Cayman General Insurance Company – now called Sagicor General (Cayman) Ltd. –
settled Hurricane Ivan property damage claims by two very different methods,
according to recent testimony in Grand Court.
Alastair Paterson and Jonathan Nicholson of Crawford Adjustors (Cayman) Ltd.
both testified that they were told during a meeting with Cayman General
Insurance President Danny Scott and Cayman National Corporation President and
CEO Stuart Dack to start adjusting claims on an indemnity basis as opposed to on
a reinstatement basis.
“We were quite surprised,” Mr. Nicholson told the court.
Reinstatement insurance policies replace old for new; they pay – providing a
property is sufficiently insured – enough for a homeowners to rebuild a
destroyed home or repair a damaged home to a similar standard than prior to the
loss. Indemnity insurance policies, however, look a property’s value at the time
of loss, taking into consideration things like depreciation of materials. As a
result, settlements on indemnity policies are invariably less than settlements
for sufficiently–insured properties with reinstatement policies.
The testimony came in open court during the counterclaim portion of an action
initiated by Cayman General Insurance and the proprietors of the Windsor Village
Strata in February 2006. Sagicor later became the plaintiff in that case against
seven defendants, which included Mr. Paterson, Crawford Adjustors (Cayman) Ltd.;
Bould Paterson Ltd.; Hurlstone Ltd.; Hurlstone General Contractors Ltd.; John
Hurlstone; and Robert Hurlstone. Sagicor dropped the original claim just before
the trial was to start in November 2008 and then lost a counterclaim action by
some of the defendants.
Mr. Nicholson testified the meeting with Mr. Dack and Mr. Scott took place on
18 January 2005 in the Cayman General boardroom. During that meeting, he said he
and Mr. Paterson were told to adjust all claims going forward on indemnity
Mr. Paterson testified that Cayman General claims concerning Hurricane Ivan
had been adjusted on a reinstatement basis up until that point. He agreed that
the policies were in fact indemnity policies.
It was also discussed during the counterclaim that in a previous court
action, concerning Cayman General and the proprietors of the Sunrise
Condominiums Strata plan, the court had ruled that CGI’s policies were indeed
Mr. Paterson, however, said the policies weren’t sold as indemnity
“They were being marketed as reinstatement policies,” he said, adding that he
thought the Windsor Village strata bylaws required the property be insured to
full reinstatement value, not on an indemnity basis.
Speaking about the issue this week, Mr. Scott – who is now president of
Sagicor General – said that immediately after Hurricane Ivan, Cayman General
tried to adjust the claims “as liberally as we could” and they allowed
settlements of claims on a reinstatement basis. However, after the true extent
of the losses became more apparent, the company had to change its approach.
“We called every adjustor in and told them we had to adjust the claims on an
Mr. Scott said all of policies of property insurance are really policies of
indemnity at their core.
“But you can make an amendment making them replacement policies,” he said.
“If the sum insured falls below the replacement value, it reverts to an
indemnity policy and is subject to averaging.”
CGI’s precarious state
Mr. Nicholson and Mr. Paterson also testified they were asked by Mr. Dack and
Mr. Scott to lower their initial reserve estimates regarding Hurricane Ivan
He said the reserve estimates were not the claim settlement amounts, but an
initial estimate of potential liability for Cayman General.
“Danny explained how precarious CGI’s position was,” Mr. Nicholson said. “We
were asked to try to reduce the reserves as much as we could.”
Mr. Nicholson said Mr. Scott and Mr. Dack expressed concern that if the
reserves were not lowered, CGI could be considered insolvent.
Mr. Nicholson testified that he asked if a 15 per cent reduction of the
reserves would be enough and Mr. Dack said he thought it would.
Although they were asked to try to lower the reserves, Mr. Nicholson stressed
that at no time did Mr. Dack or Mr. Scott ask him or Mr. Paterson to do
something illegal or unethical. He agreed with a defence attorney suggestion
that they were basically asked to “please make the reserves as accurate as
“Yes,” Mr. Nicholson said when asked if that were a way of summarising the
request. “And [Mr. Dack and Mr. Scott indicated] it would be helpful, if not
essential, for the [reserve] numbers to come down, otherwise the company could
be deemed insolvent.”
Mr. Nicholson said Crawford Adjustors (Cayman) did go back and look at the
reserve numbers with the intention of seeing if they could be reduced. However,
he said they were only able to reduce the figures from $57 million to about $52
million, a reduction of about 10 per cent. He said that he and Mr. Paterson felt
the reduction of the reserves were legitimate.
Although Cayman National Corporation no longer has an interest in Sagicor
General and therefore Mr. Dack could make no comments about the matter now, he
did discuss it with the Caymanian Compass in April, 2005. At that time,
he noted that reserves are usually much higher than settlement amounts.
“Until they are settled, the reserves that an insurance company [must] carry
on their books have to be larger,” he said at the time. He also noted that
negotiated settlements are usual after events like Hurricane Ivan and that
larger claims are often settled for up to 50 per cent of the initial insurance
adjuster estimates, or reserves.
“It’s very mistaken to think the initial figures of loss adjusters are going
to be the definitive settlement,” he said at the time.
Mr. Scott said very much the same thing this week.
“The reserves are estimates of loss that we pass on to reinsurers,” he said.
“We don’t want to pass on a figure that is too low and then go back and ask for
more if it is not enough. You never want to do that… so we are very conscious of
not providing a figure too low.
“Every estimate provided by every loss adjustor is therefore set way above
what the settlement amount will be.”