes during the claims process.

Closing your business?

Don’t Cancel Your Cover

The business has closed, it’s no longer trading, no more parts or products being manufactured or imported. No more installations or maintenance. No goods for sale.

So, time for retirement or a change in direction. We just need to cancel the insurance.

Well, not exactly. There is an element of insurance risk for a business once they have ceased trading. For a tradesman it would be the work they have installed and maintained which may cause an incident at a later date. An example would be a switchboard that causes a fire due to faulty wiring. The loss may cause subsequent damage to a building or worst case, death or injury. The time of loss is determined to be the occurrence date, therefore cover may have existed when the switchboard was installed but it should have still been in force when the incident occurred.

For the manufacturer of goods, their products may be discontinued but the element of risk remains if they cause damage or injury at a later date. So how long do you maintain run off cover?

Ideally, up to seven years is the industry standard. But not all businesses need cover for that long. For example, a restaurant would know within days or weeks of potential claims rather than years. Various States have their own legislation requirements and these would need to be addressed to clarify your situation.

Examples of run off cover for classes of insurance would include Public and Products Liability / Professional Indemnity / Directors & Officers Liability (Management Liability). Advice from your broker should be sought in these cases as to which basis of wording applies and any interruption to cover should be avoided so a claim won’t be jeopardised.

When a business is sold, the risk of potential future claims may be transferred to the new owner but this can’t be assumed, it would be negotiated and details of the sale would need to be reviewed with legal opinion.

The good news regarding run off cover is that it does get cheaper year after year due to decreasing exposure, subject to no claims activity. You can also negotiate a number of years up front with an insurer. This is suggested if a sale of the business occurs or retirement beckons. Be sure to get both legal and insurance advice for peace of mind. You can then close the door with confidence.

Workers Comp in QLD

Changes on the Way

With the recent election of the Labor government in Queensland, the repeal of the impairment threshold for access to common law claims arising out of workplace injuries seems imminent.

Changes to the WorkCover scheme, introduced in October 2013, meant that workers assessed with 5% impairment or less do not have access to claims for common law damages against their employers. Consequently, injured workers who do not meet the threshold are more likely to make direct claims against other parties, such as host employers, occupiers and contractors. Those parties in turn will inevitably seek indemnity and contribution from employers, where they have a right to sue under the contractual agreement between the parties.

The introduction of the threshold was intended to reduce common law claims for employers, thereby resulting in reduced workers’ compensation premiums. However, in practice, it has caused problems for employers in other areas.

Notably, in many instances, employers may be uninsured for claims by third parties because other insurance arrangements that employers have in place, such as public liability policies, may not respond to these claims.

The repeal of the impairment threshold will give back to workers the right to access common law damages against employers. This will likely reduce issues for employers regarding claims made under contract by third parties, and transfer the exposure back to WorkCover Queensland.

While the repeal of the threshold appears to be imminent, it remains to be seen whether the Labor government can or will remove the threshold retrospectively.

It is important for employers to ensure they understand their rights and obligations under the workers’ compensation regime, and are aware of how contractual agreements with third parties may impact on these rights and obligations, and what additional insurance arrangements may be required to adequately protect themselves against third party claims.