Logging Company Case Study
Logging Company Suffers Engine Failure
Our client’s business is in logging in Alberta. They have a wide range of expensive and technically advanced equipment which they operate in difficult and challenging terrain. Sometimes the unexpected happens and things go wrong.
On one occasion one of our client’s feller bunchers started to sink in muskeg. In an effort to keep the machine from sinking further, the operator kept the engine running and extended the boom, attempting to place the head on solid ground. Unfortunately due to the angle the machine was on, the engine was subjected to oil starvation – resulting in severe damage which was beyond economic repair. So our client was left with heavy machinery which needed a brand new engine to replace the damaged one.
Our client was fortunate to have taken advantage of our “disappearing deductible”. This meant that they didn’t have to pay the deductible when the loss exceeded a predetermined sum – giving them first dollar coverage. In addition, they didn’t suffer any depreciation factor on the settlement for the brand new engine either, because their policy wording included betterment coverage on their heavy machinery.
Despite it sounding simple and successful, there was one major obstacle to overcome. And that issue was one of co-insurance. Co-insurance is a common clause in equipment policies that may create a penalty imposed by the insurer for under-reporting or under-insuring the value of property. The penalty is based on a percentage stated within the policy and the amount under-reported. In this case there had been incredibly rapid changes in the equipment market and some types and brands of machines had appreciated very quickly, thereby creating potential co-insurance issues. Our client had purchased the machine two years previously for $75,000 and had insured it at $100,000.
So following the loss of the engine, our adjuster gathered information via an appraisal firm as normal. However, the appraisals suggested the machine was worth approximately $185,000 to $200,000 – creating a significant co-insurance issue on the settlement (the engine had a replacement cost value of $30,000). We contacted our client who was surprised by the valuation and the resulting co-insurance issue so asked for our help and advice.
We started by gathering supportive information that would put our client’s valuation of the machine more in line with market conditions, and compelled our adjuster to re-visit the appraiser’s findings. In the meantime, the adjuster gained settlement on an interim proof of loss for the penalty impacted figure of around $19,000. Thankfully, through our excellent contacts in the equipment industry Axis was able to gain supporting evidence that in fact our client’s valuation was in line with available market information. Axis resubmitted the claim to the insurer for settlement with no co-insurance penalty factored in. The claim was settled in full.
David Pocock, Axis Insurance Managers Inc. said: “When things go wrong for clients, we work tirelessly to get them sorted. This was a prime example of not just taking things at face value, but working through the issues to get a favourable resolution for our clients. In this case we were successful in achieving a settlement on a replacement cost basis, with no depreciation factor, no deductible, and thanks to joint efforts between the adjuster and Axis, no co-insurance penalty. In the end, the settlement was about 50% higher than the initial offer. It just goes to show what teamwork and tenacity can achieve!”