Credit insurance claim busters – the dreaded trade dispute is increasingly being used as an excuse not to pay

by Mark Attley

In his recent blog post, my ICBA colleague, Rob Downey talks about the claims process in a credit insurance policy and cites his top ten reasons why claims are denied.

In today’s economic environment, my colleague Ron Doyle, another ICBA blogger, has pretty much taken up full time residence in our claims handling room at our head office in Ottawa, Ontario, Canada. Ron is a seasoned credit insurance vet with over 30 years experience in the credit insurance business. Having worked through at least five recessions and possibly four mini recessions, he has a myriad of unusual claims stories.

Seldom does a day pass where we do not receive two or three new claims, some small and some very large. Unfortunately, not all of them go smoothly and one of the items in Rob’s "Top ten reasons for claim denial" is normally the culprit.

We are seeing a significant increase in the number of protracted default claims, i.e. claims where the customers are still in business but have failed to pay within terms. What is disconcerting is that many of these claims are being denied because the customer has alleged a "trade dispute".

What is also increasingly evident is that once the evidence has been reviewed many of these disputes are frivolous and are clear attempts by debtors to delay or avoid payment obligations.

Credit insurers do not discriminate between legitimate or frivolous disputes; regardless, claims cannot and will not be considered until the dispute has been resolved. Our clients are then forced to take legal action at great expense of both money and time to obtain a court judgement against the debtor.

So what is a company to do? Best practices suggest that contracts need to be clear and contain certain clauses that will assist in the event of a dispute. I highly recommend that a lawyer be engaged to ensure contract documents are clear and enforceable. Below are some suggested areas to include in a contract to mitigate potential trade disputes:

• A clear acceptance process with acceptance deemed to be given if not concluded within a defined timeframe.
• Written procedures to acknowledge the customer has received the goods.
• Ensure that the individual acknowledging receipt of the goods has the authority to do so.
• Include an arbitration clause that outlines how, when, where and by whom disputes will be resolved.
• Identify who can amend the contract.

Benjamin Franklin's famous but seldom heeded idiom, "an ounce of prevention is worth a pound of cure" can assure speedy resolution to trade disputes and expedite the claims process.

(Mark Attley is an ICBA Canada broker and President of Millennium CreditRisk Management – credit and political risk insurance specialist – www.mcm.ca. ICBA is the world’s largest team of independently-owned, specialist trade credit insurance brokerages. Partners combine local service with global coordination to provide credit and political risk insurance solutions for multinational companies.)