It’s often said that insurance is a piece of paper and a promise. When you have an incident and need to make a claim, that’s when you test that promise. Or is it? Perhaps it’s just testing good old fashioned advice and design from the broker. From real life losses, we learn a lot about the practical application of that piece of paper. Consider this recent example of a large scale product contamination insurance claim.
The loss event – happens all the time
The business is a ‘full-service’ winery, which means that they produce their own wine and cider, packaging, distribution and logistics. Various cider and ginger beer products were manufactured and canned over a period of six months, involving thousands of cases of product produced. Late in the manufacturing process the business’s customer identified a container leaking fluid, hence several other containers were quarantined and subsequently disposed of. The result? A product contamination loss. Fortunately the business had a product contamination and recall policy.
Identify the loss – then mitigate the loss
Tresidder Claims Manager Dion Lawson notes that these types of claims can contain some challenging elements. The first relies on someone noticing the leaking cases relatively quickly, and the second is that if there’s one can that leaks, and doesn’t get removed from the packaging, the leak can contaminate other product within the pallet.
“It can become quite a sticky mess – the pallet and packaging start to fall apart,” notes Lawson.
Client and Team Tresidder move into next phase
Tresidders and the client partnered up to identify the cause of the product contamination, and discovered that the air levels present in the cans were higher than the can specifications. The primary cause was a manufacturing error, which is covered under the policy.
“Understanding and identifying causation is so key in an insurance loss” says Brad Tresidder. “Once you know causation, you can move to reviewing the policy wording to determine indemnity”.
The client worked quickly to put in the advised risk mitigation by quarantining remaining impacted stock, and reducing packaged can stock holdings while the issue was under investigation. They began to do smaller manufacturing runs to match customer orders, allowing closer monitoring and early detection of any additional issues.
“Our area of focus in a claim of this nature is getting indemnity granted (getting the policy to respond) and ascertaining the quantum (amount of damage). It’s a complex claim in nature. We actively managed the claim, were onsite with assessors to assist with the causation and ensure policy response. We went through all the data and prepared the claim on behalf of the client and submitted this to insurers and assessors. Yes, I was at the client’s site a few times, but it was necessary to prevent even more meetings with assessors and external accountants impacting on the client’s valuable time of simply making wine” says Lawson.
Lawson and the Tresidders team are pleased to note that a total of approximately $370,000 was paid to the client for their claim, which covered the property damage (replacement cost of cans that leaked or were exposed to a leaker), disposal costs for the affected cases and business interruption (loss of gross profit).
The client was faced initially with no cover for the loss, to a payment that represented the true value of their loss including loss of gross profit. Product contamination insurance is not just about recall expenses, it does cover the loss of product even before sale, and the loss of gross profit from a consequential loss aspect.
If you have any questions or concerns about your insurance solution, don’t hesitate to contact us.
The information in this article is general only, it doesn’t take into account your business or situation. You should speak to your insurance broker about your needs before making any changes or decision.