Draw the line with engineering claims
“In good faith or in bad faith”? This is a question an underwriter often has to ask. However, after an investigation it sometimes turns out to be a very good question.
The engineering sector is by nature a complicated sector. Policies relating to engineering projects are complex and require a specific skills set to correctly manage claims. A concerned insured approached us for comment and we ended the conversation with both of the responses above.
Protection against technicalities
The question that was raised related to a specific exclusion in the general engineering wording under the contract works section. This clause, in broad terms, excludes cover for technical specifications and drawings.
The question alluded that an insurer will use that clause to deny liability where an insured works off drawings or specifications provided to him, and this specifically leads to a loss to a third party for which he is now being held legally liable to pay. The next part of the question was what will ever be covered if it is a legal requirement that a contractor must work from the drawings and specifications?
Navigating the minefield
As can be expected from any underwriter, David Agrella and Pierre Marais, who are respectively Heads of Engineering and Casualty and Liability at SaXum Insurance Limited, both reacted instinctively the same, confirming their views on this from liability and also from an engineering angle.
Marais immediately pointed out that this type of exclusion is a general and standard exclusion in any public liability wording as it specifically refers to cover provided under professional indemnity type covers. The insured will not enjoy cover when it is his business to provide technical drawings or specifications.
What compounded the question was that an unknown entity three lengths away from the insured, had his claim from a third party for damage caused through him following specifications, repudiated. The story then goes that the insurer could not find negligence and refused to offer legal defense costs when a summons was served based on this exclusion.
Agrella reacted with shock and stressed the fact that this specific claim was lodged against the liability section of the policy, and was not lodged against the contract works section.
Confusing exclusions
The question begging an answer is how an exclusion from a different section can be made applicable on another section when there is clearly no such reference or allowance in either the wording nor any endorsement in the schedule? Only the claims handler who repudiated this claim can answer that question.
Agrella feels that this was probably a bona fide mistake made by a claims person who was under severe stress and incorrectly interpreted the exclusions from the wrong section as to be applicable to another section. The only other alternative is that the insurer is trying to deny indemnity in this manner, which is sad, and definitely not part of Treating Customers Fairly (TCF).
Marais also pointed out that claims can only be adjudicated by the insurer based on the information provided by the intermediary and the insured. It is imperative that all information must be provided from the outset. Many times, intermediaries feel their work is done when the claim form has been completed and the form submitted. In liability claims, the information provided in the claim form is the basic information that is related to the claim. Many other supporting documents need to be taken into account as well. “The fact that engineering is deemed a complex cover and compounded when the liability section is called upon, must not be a deterrent for intermediaries not to question the insurer’s decisions,” says Agrella.
Agrella and Marais agreed that the cover is there for the insured when working as legally required and that it is not the aim of the policy not to respond, as was the case in this scenario.
