Where a claim is forwarded to a broker for collection a file will normally be made out, and some procedure must be adopted for regulation and control. Of course, the actual method will vary from one broker to another, but apparently some form of register is advantageous if only to keep a series of file numbers running, in order to identify a certain claim from one with similar characteristics. In some cases, where it has not been necessary to send a policy to the client, as, for instance, when a certificate has been forwarded to the assured in anticipation of a policy being issued later, the claim may arise before the policy has been prepared. Some agreement will be called for in these conditions to ensure that the policy is made available to the claims department without delay; otherwise predictable complaints are bound to arise from the claimant.
After the claim has been entered in the schedule and a file made out, an acknowledgement should be sent to the claimant quoting the file number for future reference. It may be that the broker will see straight away that certain documents are missing and will, instead, dispatch a letter requesting they be forwarded, to enable the claim to be presented to Underwriters.
In the case of goods arriving in this country in damaged condition, the broker will need to approach Underwriters regarding arrangements for the appointment of a surveyor. The claims adjuster concerned will nominate one expert in that particular cargo, or a general surveyor whom he knows from practice will equip himself well, producing a report giving the information required.
Once the report has been issued and all the supporting documents obtained, the claim will have to be calculated. So far as the cargo claims are concerned it is often necessary to negotiate settlement with insurers and it must be borne in mind that a broker is the agent of the assured, and his duty is to ensure a full settlement if possible. Naturally the broker will have a prejudice in favour of his client and the claims adjuster has to make due payment for this approach. At the same time the support of the broker is appreciated by the insurer, as likewise is the relationship with the assured if it is a profitable account.
The adjuster of claims will be called upon to decide whether, in given circumstances, a negotiated settlement is more appropriate than litigation.
Whenever an issue is likely to be brought into Court, the claims adjuster must decide whether the legal costs would exceed any concession he would be able to make.
Assuming the claim has arrived at the point where it can be submitted to Underwriters for settlement, either by agreement or because it appears to be straight forward, the broker will need to keep some record of where the documents are, and which insurers have taken down their proportions.
A popular method is to type details of each claim on loose pages as they are put forward, transferring the pages to a binding as they are filled.
Each settlement can then be indicated adjacent to the name of the insurer.
It is usually convenient to keep a separate binding for a complete year, but this will obviously depend on the size of the office. A younger member of the staff, “learning the ropes”, will normally be delegated the duty of distributing the claim to Underwriters, and will possibly keep his own record of the claims left with insurers, in simple form, to guide him on his daily round.
As soon as the claim has been settled, the broker must make arrangements for payment to the claimant. He may either send a allowance, or simply issue a credit note indicating subsequent payment in account if this procedure has been agreed with his client.
At this point it is opportune to discuss section 53 of the Marine Insurance Act of 1906 which reads:
53. (1) Unless otherwise agreed, where a marine policy is effected on behalf of the assured by a broker, the broker is directly responsible to the insurer for the premium, and the insurer is directly responsible to the assured for the amount which may be payable in respect of losses, or in respect of returnable premium.
(2) Unless otherwise agreed, the broker has, as against the assured, a lien upon the policy for the amount of the premium and his charges in respect of effecting the policy; and, where he has dealt with the person who employs him as a principal, he has also a lien on the policy in respect of any balance on any insurance account which may be due to him from such person, unless when the debt was incurred he had reason to believe that such person was only an agent.
It can be seen from the applicable wording that unless otherwise agreed the insurer is directly responsible to the assured for the amount which may be payable in respect of losses. In fact, insurers may fulfill their obligations in several ways. Cheques may be drawn weekly, in favour of the broker, for claims settled during that week, but care must be exercised to ensure the broker is authorized to receive payment of individual claims as they are agreed. As far as the Lloyd’s Underwriters are concerned settlements are put “in account” with the interested brokers to be offset against premiums, in accordance with a long-standing practice of Lloyd’s. This type of settlement is not binding on the assured unless it can be shown he had notice of the convention, was agreeable to settlement in this fashion, and there was an actual set-off, not just an entry in the broker’s books.
Section 87 of the Marine Insurance Act provides:
87. (1) Where any right, duty, or liability would arise under a contract of marine insurance by implication of law, it may be negative or varied by express agreement, or by usage, if the usage be such as to bind both parties to the contract.
(2) The provisions of this section extend to any right, duty, or liability declared by this Act which may be lawfully modified by agreement.
In other words: “be such as to bind both parties to the contract”.
The policy contained the following wording:
“This policy being issued in England all losses and claims arising hereon are to be recoverable only according to customs and usages of Lloyd’s unless otherwise stipulated by the terms of the policy.”
The goods insured were lost on a voyage and the insurers settled the claim in their account with the brokers in accordance with well-known usage.
Unfortunately the brokers went into liquidation before they paid the claim to the assured, and in the resulting action against the insurers the claimants won their case.
In the judgment, held that the usage was one that operated only between underwriter and broker, and the assured were not bound by it as they were unaware of the usage.
The Council of Lloyd’s, as the guardian of standards, is responsible for the maintenance of Lloyd’s worldwide reputation, and has always been mindful that the interests of its policy holders should not be prejudiced by events such as the insolvency of a Lloyds Broker. In such a case the Council would require Underwriters who had already paid a valid claim to the insolvent broker to pay the claim again.
This particular grievance is compounded by the fact that section 85(2) of the Marine Insurance Act states that the provisions of the Act relating to the premium do not apply to mutual insurance:
(2) The provisions of this Act relating to the premium do not apply to mutual insurance, but a guarantee or such other arrangement as may be agreed upon may be substituted for the premium.
Sometimes insurers will require the documents to be returned to them in order to investigate recovery possibilities. In other cases they will request the brokers to pass the file to recovery agents who specialize in obtaining reimbursement or contribution from third parties. In either case the broker will send a form of subrogation to the claimants for signature, which after being returned completed will be passed on for inclusion with the claim documents.
Takis Kalogerakos
Marine Underwriter
Dear Taki, I fully agree that correct record keeping and a clean cut claims handling procedure are the tools of an Insurance Broker for successfully dealing with claims but the choice of the correct surveyor is equally crucial.
A surveyor is no more, no less than the Insurer/ broker ‘s eyes and ears.
A successful claim handling can only be based on a correct technical assessment of the claim (both quality and quantity wise) as well as a correct assessment of the claim’s origin/ cause.
Those are the primary weapons of the broker/ insurer for putting a price tag on the claim as well as direct the bill in the correct direction.
Too many times have I seen insurers/ brokers bargaining down for the cheapest surveyor and ending paying much much more for a claim through the choice of the cheapest surveyor (either because he is not qualified or because of “other” reasons).
Dear Phillip, thank you for your post in our blog, I do agree with you, nowadays Surveyors are at the lowest level of their mission. Their intention is to be at the Insurers side in order to be preferred, instead the equality that they are supposed to accomplish. In matter of fact that behavior doesn’t help Brokers and Insurers, such counterfeit adjustments are leading to aggravations and most of the times to courts. My opinion is to avoid hiring Surveyors with such orientations, the most preferable is always try to have a fair SR in order to protect your portfolio.