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The phantom menace - CILAThe Chartered Institute of Loss Adjusters

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The phantom menace - CILAThe Chartered Institute of Loss Adjusters Powered By Docstoc
					 The phantom menace


Claims in the modern supply chain
        CILA masterclass


                                    1
 Agenda
    Introduction and tonight’s case study

    The investigation - Jonathan Clark

    The business interruption - Harry Roberts

    Legal issues - Mike Wells (Kennedys)


CILA                              Kennedys
                                  Legal advice in black and white
The case study and investigation


          Jonathan Clark
        The phantom menace


                                   3
 Some issues for tonight
    How complex is the supply chain ?
    What are the interdependencies?
     How is a manufacturing process owned and
     controlled?
     What is “pull” or “push” production
    What are the added risks of single manufacturing
     and distribution sources
    Can we move from a supplier if they sustain a
     loss?
CILA                             Kennedys
                                 Legal advice in black and white
 The case study
    The policyholder - Kettleco
     –   Long established manufacturers of electric goods
         including kettles
     –   Used to have an integrated production line on one
         site
     –   Now use outsource supply chain and are essentially
         assemblers of parts made by others
     –   Hold comprehensive insurance programme
         including suppliers and customers extensions


CILA                                 Kennedys
                                     Legal advice in black and white
 Kettleco’s business
    80’s
     –   “Push” business i.e. they sold to customers with
         their in-house production pre-planned
     –   Purchased components from a wide range of
         suppliers for mouldings and build in-house
    90’s
     –   “Pull” business i.e. now a business with a few major
         customers who request for production on demand
     –   Assemblers of components from single source
         suppliers who manage a “virtual” production line

CILA                                  Kennedys
                                      Legal advice in black and white
 Kettleco’s contracts
    Suppliers
     –   Standard terms and conditions:
           Specification of supply, price, payment
           Usual array of small print

    Customers
     –   Major customers - their specific terms of purchase
           Defines branded product
     –   Other customers - Kettleco trading conditions
           Specifies price and product description


CILA                                   Kennedys
                                       Legal advice in black and white
 The supply chain mapped
                         QnB highstreet     QnB bigshed

        Sellitall
       Wholesaler                 QnB retailer


                    Kettleco



   Elemental         Plasticity       Bits n pieces
   hardware          moulders         elec supplies

CILA                              Kennedys
                                  Legal advice in black and white
 Then one day




CILA            Kennedys
                Legal advice in black and white
 The supply chain remapped
                         QnB highstreet     QnB bigshed

        Sellitall
       Wholesaler                 QnB retailer


                    Kettleco



   Elemental         Plasticity       Bits n pieces
   hardware          moulders         elec supplies

CILA                              Kennedys
                                  Legal advice in black and white
After the fire - at Kettleco


   Kettleco’s insurers loss adjuster calls to
                 investigate


                                                11
 The Sales director’s report
                      “Well I’ve been up to
                       see the fire at Plasticity
                       and I can report that
                       the tooling for our
                       kettles did not look in
                       too bad shape. The
                       factory is gutted and
                       they won’t be trading
                       for at least 10 months”




CILA                    Kennedys
                        Legal advice in black and white
 The managing director’s report
    “I’ve had QnB on the
     phone chasing their
     Christmas order they sent
     through last week. This
     could not have come at a
     worse time for that
     contract. Still it’s not our
     fire so Plasticity had just
     better get it sorted, and we
     had better make sure we
     get that tooling to work.”

CILA                                Kennedys
                                    Legal advice in black and white
 The production manager’s report
                    “It is our tooling, we
                     have paid for the work
                     on it. We pay by having
                     part of the cost
                     recovered from the jugs
                     they send us. The
                     tooling was made from
                     our plans and designs.
                     The QnB mod was
                     designed by Plasticity
                     but it is still our tooling.”

CILA                  Kennedys
                      Legal advice in black and white
 The material damage summarised
    Plasticity’s plant has been gutted
    The tooling for moulding kettle jugs can be
     reclaimed and made available for use within a
     week - this is four weeks quicker that to re-work
    A stock of moulded jugs for delivery have been
     destroyed together with the packaging
    Food grade plastic is specified by QnB
    Rigorous QC and supplier approvals apply to the
     QnB contract
CILA                              Kennedys
                                  Legal advice in black and white
The business interruption


           Harry Roberts



                            16
 The customer position
    Evolving partnership - then and now
    “You will pick up the tab”
    Tally all the costs and even impose penalties?
    “Fines and penalties”
     –   Excluded or not? - read the policy
     –   Can these payments be considered as ICW items?
     –   What does the contract say?
    Conundrum

CILA                               Kennedys
                                   Legal advice in black and white
 Kettleco position
    What is the supply contract with the customer?
    Can “force majeure” be pleaded?
    What if this plea is agreed but the customer
     withdraws their custom?
     –   Is this a new or intervening cause?
    What is reasonable - are we playing a new game?
    Where does the supplier’s extension fit?
    Who should fund the deductible and who gets the
     benefit of the policy?
CILA                                  Kennedys
                                      Legal advice in black and white
 The supply chain mapped
                         QnB highstreet     QnB bigshed

        Sellitall
       Wholesaler                 QnB retailer


                    Kettleco



   Elemental         Plasticity       Bits n pieces
   hardware          moulders         elec supplies

CILA                              Kennedys
                                  Legal advice in black and white
 Proximate cause considered
    “But for the fire………”
    The case in favour:-
     –   Established texts - Riley
     –   Current market practice - e.g. tenant
     –   The policy wording - losses in consequence of
         damage




CILA                                 Kennedys
                                     Legal advice in black and white
 Proximate cause - some more
    Any post insured event legal decisions?
    But for - how far can we go?
    Insured / uninsured intervening causes
    What is “the insured cause” - equity and advocacy

     “The confidence of the customer is a critical element in
       mitigating the loss and the “but for” argument
       needs to be anticipated and pre-empted”


CILA                                Kennedys
                                    Legal advice in black and white
Adjusters’ summary


          Jonathan Clark



                           22
 Getting your money back
    Recovery is in name of policyholder - “nominus
     litus”
    Not necessarily will the policy payments be
     recovered
     –   Reinstatement not always readily available
     –   No formula for business interruption
     –   Different evidential requirements litigation v
         insurance policy
     –   Economic losses are difficult to recover

CILA                                  Kennedys
                                      Legal advice in black and white
 The burning questions
    A) Can we take our tooling away from Plasticity
     and use elsewhere?
    B) Can we break our supply contract with
     Plasticity?
     –   If (A) is not possible we will lose at least 6 weeks
         while we set up new tooling and test it
     –   If (B) is not possible we must wait till Plasticity
         arrange alternative supply and manufacturing
     –   What about the others in the supply chain?


CILA                                    Kennedys
                                        Legal advice in black and white
The burning questions considered


           Mike Wells
           Kennedys


                                   25
 The supply chain mapped
                         QnB highstreet     QnB bigshed

        Sellitall
       Wholesaler                 QnB retailer


                    Kettleco



   Elemental         Plasticity       Bits n pieces
   hardware          moulders         elec supplies

CILA                              Kennedys
                                  Legal advice in black and white
 Indemnity and insurance
 “[Plasticity] shall at all times fully indemnify [Kettleco] against any
  action, claim, demand, cost, charges, losses or expenses caused to
  Kettleco, or for which [Kettleco] may be liable to third parties, due
  to defects in the workmanship or quality of the Goods, together with
  any claims in respect of death or injury where such death or injury
  arises out of the performance of the Contract and also any
  consequential loss or damage sustained by Kettleco or for which
  Kettleco may be liable as a result of the failure of Plasticity to supply
  Goods         in       accordance        with        the       Contract.
  Plasticity shall maintain policies of insurance in respect of its
  liability under the Contract and shall on reasonable notice produce
  copies of the policies to Kettleco or its authorised agents together
  with any other information regarding such insurances reasonably
  requested”.

CILA                                        Kennedys
                                            Legal advice in black and white
 Cancellation
 “[Kettleco] shall have the right by reasonable notice to
   [Plasticity] to change the nature of any goods or services
   covered by this contract …
 If the performance of work under this contact is cancelled
   in whole or in part by [Kettleco] by notice in writing to
   [Plasticity], [Kettleco] shall pay [Plasticity] for the
   performance of work carried out under this contract up
   to the time of such termination”.




CILA                                Kennedys
                                    Legal advice in black and white
 Force majeure
 “The performance of all contracts is subject to variation
  or cancellation by [Kettleco] owing to any act of God,
  War, strikes, lockouts, fire, flood, drought, tempest, or
  any other cause beyond the control of [Kettleco] or
  owing to any inability by [Kettleco] to procure materials
  or articles required for the performance of the contract
  and [Kettleco] shall not be held responsible for any
  inability to deliver caused by any such contingency”.




CILA                               Kennedys
                                   Legal advice in black and white
 Tooling - “DRAWINGS, PATTERNS,
 DYES, MATERIALS, ETC
All patterns, dyes, moulds, tooling, drawings or materials supplied by
Kettleco (or prepared or obtained by [Plasticity]) shall be and
remain the sole property of Kettleco. [Plasticity] shall maintain all
such materials in good order and condition and insure them against
all risks whilst in its custody. On completion of the contract (or
otherwise as directed by Kettleco), Plasticity shall return them to
Kettleco in good order and condition, subject to fair wear and tear.
Should Plasticity fail so to return them, Kettleco may either withhold
payment until they are so returned or withhold such part of the
payment due as may be required to replace them or to restore them
to good order and condition, whichever may be the less expensive.
Plasticity shall not copy or use such materials nor authorise nor
knowingly permit them to be copied or used by anyone else for, or in
connection with, any purpose other than the supply of goods to
Kettleco”.

CILA                                      Kennedys
                                          Legal advice in black and white
 Proximate Cause – Cause of Loss

 1. The event which leads inevitably
    (or put another way with reasonable
    certainty to the loss).




CILA                          Kennedys
                              Legal advice in black and white
 Proximate Cause – The Extent of
 Loss

2. If the loss was the inevitable result of a
   peril then the full extent of that loss will
   be recoverable and




CILA                             Kennedys
                                 Legal advice in black and white
 Proximate Cause – Extension

 3. In the absence of an applicable exception, in the
    event that the loss is not inevitable but was
    nonetheless not unlikely to result or put
    another way was the natural consequence it
    is likely to be covered.




CILA                           Kennedys
                               Legal advice in black and white
 Material damage proviso
 “Provided that at the time of the happening of the
  loss, destruction or damage there shall be in
  force an insurance covering the interest of the
  Insured in the property at the Premises against
  such loss, destruction or damage and that
  payment shall have been made or liability
  admitted therefore”.



CILA                          Kennedys
                              Legal advice in black and white
 Insurance
 “Plasticity shall maintain policies of insurance in
  respect of its liability under the Contract and
  shall upon reasonable notice produce copies of
  the policies to Kettleco or its authorised agents
  together with any other information regarding
  such insurances reasonably requested”.




CILA                            Kennedys
                                Legal advice in black and white
Summary of tonight’s
presentations

          Jonathan Clark
              CILA


                           36
 What we have reviewed tonight
    How complex is the supply chain ?
    What are the interdependencies?
     How is a manufacturing process owned and
     controlled?
     What is “pull” or “push” production
    What are the added risks of single manufacturing
     and distribution sources
    Can we move from a supplier if they sustain a
     loss?
CILA                             Kennedys
                                 Legal advice in black and white

				
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