Hire Agreements – the devil really is in the detail!
Hire agreements appear to be far more complex than meets the eye. Specifically, it encourages brokers to really understand the detail behind each hire agreement and to check in to the disproportionately high amount of small print.
There is an undeniable truth about writing insurance and claiming through insurance…that there is much detail that needs to be both communicated and understood. Too often, policies are written, but are undone when claims fail to meet the expectation of the insured.
Here we focus on one specific area that really does require detailed understanding. Hire Agreements contain more small print, than insurance policies. Glenn Ross, CEO of MECON Insurance takes a look at this complex area and provides both a summary of lookouts based on some real life case studies.
Let’s start with a few specific examples that seem to crop up on a regular basis:
Damage waivers – these, often unintelligible, parts of a hire agreement generally contain a tick-the-box selection for “damage waiver”. This damage waiver usually purports to insure the hirer (sometimes in one clause!) against damage to the item hired. However, they often do not insure theft and/or they provide cover only up to a relatively low value. They are often applied “solely at the hire company’s discretion”. Damage waiver cover needs to be closely examined.
Goods in Care Custody or Control (CCC) extensions on Public Liability policies are often believed to insure hired items. However, liability policies require an insured to be legally (as opposed to contractually) liable for loss or damage before they will respond.
In cases where a hirer has taken reasonable precautions against theft, but thieves break and enter to steal a hired item, or storm damage occurs, CCC may not respond as the hirer would not necessarily be considered to be legally liable for the loss. Some hire companies will require new replacement value compensation from the hirer for the stolen item – which may be many years old and/or nearing the end of its commercial life at the time of loss.
MECON has seen a number of these issues, which have escalated in to rather acrimonious events; hire companies threatening legal action or refusing to supply hirers (adversely impacting on a hirers business) and/or employing other “bullying” tactics – when in fact the hirer was not responsible for the loss and was only guilty of patronising the hire company.
The, often poorly drafted, Hire Agreements can contain a whole raft of adverse “contractual” implications for the uninitiated hirer. That the hirer has no Bailee’s or legal liability cover for a loss is secondary to the application of the Hire Agreement small print – invariably to the hirer’s detriment and cost.
In a recent case, a hired item was damaged by a (known) third party. The hirer was not legally liable; they had elected the damage waiver (which didn’t apply for some reason). They were refused further hiring privileges until they had paid the $20,000 repair bill! Why didn’t the hire company exercise a modicum of public relations in favour of its client and recover directly off the at-fault third party?
So how should a broker deal with this risk?
The first step is to alert their clients to the dangers posed by these Hire Agreements. They are usually binding contracts drafted unilaterally in favour of the hire company and they can contain very unfavourable terms for a hirer. Clients should be made fully aware that even if insurance does respond to a loss, it is most likely to provide an indemnity settlement – leaving a shortfall between market value and some hire company’s expectations. In some cases, this is new replacement value.
Whilst a CCC extension may apply, where a client is found to be contractually liable for a loss, material damage cover is a safer insurance option, as the onus of legal or contractual proof has no bearing on a material damage claim.
How can MECON help?
MECON provides an extension to their Annual Projects and Contractors Plant (Material Damage) policies for hired-in plant to assist clients in coping with this risk.
This still leaves the indemnity “gap” issue for a client to deal with. On many occasions, there is enough ambiguity in Hire Agreements and/or enough mention of the word “indemnity” in the Hire Agreements, enabling a hirer’s legal representative to prevent over-inflated replacement values from being applied, but not always!
MECON’s Contractual Liability policy can cover inflated values required by such contracts.
For further information contact your local MECON office.