C111 Advanced Loss Adjusting

C111 Chapter 7 Advanced Loss Adjusting

Declarations page contains specific information about who is insured, the address of property, and specific amounts of coverage for different lines of insurance. Also the form number of the actual policy wording used. Pg. 03
Claim payments must include lien holders as payee. The lien holder may have an independent right of recovery under the policy. Pg. 03
The insurer is discharged from liability under the policy as of the date of the breach. Pg. 06
A breach of condition clause keeps the policy coverage intact for losses that are not related in any way to the breach of warranty. i.e. a failed fire alarm system does not have anything to do with roof damage from a hailstorm – the roof is covered even though the fire alarm is a breach of warranty. Pg. 06
Insured shall notify forthwith the Insurer of any interruption to or flaw or defect, coming to the knowledge of the Insured, in any:

sprinkler or other fire extinguishing system;
fire detection system;
intrusion detection system;
and shall also notify forthwith the Insurer of the cancellation or non-renewal of any contract which provides monitoring or maintenance services to any of these systems or of the notification of the suspension of police service in response to any of these systems. Pg. 06

When a risk has been misclassified or does not meet the insured’s underwriting criteria. Pg 07
The insured (with the assistance of the adjuster). Pg.08
The insured may have experience dealing with loss and have developed a strategy to properly mitigate the loss. Pg. 09
The cost of reconditioning the property or the difference between the normal price and the reduced price if the property is sold as “damaged” goods. Pg. 10
Water-related perils typically excluded under broad form coverage:

flood, including waves, tides, tsunamis etc. but, this exclusion does not apply to ensuing loss or damage which results directly from fire, explosion, smoke, leakage from fire protective equipment, leakage from water main, or property in transit;
seepage, leakage, or influx of water etc. unless concurrently and directly caused by a peril not otherwise excluded. Pg. 11

There may be a possibility of subrogation against an installer or contractor that failed to maintain and test the equipment. Also the insured has a responsibility to properly maintain equipment in working order – failure to do this may constitute a breach of warranty. Pg. 12
Arson may be used to cover up damage done by another peril that is excluded.
Designed to avoid disagreements in the course of a claim when a party involved in the construction project has its own insurance policy. Pg. 13
Large equipment used in heavy construction projects. Also may cover smaller equipment and hand tools. Pg. 13
Specialists from boiler and machinery insurers. Pg. 15
Available information may change, financial position of responsible party may change, there may be no recovery on a file. Pg. 16
Within 24-72 hours. Pg. 18
Detailed narrative of the loss incident and explanation of the damage issues, repair estimates, salvors’ offers, copies of contracts, statements and a reserve update. Pg. 19

C111 Chapter 9 Advanced Loss Adjusting

5 standard insuring agreements:

Dishonesty coverage with a per-loss aggregate or a per-employee limit.
Loss of money or securities inside the insured premises for destruction, disappearance, or wrongful abstraction.
Loss of money or securities outside the insured premises for destruction, disappearance, or wrongful abstraction.
Loss caused by accepting money orders and counterfeit paper currency.
Loss caused by cheques issued by the insured by depositor's forgery. Pg.03

The loss must be reported as soon as possible after discovery. Pg. 04
Mismanagement and ordinary business risks are excluded from coverage. Pg. 05
A loss is discovered when an insured has reasonable knowledge that a loss under the policy has taken place (not ordinary employees, must be a person in control (i.e. manager, owner, etc.)). After the insured has discovered the loss, policy coverage for the dishonest employee is terminated. Pg. 04-05
Mismanagement, business risks, and losses determined by an inventory computation or profit-and-loss computation (where no dishonesty or employee intent can be shown) are excluded. Pg.05
Merchandise of every description usual to the insured`s business, property belonging to others that the insured is responsible for or liable for. Money, securities, stamps etc. are excluded. Pg. 06
Destroyed merchandise is calculated by the cost of replacing it; The current invoice price, plus any cartage and freight, less any applicable discounts. Pg. 06
Cost of transportation, receiving, marking and placing the merchandise on shelves as well as processing if it requires processing. Depreciation is also another factor. Pg.06
Shortage of stock or equipment disclosed on taking inventory is excluded. There must be an explanation for the loss beyond just shortage. Pg.07
The vehicle must show signs of forced entry and must be securely locked before theft. Pg. 08
Crime losses can be divided into those perpetrated by strangers and those committed by employees.Pg.08
Proof of stolen items:

Value of the items stolen
Existence of the items
Ownership of the items. Pg. 09

Robbery includes situations where violence is inflicted upon the custodian, the fear of violence exists, injury or unconsciousness to custodian, or showcase was broken during business hours. Pg. 10
Crimes must be reported to the police and all reasonable security measures must be implemented. Pg. 11
Records must be used to establish the amount of loss. Primarily inventory records. Pg. 12
Careless inventory practices or account recording errors. Pg 13
Meet with the insured immediately (and forwarn the insured that the proof of loss will be shown to the defaulter). Pg. 13
The adjuster should wait until a proof of loss has been filed before interviewing an accused defaulter because unfounded accusations can lead to liable. Pg. 14
Interviews can be used as evidence. Must have proof of loss and be prepared. Pg. 14
A promisory note is an unconditional written promise, signed by debtor, to pay a sum at a fixed time or on demand. Pg. 16
Full criminal investigation may provide assistance to recovery from the defaulter or his/her estate. Pg. 15-16

C111 Chapter 10 Advanced Loss Adjusting

Suretyship is the act of legally becoming liable to one party for the debt, default, or failure to perform of another party. Pg. 02

If a loss occurs in a suretyship, the surety expects to recover any payments made from the principal, or indemnitors; essentially it is a loan. Insurance contracts execute in the event of a loss and there is no expectation of recovery. Pg.02

Claims process:

understanding the contracted obligations;

investigating those obligations;

resolving the obligations in accordance with the bond. Pg. 03

An indemnity agreement is a side contract providing separate rights to the surety to relieve a default through indemnitors, salvage and other recovery forms. Pg. 03

They enhance the surety’s position to recover from any loss and can be used as leverage to resolve potential claim situations. Pg. 03

The Bid Bond guarantees that the principal (bidder) will enter into the contract after the bid is accepted. Pg. 04

10% of the amount bid or the difference between the amount bid and the amount eventually contracted with a new contractor. Pg. 05

Common cause of claims for bid bonds:

Financial collapse of the bidder after bid and before award of contract

A revocation of the bid by bidder after recognizing a mistake in the amount of the bid.

Delays caused by the obligee in executing the final contract. Pg. 05

The next bidder must be competent and must respond to the bid invitation in the same way as the principal. Pg.05

Delays may cause hardship for the principal and effect his ability to meet the terms of the contract. If the delay is longer than the time period allowed and the hardship is established because of the obligee, the surety and principal may be relieved of any further obligation. Pg. 05

Preparing a bid is a complex process involving many corporations and individuals not under the bidder’s control and a tremendous amount of information required. Pg. 05

Mistake of fact factors:

mistake affects a material element of the agreement that prevented a meeting of the minds;

enforcement of the contract would be unconscionable;

honest mistake and the not the product of gross negligence;

parties remain in essentially the same position as before the bid. Pg. 06

4 items to be reviewed:

original tender specifications;

contract general conditions;

bidder's working paper;

actual bid itself. Pg. 06

Build the project. Pg. 06

The surety remains responsible for the bond if the principal defaults and the claim can be asserted directly against the surety without joining the principal. Pg. 06

The principal must be proven in default of the contract independent of the obligee’s assertions. Pg. 07

Most construction contracts have termination and default provisions. Work stoppage may not be the fault of the principal and so the obligee cannot invoke a termination provision. Investigation of work stoppage is important to avoid termination provisions. Pg. 07

Bond forms, indemnity agreements and the principals most recent financial reports. Pg. 07

Other documents to be reviewed:

monthly progress estimates;

construction contract;

job log records;

correspondence between the obligee and principal;

financial records of the principal. Pg. 07

6 (? – could only find 5) claims handling practices:

acknowledge communications relating to a claim;

undertake an appropriate investigation to determine its liability;

advise claimants of its position;

provide the specific basis for denial of a claim;

promote adherence to these principles by its employees, lawyers, and consultants. Pg. 7-8

3 ways to discharge surety’s obligation:

remedy the default;

complete the contract;

retender the contract and arrange for a new contract to contract directly with the obligee to complete the work remaining. Pg. 08

Factors influence decision to discharge obligation:

contract is close to completion;

quality of the principal's workmanship;

potential for delay penalties;

any additional claims for or against the principal;

funds available;

cooperation of the principal;

financial involvement of the indemnitors;

cooperation of the obligee. Pg. 08

The surety is a lender of last resort who advances money to the contractor to complete the project and cure the default. Pg. 08

Money advanced to a failing project are almost always a permanent loss and do not reduce the penal sum of the bond. (good money after bad). Pg.08

Lending the money directly to the principal through a jointly controlled bank account or Guaranteeing a bank loan to the contactor. Pg. 09

The surety may decide to hire its own consultant or contractor to complete the project. The original workforce may be utilized in the completion and the surety retains control of the project. Pg. 09

Relet – award the job to another contractor. Pg. 09

The original workforce may be utilized in the completion. Pg. 09

Difficulty in fixing a definitive cost for completion

Warranty obligations that extend past the completion of the project. Pg. 09

Buying the bond back is an extra-contractual alternative where the surety negotiate a cash settlement in exchange for the obligee’s surrendering the performance bond. Pg. 10

Statutes governing public bidding process restrict the surety from retendering the balance of any defaulted contract. Pg. 10

The owner’s breach provides the surety with a defense to the extent of that breach. Pg. 11

Generally, a two year time limit following substantial completion is imposed on any claim by the obligee. If a latent defect (those not detectable by a reasonable inspection) is discovered, a claim may be advanced after the two year period. Pg. 11

A Bankrupt or insolvent principal may stay proceedings against them by their creditors while they restructure or tender proposals. Pg. 12

Suppliers and sub-contractors of those parties having a contract with the principal. Pg. 12

Claim from sub-contractors will include the following documentation:

progress certificates;

change orders;

invoices;

payments;

warranty obligations. Pg. 13

Claim from material suppliers will include the following documentation:

shipping advices;

invoices;

payments;

warranty obligations.

The surety may take an assignment of the lien filed and then discharge it when appropriate. This allows the surety to holdback funds retained under the contract. Pg. 14

Ensure that all warranties and guarantees are furnished in accordance to the contract provisions; If they are not, then the adjuster may hold back payment because the obligee does not have to pay. Pg. 14

The surety’s right to contractual indemnity and subrogation as well as common law and statutory claims. Pg. 15

Forfeiture basis – in the event of a claim the entire penal sum of the bond is payable to the obligee. Pg. 17