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Seven Deadly

Insurance Mistakes
& How to Avoid Them
1. Care, Custody and Control (Liability Exclusion)
The Problem
The definition of Care, Custody and Control is an extremely gray area for the professionals, therefore
almost impossible to understand by the everyday client. It is a general exclusion under any Liability
policy, however note, every policy is worded differently. We will attempt to give general advice, but this
may not be your particular circumstance.
Basically the term Care, Custody and Control (can be under other names such as Property in
Physical or Legal Control) is a total exclusion under your policy. The basic meaning of this clause is
to exclude any third party property (not yours) that you may be legally responsible for in the ordinary
operation of your business. Some of the obvious examples of this are; a Panel Beater looking after a
clients car, or a Contractor hiring/leasing a Crane for work.
The normal exclusion of most Liability policies state that property owned, hired or leased by you is
excluded under this section. The only property that is exempt from this exclusion is;
Premise Buildings
Premise Contents (example fixtures and fittings).
The reasons the Insurers place this exclusion on these policies is down to one basic point; they dont
know what they are insuring if its automatically included under the policy. You the client could own, hire
or lease anything (kids jumping castle, horse rides, flame throwers well....you get the picture....). With
more information it could be deemed the owned, hired or leased property could be;
Uninsurable
Better insured under another policy
Or be charged an appropriate premium to cover the risk.
It is vitally important for you to read the wording, or have it explained to you in detail. The articles from
legal proceedings are literally littered with many cases illustrating the grayness of this cover. You do
not want to be on the receiving end of legal action for damage or loss to your property, or to property
hired and/or leased by you and assume you are covered under your Liability policy. The courts will take
into account your personal circumstances and make a decision from there. It is better to make sure
your are insured or partially insured to avoid the accompanied unwanted financial costs and heartache.
The Solution
The solution in this case is quite simple you have to insure the property (whether yours or rented/
leased) under Section 1 if you are using a Contract Works policy (Construction), or under the Fire/
Burglary section if you are using a Business Pack policy. Whether you want to include the property
under the Burglary section will depend upon the asset. You will not need to insure a building under
Burglary.

Seven Deadly
Insurance Mistakes
& How to Avoid Them
1. Care, Custody and Control (Liability Exclusion) Cont...
It is also possible to note any Interested Party in the property on the insurance policy. For example;
NAB in office block, or ABC Pty Ltd in Excavator. This is an important note as in the event of claim the
third party is noted as having an insurable interest in the property and gives them a certain degree of
peace of mind of coverage.
By insuring the property in this manner you are effectively moving the property from a third party cover
to a first party cover. That is, you dont have to be sued to claim on the property. Hence avoiding legal
action as much as possible. One other issue to be raised and looked at using this solution is making
sure that you have cover for registered vehicles. Again this is a general exclusion on most policies
covering any Liability associated with road registered vehicles. If you hire/lease any construction
vehicles such as bobcat or excavator that are road registered these vehicles are not covered for any
claims associated with any road risk. (Example; damage to another vehicle).

2. Home Warranty Obligations


This Deadly Mistake is for the Construction Industry only.
Most registered builders and property developers now know that they require Home Warranty
Insurance basically for any work over $12,000. It is enforced by local government Council or Private
Certifiers, and the general rule is that they wont release authority of works before being presented with
a Certificate for Home Warranty.
However if you are a Trade it is common to go unnoticed and uninsured for Home Warranty Insurance.
SHCs research shows that up to 90% of the Trades market does not insure this aspect and therefore
is in breach of legislation. The legislation is housed under the States Home Building Act. The basic
rule here is if youre a Tradie operating under the principle contractor and the principle contractor has
supplied the home owner (client) with a Home Warranty Certificate, you do not have to supply a the
same insurance. However if youre a Tradie and are dealing with the client directly, you have to supply
a Certificate of Home Warranty Insurance for any work over $12,000. Similarly if you are dealing directly
with an Owner Builder, you have to supply a Certificate of Home Warranty Insurance for any work
over $12,000.
A classic example of this is as follows; a builder signs a contract with a client for a new home worth
$500,000. The Builder provides a Certificate of Home Warranty Insurance to the client for $500,000.
However because the owner knows or has a special deal with a Kitchen Manufacturer/Installer this is
not part of the original contract. The Kitchen Manufacturer/Installer, because they are dealing with the
client directly, is required to supply the client with a Certificate of Home Warranty Insurance, if works
are over $12,000.

Seven Deadly
Insurance Mistakes
& How to Avoid Them
2. Home Warranty Obligations Cont...
As most Trades may not be aware of this fact, or choose to ignore it, if uncovered by the policing
government departments (normally The Office of Fair Trading), the fines and penalties are large. More
damaging is their power to cancel any licence to operate, hence eliminating your ability to work and
provide an income.
Unfortunately most of the States have different wordings and different legislation on how all of this
works. We have included here in this article general advice concerning this issue. For a more in-depth
technical view concerning this product, please contact us on 1300 730073 or visit www.savillhickscorp.
com.au and download the article under our Home Warranty section.

3. Personal Accident Insurance


This insurance coverage goes under many names; Personal Accident Insurance, Accident and
Sickness Insurance, Disability to name a few. This policy covers your income in the event of a severe
accident or sickness that results in your inability to work and earn an income. The first mistake many
make with this policy is not insuring themselves at all. Especially if you are self employed in any
fashion you should have some form of this insurance. Without covering yourself for loss of income you
potentially sacrifice your ability to earn an income, potentially destroying the lifestyle of your complete
family. Should you suffer an accident or illness that prevents you from working for the rest of your
life, without coverage of any type, you have instantly eliminated your biggest asset the ability to
earn income. Even if you are an employee, what happens if you suffered a horrific car accident on the
weekend? Everyone needs this form of insurance if you are working.
There are many types of Personal Accident and Sickness policies in the market for your consideration.
However there are two main policy types on offer that you need to know about, if you require (and you
DO require) this type of insurance.
The General Insurance Policy
This policy is available through the General Insurance market and can be bought through Brokers
such as SHC with General Insurance companies such as QBE, Vero, CGU, GIO etc. This policy can
also be called a cancellable policy. These policies are the cheaper of the two main types, basically
because they are by far an inferior policy. Their features are generally as follows;
Can be cancelled on renewal by the insurer in the event of a claim thereby cancelling your ability
to further claim or insure with any Insurer.
Only insure up to 85% of your wage
Insure for only a maximum of 2 years benefits (insurers only pay claim for maximum of 2 years)
Cover only a finite number of Sicknesses
Has an excess of 2 weeks (ie, first two weeks not paid) Capital Benefits (Death) Maximum payout of
only $100,000.

Seven Deadly
Insurance Mistakes
& How to Avoid Them
3. Personal Accident Insurance Cont...
The Life Insurance Policy
This policy is available through the Life Insurance market and can be bought through Agents or
directly with Life Insurance companies such as AMP, MLC, Tower, Banks, etc. This policy is also
dubbed a non cancellable policy. These policies are more expensive of the two types, because they
offer the greater benefits and cover. These are by far the better type of policies you should purchase.
Their features are generally as follows (but not limited to);
Cannot be cancelled by the Insurer on policy anniversary in the event of a claim. Hence protecting
the client further by having to continue to cover or continue to pay the claim until requested.
Insure up to 100% of your wage
Insure up to either Age 65 or Lifetime benefits (Insurers would pay out the amount of insurance for
your lifetime).
Covers many times the number of Sicknesses that are possible, including Trauma lump sum
payouts on sicknesses such as cancer, stroke and heart disease.
Insure up to any amount under Life Insurance to make sure such items as future healthcare is
paid, not to mention the mortgage.
The stark differences between these types of policies are large. The gulf between the two is so big that
SHC strongly recommends you purchase a Life type of policy even when we dont sell them. When
we do sell them we place a very large No Advice Given on the documentation. Do yourself a favour
and look into the two types before making a purchase.

4. General Property Tools of Trade


This policy goes under many different names; General Property, Tools of Trade, Plant and Equipment,
Plant etc. These policies can cover a great variety of assets, with most in the construction industry.
Items such as general hand tools, power tools, industry or job specific tools, non road registered
excavating equipment, etc (you get the picture). Some policies extend to covering electronic items
such as mobile phones and laptops/notebooks (we do at SHC) however these can be insured under
a policy called Electronic Equipment. Please read on because the problems are associated with and
common across both types of policies.
Basis of Settlement The insurer has two ways of settling your claim. They are as follows;
Cost of Repair or,
Payment of Current Market Value of item
If the cost of repair is too much the Insurer will decide to replace the item by paying you the Current
Market Value of the item(s). That is they will apply depreciation to the item(s) and pay you what they
calculate the current value. They will not replace the item with full payment for new item(s).

Seven Deadly
Insurance Mistakes
& How to Avoid Them
4. General Property Tools of Trade Cont...
Therefore if the lost or damaged item(s) are not new you will be partially paid depending upon the age
of the item(s). Similarly if you cannot substantiate proof of ownership, you will not be reimbursed at all.
Therefore it is vitally important that you keep in a safe spot all receipts of purchase for insured items. It
is also wise to photograph insured items and keep these in a safe location.
Electronic Equipment
Under Electronic Equipment (Mobiles, Notebooks etc) it is very important to note that all software and
data loss is a general exclusion under most policies. Therefore in the event of a total loss of Electronic
Equipment (ie Theft) the Insurer will only reimburse you for the hardware and not the software. As the
price of software is increasing it is important that any purchase of non-operating software (say non
Windows) be registered and kept in a safe location for reapplication on the new hardware.
Types of Cover
There are two types of cover;
a) Accidental Damage
The Insurer will insure the items shown in the schedule for any loss or damage caused by any
occurrence for accidental loss or damage, including all the Defined Events detailed below.
b) Defined Events
The Insurer will insure the items shown in the schedule for any loss or damage caused by;
fire, lightning, explosion, earthquake, malicious damage or vandalism
theft following violent and forcible entry to a securely locked building; or
theft following violent and forcible entry to a locked Motor Vehicle, including locked tool boxes
securely attached to the
Motor Vehicle; or
theft of equipment securely attached to a Motor Vehicle through the use of locks or padlocks,
which results in visible
damage to the securing devices.
theft consequent upon assault or violence, violent intimidation or threats of these to You or Your
employees.
theft by any person concealed at the Risk Address or in a Motor Vehicle.
collision or overturning of the conveying Motor Vehicle.
Flood whilst the item is in transit.

Seven Deadly
Insurance Mistakes
& How to Avoid Them
4. General Property Tools of Trade Cont...
There are complications regarding Defined Events, in that the interpretation of each wording by the
Insurer can work against you. Example; if the equipment is stolen without visible signs of forced entry
no claim. Your tools are in the back of your ute and you park on the road for whatever reason. The
Insurer may argue that you did not take the necessary precautions in securing the Equipment no
claim.
You want to avoid an interpretation of the wording at all costs as this may compromise your claim and
leave your financially worse off.
It is strongly recommended, even though the premiums are slightly higher, to insure your trusted assets
for Accidental Damage. Come claim time the Insurer immediately pays out, as there is nothing to
argue over.

5. Understand Your Policy Conditions


Recent events happening throughout Australia have again placed the focus on policy coverage and
disclosure. Whilst legislation requires Insurers to provide product disclosure statements, it is fast
becoming clear that not many people take the time to read them and understand what is covered and
what is specifically excluded in their insurances. Please remember, this is no different from any other
legal contract and no one should agree to be party to a legal contract without reading it.
Below, we highlight an easy way to break down your policy document to give you a basic
understanding of what you purchased. The policy schedule is a good source to summarise your cover
and overrides the policy wording where there is any conflict (if applicable). It is broken down as follows;
Insurer and Policy Number - These details are important to have handy in the event of a claim or policy
enquiry. Please note, most people make the mistake that the Insurance broker is the Insurer as that
is the letterhead you receive the schedule on. Your Insurance Contract (policy) is placed between
you and the Insurer. A Broker (like SHC) represents your interests with the Insurer, so take time out to
understand which Insurer you are relying on to pay a claim.
Named Insured - Make sure all parties with an insurable interest are included and understand your
contractual obligations (refer Contractual conditions section). This sets out your contractual liability to
insure other parties. An Insurable Interest might be say CBA or NAB because they hold your mortgage.
Or you have a subsidiary company that performs work in addition to the parent entity.

Seven Deadly
Insurance Mistakes
& How to Avoid Them
5. Understand Your Policy Conditions Cont...
Period of Insurance This seems straight forward, however dont rely on the Insurer to follow you up
for renewal. Increasingly, this process is being performed electronically and you may change your email
address or phone carrier throughout the year. It is common to forget to notify your Insurer. Put a follow
up in place 4 weeks from renewal as you should have received a notice by then.
Description of Business - This is extremely important, the policy contract will only pay a claim on the
occupations or activities set out in the schedule. The onus is generally on the Insured to disclose all
activities the Insured undertakes.
An example would be a Scaffolder who hires out the scaffolding as well as erecting it. If the Insured
failed to mention this, the Insurer has the right to refuse a claim that may arise from damage or injury as
a result of hiring the scaffolding or other activities not disclosed.
You as the Insured will not understand the nature of activities that are undesirable to the Insurer, so
best include all activities undertaken by your business(es). For example a scaffolder or carpenter may
do work on boats in dry dock, as this is an absolute exclusion under the policy, cover needs to be
purchased elsewhere by your broker.
Policy limits There are generally two different types of Insurance policies;
Asset Protection or Property cover
This covers the value of an asset against a set of defined perils (risks, eg Fire) and can include
buildings and their contents, plant and equipment and/or vehicles etc
Legal Liability or Third Party Liability
This covers you for your actions that may cause injury or damage as a result of negligence to other
people or other peoples property. This policy is a defence policy that is, you need to be sued in order
for this policy section to react.
This section on your policy schedule will summarise the amount you have insured your assets for,
so please check and double check (just like Santa!) you are adequately Insured. 80% of Australians
underinsure their Property cover resulting in shock and disappointment when a claim occurs.
Generally, the contracts you engage in will set your Legal Liability limit requirements. As a general rule
$10m is now deemed the normal limit. Any less is now deemed to be inadequate and may leave your
personal assets exposed if sued by third parties. The difference in price between $5m and $10m is
usually less than 10% so it is a value purchase and well worth it.

Seven Deadly
Insurance Mistakes
& How to Avoid Them
5. Understand Your Policy Conditions Cont...
Excess - This is usually not considered when comparing prices. Your quote may be up to 20%
cheaper but you may not be aware a special excess may apply to your occupation or the activities
of your occupation. Generally higher excesses may be applied when you are working on existing
structures or are excavating or underpinning structures. Once you know the excess values, you will be
in a better position to calculate which cover is best for you.
Special Conditions - This section sets out any special conditions or exclusions imposed on the
Insured (you) due to your occupation. These override the policy document/wording and can sometimes
be overlooked. Note the following common conditions or exclusions are an example of what may be
imposed on any policy that will affect the settlement of a claim, and therefore impact on your own
financial position.
VIBRATION, REMOVAL OR WEAKENING OF SUPPORTS EXCLUSION
HEIGHT RESTRICTIONS
FIRE PROTECTION - WELDING & HOT WORK LIMITATION
LOSS OF KEYS EXCLUSION
PUBLIC ROAD AND/OR FOOTPATH CONSTRUCTION EXCLUSION
UNDERGROUND SERVICES CONDITION
DEMOLITION EXCLUSION
CONTRACT LIMIT RESTRICTION
EXCLUDING COVER FOR SUB-CONTRACTORS
HAZARDOUS GOODS EXCLUSION
SPRAY PAINTING EXCLUSION
MINIMUM SECURITY REQUIREMENTS CONDITION FOR TOOLS
ACTIVITIES NOT COVERED BY PERSONAL ACCIDENT AND SICKNESS
Once you understand the cover defined in your schedule, the main document is known as the Policy
wording or Policy Contract, it may look scary but for ease of reading, they are broken down as follows:
General Exclusions
Once you have understood the cover associated with your personal circumstances in the Policy
schedule, you should take time out to read the general exclusions under each section of your policy.
You will then get a feel of what you are covered for. Exclusions and general exclusions are indexed in
the policy document so it should be easy to locate and relate to risks that are either uninsurable; better
covered under another policy or are considered a moral risk. This is all a general educational exercise
on getting you familiar with exactly what you are covered for.
General Conditions
This section is standard within all policies and sets out they way you should behave. It clearly sets out
you should take reasonable care when undertaking activities and can be used by the Insurer to decline
or reduce claims.

Seven Deadly
Insurance Mistakes
& How to Avoid Them
5. Understand Your Policy Conditions Cont...
An example would be not using a product according to its instructions or not taking due care to
locate underground cables or pipes prior to digging. This section also sets out how to behave when
a claim arises and is important to follow. Other issues raised in this section set out your disclosure
requirements if your situation changes (this is extremely important). Again, this section can be easily
located in the index of the Policy Wording that you should receive prior or after your purchase of the
policy.
Definitions and Insuring clauses
These sections are more for the budding Lawyer in us and delve into the way the policy responds
through its contract clauses and definitions. It is more of the role of your broker to fit the correct policy
to the information you have provided. If the schedule mentioned earlier is correct, there should be not
great surprises in this clause. Reading this section is a sure fired cure against insomnia.

6. Contract Conditions
All trades generally enter into legal contracts with third parties when performing their daily duties at
work. Sometimes direct with the consumer or alternatively with a head contractor. As the party paying
for the work usually sets the conditions of such contracts, these can be varied and in some cases nonexistent.
Take the case of a consumer; they do not have a professional capacity to understand the risk
and subsequent protection required. Therefore statutory conditions are implied to the contract
for consumer protection. Usually these relate to residential work and controlled by State based
legislation. Under these Acts, the consumer is entitled to Insurance Protection for the work done and
the Insured must have certain policies in place, they are;
Workers Compensation This can be a grey area as to who is deemed an employee and who isnt.
If you are a company you usually are required to have Workers Compensation. A sole trader is more
difficult, for guidance refer to your States Workers Compensation authority online that has a test that
informs you if this cover is required. We at SHC can also provide guidance. Generally if employees are
involved you require to have this Insurance.
Home Warranty Insurance Various State Acts require a minimum amount of cover to protect the
consumer (refer Home Warranty section in this manual).
Amazingly, Legal Liability Insurance is not compulsory in most States licensing systems, which
potentially open up many business people to the untold grief of legal action and loss of assets if
overlooked.

Seven Deadly
Insurance Mistakes
& How to Avoid Them
6. Contract Conditions Cont...
Sub Contracting & Contracts
Unlike dealing with a client direct, where you are a sub contractor dealing with a Principal Contractor,
you can potentially have many Insurance requirements and indemnities that you may be unaware.
Basically the Principal Contractor will pass on down the line any conditions he/it has agreed to directly
with the client. Without knowing exactly what they have agreed to you are automatically agreeing to
the same terms by signing or agreeing to the works. This has brought many sub contractors financially
undone. Prime examples are the recent Government funded stimulus projects (BER projects). It is
important to note the following;
Insurance conditions this part of the Sub-Contract Agreement sets out the type of insurance
policies you must have in place. It also covers the sum insured limits required (eg $20m Liability limit)
and what covers that are compulsory (it may request you have Professional Indemnity Insurance). It
also sets out who else needs to be noted on the policy as an Insured, mainly the Principal Contractor.
This is very important as non compliance can result in monies being held pending correct Insurance
placement or loss of contract altogether.
Indemnities - This part of your Sub-Contract Agreement sets out what you may be expected to
indemnify other third parties for, and unfortunately generally cannot be insured against. This is an
important commercial decision for the business owner to consider (can you absorb these risks and are
they reasonable?). Generally these conditions can be negotiated with the main Contractor.
These Indemnities carry a major risk if not understood prior to the execution of the contract. SHC are
always happy to advise on your Insurance and statutory requirements associated with indemnities.
Examples of such indemnities would be the quality of workmanship and the resultant make good
clauses that could cost you and your business a small fortune (and time to rectify).

Seven Deadly
Insurance Mistakes
& How to Avoid Them
7. Third Party Property Risks
Lets face it, most trades work on other peoples assets which they are generally quite attached to
and very fond. This however, opens up the increased chance of a dispute with yourself that may
often end up in a legal lottery with negative hassles. So how do you prevent or limit the chance of this
happening?
With over 20 years of experience in relation to Insurance and contractual related disputes, we can
provide the. following insight:
1. Always have some form of contract, expectation is everything. That sets the ground rules as to
what you will be measured on.
2. If you are involved in structural work, take a written note of pre existing damage and bring it to the
owners attention. Ask them to sign the list. This will assist if a claim arises against you for damage
not caused by your works.
3. Never admit liability for damage, simply tell the third party (client) your Insurer will be in contact
with them. If you admit liability, you may have prejudiced your ability to claim.
4. The single largest types of claims we receive are damage to third party motor vehicles. Whether
it be render spill, paint overspray, materials dropping on them, a car is always parked in the
wrong place which unfortunately is your responsibility. To prevent your premiums increasing due
to someone elses actions, take this into consideration. In addition it will affect policy excess
amounts.
5. Your Legal Liability policy protects you from your actions that are considered negligent towards
third party property. However there are many other aspects that may go wrong that are not a
result of your actions. Most domestic Insurance policies will exclude works on the property over
a certain amount, generally around $50,000. Is this your responsibility? As this is a question at
law as to whether you have deemed to take occupation of the premises during work, it should be
raised with the client up front, as our experience illustrates they are generally not aware that their
property becomes uninsured at the commencement of the works. This is generally only a issue if
you are the main contractor and have a contract in place with the home owner taking ownership of
the property. Thus you have a onus (your responsibility) to ensure the clients asset has adequate
protection (crazy but true!). SHC can offer this cover which can be passed onto the home owner for
their consideration thereby making you look good, but more importantly covering any financial loss
or dispute with your client.
6. Satisfaction of workmanship. The best way to prevent future disputes is to gain some level of
satisfaction from the home owner that work has been done to the quality and workmanship that
they are expected. This is probably the most important aspect to covering disputes. If the client
is happy with the works, the likelihood of a dispute diminishes rapidly. Whilst this will not override
their statutory warranty (their legal rights for rectification), it will assist down the track if any issues
arise. Another small hint in this point clean up after yourselves to the clients satisfaction. We
believe this to be their number one complaint!

Seven Deadly
Insurance Mistakes
& How to Avoid Them
7. Third Party Property Risks Cont...
7. Customer service skills. This is another one of the greatest causes for dispute. When client
relationships sour it is relatively easy for the client to start annoying legal actions against you. To
place a claim in the Petty District Court costs the client only $30 and some of their time. They may
be rude, unrealistic, overbearing or intimidating, HOWEVER (10 Deep breaths), that is business and
normally any small issue can be overcome with simple business skills, and a understanding that it
is not personal. Please remember you are generally working on their greatest asset they own, which
as mentioned before is very precious to them.