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January 4, 2013

Since launching the article on retentions in June 2012 there have been some interesting developments.

Irish Broker Magazine have not, to date, chosen to publish the abridged or full version in their magazine.

CILA are in the process of posting the article to their specialist/special interest section of their website. My colleagues in the U.K. are not familiar with the procedure (arbitrary retentions) which is peculiar to the Republic of Ireland.

Copies were sent to the CEO/Managing Directors of the insurance companies involved in the application of arbitrary retentions and the response was fairly predictable in that in essence they did not see that they are doing anything wrong.

The Irish Insurance Federation responded on the 7th August 2012 as follows:

“We have discussed the issue you raised with member companies and their view is that there is significantly greater discretion permitted by law in relation to the use and calculation of retentions than you suggest. As the standard basis of settlement under Material Damage Policies allows for reinstatement or repair as well as cash settlement, Insurers are entitled to retain claim monies, even after agreement of the basis and amount of settlement with the Policyholder, pending satisfactory completion of the reinstatement work. The use and scale of retentions may have increased to some extent in recent years as a result of negative experiences with shoddy work and an increase in the instance of fraud and the retention of claim monies pending the satisfactory completion of work in accordance with approved work schedules and estimates has been found to be the effective way of controlling these problems”.

My research is based on insurance contract law including common law and well founded and long established principles and procedures. In that context the only “discretion” is the reinstatement value of the works less wear and tear deductions on a component basis. In essence this is not a “discretion” but a well founded principle and approach and as stated in my article, retentions did not apply under the Personal Lines Policies at all until introduced in this country in recent years.

The reference to “negative experiences with shoddy work” and fraud is worrying in that the implication is that the use of increased (or indeed arbitrary) retention amounts is being used as a “stick” and supports my view that Insurers should not take a broad brush approach in these matters. It also completely ignores the contractual nature of the insurance Policy and the absence of specific terms and conditions referring to retentions. As outlined in my article the correct procedure is payment by means of a cash settlement based on the reinstatement value less scientifically calculated wear and tear deductions on an item by item or component basis.

The article was also submitted to the Central Bank and their representative has indicated that they are considering the matter as part of a “themed inspection” of property insurance claims and the matter is to be reviewed in February/March of this year in the context of the Law Reform Commission and the Consumer Protection Code and I will update this blog in due course.

The Ombudsmans Office (FS0) have not provided a formal response.

Many Senior Adjusters have contacted me, indicating, “off the record”, their support of my view but because of the way the adjusting profession has developed from an independent into a type of agency or “non delegated” relationship, Adjusters have no choice but to do as directed by Insurers.

An assessing colleague based in Northern Ireland contacted me indicating that he had two claims with the same Insurer, one in the Republic and one in Northern Ireland. They were both escapes of water under the same Policy wording. The Adjuster in Northern Ireland dealt with the matter on a reinstatement basis i.e. settlement was based on the reinstatement value of the works without a retention. However the Adjuster in the Republic applied a 30% retention. The value of the claims in both incidences was circa €25,000.

I remain steadfast in the view that arbitrary retentions were sold to some Insurers by certain loss adjusting firms as a marketing ploy. The procedure is wrong and is completely outside the terms and conditions of the Policy. As stated it is practiced in the Republic only notwithstanding that the wordings are FOC/ABI standard Policy wordings. If an Insurer opts to amend its wording then this is fine as the retention amount then becomes a term of the Policy. However in the absence of such a specific term, Insurers are benefiting from an unjust enrichment.

Alan FitzGerald, FCII., FCILA., FUEDI-ELAE.

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