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Management matters

Are you really insured?

INSURANCE as a subject is a closed book to many road transport operators. To them the conditions on many policies seem an incomprehensible maze of legal jargon, the resulting premiums an unavoidable but unremunerative outgoing in much the same category as licence duties and other taxes.

Last week, however, I reviewed a booklet just published entitled An outline of insurance which set out to explain this difficult subject in simple terms within the limitations of only 52 pages. This week 1 record the comments of a transport consultant and operator, Ralph Cropper, on this admittedly complex and often contentious subject.

Paradoxically, he points out that it is only after you become insured that you can realize you are not insured—at least for that eventuality which is all important to YOU.

The very word "insurance" is itself misleading. We think of insuring, says Mr. Cropper, as a means of providing security and complete safeguard for the future. Some insurance advertisements promote this impression with the phrase "safe as houses" or "protection for your future", backed by reassuring adjectives such as "comprehensive" and "all-risks".

Insurance is undoubtedly concerned with future events and is designed to provide against possible untoward turns of events. But, Mr. Cropper points out, we must remember that insurance is big business. As with any other business, insurers, their staff and their agents are there to make money and, again like other businesses, insurers have to sell their "wares"—their policies.

All salesmanship requires the creation of a favourable atmosphere. In the case of insurance it is obviously desirable to create among prospective clients the belief that insurance will take all worries off their shoulders.

The future is full of risks—that is a basic fact of life. Even the once time-honoured phrase, "Safe as the Bank of England" now starts sounding a bit hollow in the light of devaluation, a gold crisis and the like.

So future risks will remain—if not become greater. For those in road transport, Mr. Cropper insists, the risks are heavy ones and means of alleviating them must be sought wherever possible.

Accordingly operators take out insurances of various kinds. But in so doing, Mr. Cropper warns operators, they have not thereby solved everything: they are only at the start of solving their problem.

To put it bluntly, insurers don't want to pay out when there are losses and claims any more than operators would want to pay out their own money. But insurers are in business on the belief that they can, on average, maintain a comfortable profit margin despite having to disburse substantial sums from time to time.

To maintain such a favourable margin it is a case of the less risks the better for insurers, Mr. Cropper contends, even though they are selling their services by implying that they accept the risks involved. Nevertheless they adopt various means to define the extent to which they will pay out on claims.

Conditions of carriage

If we stop to think about it, we can see this is a fair attitude for them to adopt. With every policy that the insurers issue there must be limits as to when they will pay out. The trouble is, however, that insurers are thinking about this aspect the whole time—it is their business to do just that. But the insured party rarely gives this matter much attention until he is already deeply embroiled.

By way of comparison Mr. Cropper suggests the consideration of a haulier's own conditions of carriage. A haulier adopts conditions of carriage—or at least he certainly ought to—in order to try to limit the extent of his risks towards his customers. But how many customers examine these conditions in detail? In a very similar manner insurers adopt their own conditions. They comprise the printing—often in small type—on the policy but, Mr. Cropper points out, these conditions are not there to assist persons seeking insurance. On the contrary they are designed to limit the amount and reduce the occasions when the insurers will have to pay out. But how many hauliers carefully study the wording on their insurance policy? Very few, one can reliably presume from observation.

But in considering the interest of both parties, Mr. Cropper suggests that it is perhaps surprising that insurers do not protest more frequently and vehemently at the vast sums they have to pay out on claims. But these disbursements are more than covered by the even vaster income which they receive from premiums.

However, when a haulier makes a claim upon his insurers there is a possibility that it may not be met; they may find a loophole which appears to remove their liability. (In contrast, perhaps, it is remarkable how often they do pay up without much bother or pressure from the claimant.)

It was just what the insurers did in the recent James Holden Junior (Crumpsall) Ltd., case (CM March 15, May 10 and 17) when they originally turned down the claim for the loss of a lorry load of copper worth £5,421. To get payment of their claim Holden had to sue their insurers and it was only after a High Court hearing that judgment by consent for the full amount with costs was given. Additionally Holden received interest at seven per cent from the date they themselves paid the owners of the copper for the loss they had incurred.

The brief facts of the case are as follows: a trunk vehicle was travelling overnight from Manchester to Buckinghamshire carrying a load of copper bars worth £5,421. The trunk driver who had brought it from Manchester stopped in London outside the house of the relief driver. When the latter did not appear he went to the house to call him and was away from his vehicle for about five minutes. But during that period the vehicle was stolen. It was subsequently discovered in another part of London in the surprisingly short time of little more than an hour but already without its valuable load.

After the usual investigation and subsequent report from their assessors, the insurers turned down the claim on the basis of one of the "small-print" clauses in the policy. This required that vehicles were maintained in good order and that the insured exercised due care and diligence.

The insurers argued that the Holden management should have done more to ensure that such a theft could not occur and they called evidence to support an amended plea that in many cases protective devices on the company's lorries did not work because of defects or lost keys. Moreover, at a meeting a few months before the theft no instructions were given prohibiting lorries being left unattended, they maintained.

To rebut this, on behalf of Holden, a driver /shop steward gave evidence that at a meeting attended by most of the drivers in 1966 it was decided that the trunk man would wait up till half an hour at the shunter's house and if he had not then appeared the trunk driver was to proceed to the depot. Instructions to this effect were posted on the notice board. The driver was not to leave his vehicle on arrival at the shunter's house. Because keys to steeringcolumn locking devices were being lost the devices were sawn off, the shop steward said, and since the theft all changeovers had been at the depot.

"Small print"

It was after this evidence that the QC for the underwriters asked the court to enter judgment for Holden, with consent, for the full amount as already stated. This, Mr. Cropper contends, was a convincing victory.

As to the vehicles being maintained in good order, the insurers contended that there was failure here as there was no locking device on the vehicle. The cab door did not lock and had not been locking for some weeks, although the driver claims he had reported this defect. Moreover the cab door key had been lost for some time.

As to the allegation that the insured had not taken proper care, the insurers contended that a second man should have been sent with the vehicle when it was carrying such a valuable load and /or that much more stringent instructions should have been given to the staff that they should never leave the vehicle unattended.

It shows how important the "small-print" clauses in goods-in-transit insurance policies can prove to be. It is the insurers who write these clauses into the policy and it is their interpretation that counts when they decide whether they are prepared to pay out on a particular claim.

Comprehensive cover

The Holden case clearly debunks a widespread misapprehension amongst hauliers, Mr. Cropper contends. Talking to hauliers about goods-in-transit risks and liability to customers many blandly reply that they are covered by their insurance and there is therefore nothing for them to be concerned about.

This cannot be refuted too emphatically. A haulier has a first relationship towards his own customers because they are doing business together. In business there are always risks and a haulier is answerable to his customer. It may well be wise for a haulier to enter into a second relationship, namely with his insurer. But the existence of the insurer does not reduce nor remove liability arising from the first relationship of the haulier to his customer. Thus Holden had to pay their customer under their first relationship. It was the repayment to them under the second relationship that had been in dispute.

The risks involved in the carriage of freight are so great that every haulier is obliged to insure. But to get the correct and most comprehensive insurance, Mr. Cropper points out, is easier said than done.

In general it is probably best to stay with the same insurers for several renewals unless and until there is some real dissatisfaction or other reason for change. In contrast the saving of a small amount of premium may be of doubtful worth unless one is sure there is no associated reduction in the extent of cover provided. With an existing policy a haulier should have begun to gather some knowledge as to its clauses and contents. On renewal, rather than seek another policy and insurer, it is often better to try to get some easement of any wording or conditions he considers too onerous. For example, he might suggest that a 14-day cancellation clause should be extended to 28 days.

A change of insurers is a much more risky step than a mere economizing in premium. The insured is then jumping into the unknown, as he is not supplied with a copy of the policy until long after he has accepted the insurance and paid premium. Even if he were supplied beforehand with a blank copy of the policy, he would still have the problem of evaluating the significance of the "small-print", particularly as its interpretation would rest with the insurers.

Insurance brokers

As regards insurance brokers Mr. Cropper recognizes that they perform a very valuable function. Although they are paid by the insurers an appropriate commission as applies with any other agency, brokers do claim to represent the interest of the insured rather than the insurers. This is more often true than cynics might be inclined to believe.

Brokers can provide helpful comment on the interpretation of policies, evaluation of risks, drafting of .endorsements in addition to obtaining alternative quotations from various insurers based on their knowledge of the insurance market.

But Mr. Cropper gives this word of warning; if a haulier has to change his insurer it may seem logical that, at the same time, he should change his broker. But brokers will never agree to this contention, says Mr. Cropper; they maintain that they are free to act for any insurance agency or group.

But it was the existing broker who negotiated the previous policy and the fact that a haulier has now had to make a change of insurer is itself an admission that the previous good relationship with the broker no longer applies. The precise cause of the need to make a change of insurer may not have been directly the fault of the broker. But indirectly it must be, as he was the agent who recommended the insurer and completed the arrangements which have now proved to be to the haulier's dissatisfaction or disadvantage.

Mr. Cropper's final advice is to stick fast to the insurance already held. Only change when there is genuine reason for doing so. If • a change is made, get another broker. There are plenty to choose from.