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Thinking about the consequences of Consequential Loss

17th August 2023

     

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When it comes to Engineering Insurance Consequential Loss, there are various policies that can be considered. These policies are designed and intended to provide for Consequential Loss following an indemnifiable event under the prevailing material damage policy. Some of the examples are:

  • Machinery Breakdown:
  • Business Interruption; Gross Profit; Gross Revenue; Increased Cost of Working.
  • Contract Works:
  • Advanced Consequential Loss or otherwise Delay In Start-Up Indemnity.
  • Electronic Equipment:
  • Business Interruption; Increase in Cost of Working; Reinstatement of Data.
  • Plant All Risks:
  • Continuing Hire Charges; Substitute or Replacement Hire Charges.
  • Claims Preparation Costs.

What is consequential loss?

Consequential Loss arises from an indirect adverse impact which is triggered following material loss to the client’s own property and/or both their machinery and equipment. There are exceptions to the rule.

Engineering insurance consequential loss

With engineering insurance Consequential Loss, like most classes of insurance, it is critical to obtain adequate details of the exposure. In any one of the classes to which Consequential Loss can be connected, the severity of the loss can run into millions of rands, depending on the nature and extent of the material damage loss.

Consequential Loss indemnity: important aspects

Consequential Loss indemnity can bring major relief to the insured in the form of security and peace of mind when the incident strikes and leaves you exposed to all kinds of unexpected costs and expenses.

Indemnity period until complete reinstatement

One of the important aspects when considering a Consequential Loss policy is the adequacy of the indemnity period. It is important to remember that the indemnity period does not stop at the completion of the reinstatement of the material damage. It should extend to the date upon which the business is functioning on the same level as prior to the insured occurrence.

Under an advanced Consequential Loss or Delay in Start-Up policy, the indemnity period will invariably only be triggered at the end of contract period whereas other Consequential Loss policies will be triggered instantly from the date and time of the loss, subject to the time or monetary excess. The indemnity period needs to make provision for a complete “reinstatement time” in which the insured has fully recovered from the Consequential Loss incurred. Whether it be one month or twenty-four months, the consequences can sometimes leave the client “paralysed” during the period in which it takes to recover.

Paralysing effect of downtime

Think about the consequences of Consequential Loss, should one of the critical items of machinery on a production line in a factory suddenly break down. When such an incident occurs, there could be a 100% shutdown or even a 50% shutdown of the production line. Whatever the circumstances, during the downtime for repairs or replacement parts, the loss of gross profit or loss of gross revenue can leave the client stranded and burdened with ongoing costs and expenses such as (but not limited to) staff salaries, wages, rent, interest etc.

Example of a Plant All Risks Policy extension to assist the Insured

Under a typical Plant All Risks policy, we have seen some substantial losses as clients seek to protect their “downtime” on contract sites when a significant item of construction plant and equipment is damaged and basically not in operation for an extended period. Many contractors work to very tight timelines to fulfil their contractual requirements.

If the loss or damage necessitates the item being assigned to the repair workshop for several weeks or even months, the client may incur unexpected costs to bring a substitute or replacement unit on board to continue the working operations. Even when a hired in plant item is lost or damaged, the client could be held liable for continuing hire charges which are consequent upon an indemnifiable event under the Hired in Plant policy.

Consort is your partner in Consequential Loss cover

The Consequential Loss of profits policy wording is a modern wording formulating how claims will be settled and is universally used.

Consort is equipped with a wealth of experience and expertise to help our brokers and clients realise that a Consequential Loss is not a dream but a reality, and that we are here to provide the support and guidance when commissioning Consequential Loss cover.

Please contact your broker directly, who will then approach Consort to assist with your requirements.

Consort Technical Underwriting Managers (Pty) Ltd (FSP 2273) underwritten by Lombard Insurance Company Limited (FSP 1596) an Insurer licensed to conduct non-life insurance business.

Edited by Creamer Media Reporter

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