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Legal and Insurance considerations in the mining sector

Market Insight
26 February 2014

This article was first published in Mining Journal’s Global Risk and Insurance Guide 2014 and is reproduced with permission.

The attitude to insurance of organisations in mining and other commercial sectors has changed in the last decade. The development of knowhow and increased awareness of risk management and corporate governance has seen a shift in insurance buying, and insurance is perceived to be an essential tool for improved corporate governance and business continuity.

In this article, we will consider the shift in attitude and highlight what considerations are necessary to ensure contract and coverage certainty. We will also suggest some ideas to ensure effective claims handling processes that could help minimise disputes between policyholders and insurers, and to identify coverage issues early to avoid protracted and distressed claims.

Trends in the mining sector

There has been an unprecedented level of losses in the mining sector in recent times. In the last five years, over US$5 billion of property damage and business interruption claims were produced to the global insurance industry on an annual premium base of US$500 million to US$750 million. These losses were caused by a series of severe weather events and natural catastrophes such as floods, earthquakes and cyclones as well as operational incidents, including major equipment break-downs. The effects on the mining sector and associated industries, including suppliers and customers has been significant and complex. As key production and supply chain points were affected, interruptions were often lengthy and significant. In some cases, reduced output has been argued to have caused price spikes in the global cost of commodities. This gave rise to coverage issues regarding the calculation of business interruption claims and other issues. The losses also gave rise to increased claims and protracted coverage disputes.

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Contract certainty and quality

With the increased focus on insurance in the corporate governance arena and its growing risk management influence on business continuity and balance sheet protection, organisations need to focus on contract certainty, contract quality and efficient claims handling.

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Claims handling

As discussed above, wordings are usually not tested until claims are made. As part of the risk management process, it would be beneficial to have in place an agreed, robust, mining industry claims protocol to project manage the claims handling process effectively. Such protocols would identify who acts for who, the role of and appointment of loss adjusters, how the engagement and cooperation between parties will take place and include a plan for the efficient flow of information/documentation and reporting. This could help manage and progress the myriad of issues and uncertainties that can arise when handling large, complex claims in often unpredictable foreign jurisdictions. We set out below some examples and suggestions for how a claims handling protocol could assist.

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  • Australia: Under Australian law, interest on insurance claims is governed by s57 of the Insurance Contracts Act 1984, which provides that:

    (2) The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to ha
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