Monday, July 11, 2011

ERM-BC-COOP: Read the policy

And be smart


According to a story from the Herald - Times of Bloomington, IN, and picked up by AdvisenFPN, if you disconnect a building's sprinker system and there's a fire, don't expect the insurance company to pay off.

It seems that the Little Nashville Opry's sprnkler system failed to work because, as the Brown County TN circuit court found, the structure's owners failed to maintain the sprinkler system so the insurance company "has no obligation to pay."

The story, which may be read at, noted that the reason the sprinkler system failed was because the building owners disconnected the system following a case of frozen-and-then-burst pipes - which an insurance company paid to restore to working order. The article failed to note if it was the same insurance company that now denied the building owers' claim.

For risk management practitioners, there are two lessons to be learned.

    Lesson 1: Maintain, and test, safety equipment.

    Lesson 2: Read and abide by insurance company policy contents.

Unless the policy is in BIG PRINT and in plain English (or whatever the language of the land), get outside help in deciphering it before signing the contract. Insurance adjusters are good resources as interpreters.

One other point.

If the contract is multi-lingual, determine which language is the "base" language for the document. For example, if the English is a translation from Spanish, and if there is a conflict between Spanish and English, Spanish - as the original language - will prevail. (Many hours have been spent arguing the meaning of the Sixth of the "Big 10" commandments, לא תרצח - is it "do not murder" or, as mistranslated, "do not kill?" As with the insurance policy or any other multi-lingual document, "The Original Rules.")

The problem for a risk manager: How to convince management that its action (or inaction - failing to test) is itself a risk, or as in the case of the burned facility, that management compounded the risk.

The article noted that the fire that severely damaged the building appeared to be arson.

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