Private Investigation Services - LKA Group

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Variations: The Devil is in the Detail

Insurers and Loss Adjusters are commonly involved in arranging repairs to houses, factories and a wide range of other buildings and often we are dealing with builders who are well known to us.

Repairs where an experienced insurance builder has provided a quote based on a detailed and professionally prepared Scope of Works are normally the safest in terms of possible cost overruns.   Equally repairs where an independent Project Manager is also involved, should provide an additional level of security to the insurer about any items which do not form part of the claim.

Variations however are a fact of life; even the best prepared Scope of Works may miss something important which is related to the loss or further claim related damage will be found during the course of the repairs.  Most variations are completely in order and do not raise any issues, but it’s the ones in the ‘grey zone’ which can be problematic.

The danger is that in a fast moving repair situation, the Project Manager may approve a Variation without consulting the insurer or Loss Adjuster.  On a $2M project for example, a small variation totalling say $20,000 is in the overall context very minor and thus typically within the delegated autonomy of the Project Manager under the Project Management Agreement – but is not inconsequential to the Insurer who is asked to pay the bill.  Any unjustified variations are of course, preventable claims leakage.

In major rebuilds or repairs, part of the Project Managers role is to approve the variation before submitting the builders invoice to the Loss Adjuster or Insurer for payment.  In many cases, a Quantity Surveyor may have also done likewise adding another level of approval.  In other cases the Builder may simply submit a final invoice direct with the Variations tacked on the end.

The Project Manager of course is not an insurance person, nor is the Builder, nor the Quantity Surveyor.  The Builder however will act on directions from the Project Manager.  The critical question for the Loss Adjuster and thus the insurer, is usually not whether the work has been done at a reasonable cost or was even necessary, but whether it is a valid Variation under the terms of the insurance policy or not.

Our office has seen some recent examples of variations being approved by both Project Managers and Quantity Surveyors for works which were clearly not related to the insured loss. An example of this is landscaping works which were not damaged by the loss, but had to be done in order to make the building presentable for final handover; the key point in this particular instance was that the original landscaping had not been done before the loss happened (as the building was destroyed by fire 3 weeks prior to handover at the original build).  In this case, the substantial variation whilst quite valid from a Builders and Project Managers perspective, had nothing to do with the insurer or the claim and indeed, had not even been included in the original repair Scope of Works for that very same reason.  When queried on this the Project Manager agreed the variation was not allowable as part of the claim and then had the Builder invoice the property owner direct; it was a cost the property owner had already budgeted for but never incurred after the original building was destroyed prior to completion.  Another example would be final fit out items which had not already been supplied or installed in the same total loss building prior to the fire, but were also required prior to final handover.

These cases highlight the risk of claim leakage which exists where even with a range of other highly skilled professionals in the stream, the value to the insurer of an independent Loss Adjuster with intimate knowledge of the claim and what the policy covers, cannot be ignored.  In the above single example for instance, for 15 minutes work we saved our client many times more than our fees for the entire claim.


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