The heavy rainfall and flooding to areas of Central Queensland brought on by ex-tropical cyclone Oswald caused widespread disruption to open cut mining operations. Miners affected may be entitled to make insurance claims to recover increased costs and consequential business interruption losses arising as a result of flooded pits, loss of access, and damage to rail infrastructure.
Having handled several claims by miners following the extreme wet weather in early 2008 and late 2010, Herbert Smith Freehills partner Mark Darwin outlines some of the priorities which miners should keep in mind to make insurance recoveries easier.
What are the top 5 steps to take to help your insurance claim?
Understandably, the operational needs of the business and the demands that accompany catastrophic events will take priority over work that could later help with an insurance claim. However, it is usually not hard to implement systems that can lay the foundations for a successful claim without adding any real burden to the business operations. Pausing to put some simple systems in place early to assist in later recovery of additional costs and compensation for lost production should be viewed as an important part of managing the crisis. The top 5 steps we suggest are:
Establish a disciplined system of cost coding
Most businesses will establish new accounting costs codes that can be applied to unplanned expenses caused by the event. This helps capture and simplify the future identification and quantification of recoverable costs.
But an excel spread sheet simply listing all the amounts recorded to a cost code is not of itself evidence of the details of the expense and the reason why it was caused by the insured event. Ideally, the system of allocating expenses to new codes should be established following a detailed written directive to all relevant personnel. This will assist those considering the claim to be confident that any cost allocated to a particular code was the result of a disciplined and self-evident process.
Nominate a document custodian for the capture of documents
One of the most common problems experienced during the preparation of claims is gathering documentary evidence to substantiate the reasons for increased costs or interruptions. For example, why certain costs were caused by the insured event, or how the event caused interruptions to mining or sales plans.
If all managers were directed to cc copies of all important communications following an event to a designated document custodian it can be a lot easier and less time consuming to gather relevant documents at a later stage.
Keep records of production impacts and sales enquiries
Contemporaneous records of the impact of the flooding on production plans and sales decisions can be extremely helpful when it is later necessary to prepare a re-schedule of what the hypothetical performance of the mine would have been in the absence of the event (to be compared with actual production in order to quantify the insured loss). This can be as simple as the mine manager keeping a daily or weekly diary with a dozen bullet points summarising the key impacts on mining operations, especially those affecting the miner’s own fleet which are not as easily identified as impacts reflected in increased contractor payments. Sales managers should keep records of any customer enquiry not fulfilled.
Also, tell all senior managers that emails dealing with additional costs or changes to production or sales plans should ideally expand on the reasons for the changes, including an explanation of how the change was caused by the impacts of the event.
Involve your legal team to maximise the prospects of maintaining confidential ‘legal privilege’ over sensitive communications
The ability to claim ‘legal privilege’ over reports and other sensitive communications and therefore to be able to preserve confidentiality from production to authorities, customers and insurers depends upon many factors.
However, to the extent that legal privilege can be claimed, the best chance of maintaining it is when internal or external legal counsel commission the report or if advice is sought from them for a relevant purpose. Involve the legal team early to maximise the likelihood that confidentiality can be maintained.
Consider force majeure rights
Contracts might entitle a miner to call force majeure on a customer where deliveries cannot be made due to the event, but sometime there will be good commercial reasons why a miner chooses not to enforce strict contractual rights. Where this happens, make sure you document those commercial reasons. It is much easier to defend allegations of failing to mitigate loss where the commercial context of decisions is able to be explained.
Once the immediate effects of the event have passed and the business has entered the recovery phase, a considered opinion about policy coverage and the steps to be taken to advance the recovery of funds from your insurer can be considered.
If you’ve implemented these steps in the meantime, your CFO and insurance claims preparer will thank you !