The Queensland mining industry will have an estimate of flood losses this quarter, but miners still have legal action under way on insurance claims from the 2007/08 floods that could affect how the most recent losses are settled.

Matters in dispute from 2007/08 relate to how many flood events occurred, whether loss was caused by flood or inundation and the extent of economic loss.

The Queensland Resources Council (QRC) has estimated that only about 13% of the state’s 57 coalmines are in full production, while 81% are operating under restrictions.

Willis Group Mining Practice Leader Steve Higginson told insuranceNEWS.com.au it’s too early to put a figure on the size of the claims.

He says preliminary work has been done so as not to breach policy conditions on lodging claims, and the leading global mining insurers have assessors on the ground.

“The prospect of no policies being called on is extremely low,” he said.

Most mines can provide some degree of access, although their operations remain affected. Preliminary indications of loss are expected within the next month, or after the first quarter when affected miners will be able to compare revenues with budgets.

Queensland miners usually build up stockpiles in anticipation of the wet season so they have coal to ship if production from the pits is disrupted. But the current wet season came early, giving them less time to prepare.

The QRC has estimated the coal industry has lost $2.3 billion in sales from wet season events beginning in December.

However, although output is down, the extent of the miners’ economic loss is likely to be a source of dispute.

“The product itself has not been lost because the coal is still in the ground,” Mr Higginson said. “They just can’t get to it.”

Business interruption policies rely on property damage to trigger loss, but mining losses may be limited to machinery.

“Water in the pit does not constitute physical damage,” Mr Higginson said. “There are a very small number of mining operations where physical damage is not a prerequisite for the policy to respond.”

Following the floods most mines declared force majeure, which nullified their obligations under contracts, so they will not be penalised for not delivering coal on time.

One significant issue will be whether the industry can agree how many weather events there were, which will affect retention and therefore the size of claims.

This is still being disputed from the 2007/08 floods, where claims have gone to litigation and arbitration.

“If you have a flood on Day X and then on Day Y, how much of the flood should be attributed to the second event, because the first dumped a lot of water into your pit?” Mr Higginson told insuranceNEWS.com.au. “You were pumping it out when along came the second event, so was it rising water or falling water?”

He says where two events occur relatively close together it is probably impossible to apportion the impact and a compromise has to be reached where all parties are “equally p*ssed off” but can accept a negotiated outcome.

He says this has not happened for the 2007/08 floods.

The number of events will also determine how many insurers are involved, as fewer but larger claims will trigger higher layers of cover and complexity than a larger number of smaller claims that only involve the first tranche of insurance.

Mr Higginson says lost profits account for the majority of disagreements and litigation.

This is complicated by commodity markets, which pushed up coal prices following the floods.

In 2007/08 prices were set annually but now they are set quarterly, and insurers imposed price caps after 2008.

Mr Higginson says the latest floods will be a test of whether the caps help achieve more timely settlements.

“The insurance market will need to be very aware that the insured community is looking at this very carefully, because it was imposed by the insurance market.

“So if it doesn’t help the process… by removing argument and achieving a compromise and getting money transferred, then the insured community will question it.”

He says lessons have been learned from the 2007/08 floods and they have helped mitigate the impact of the recent floods.