CASE STUDIES


Fire at a metals production facility - Australia: The site which included a mine, smelter and refinery had a fire in its cable tray which significantly curtailed operations. At the time of the loss the insured did not think that the loss would exceed the deductible of $10m. Due to extensive experience with the client we thought that the loss would exceed the deductible. As such we offered to review of the insured’s loss calculation. The review noted that inclusion of variable costs in the analyses was not allocated correctly. The review and adjustment of the insured’s loss calculation demonstrated that the loss affected two major products and that due to continuing costs a significant loss occurred. The loss was submitted and settled for $34m net of the $10m deductible.

Theft by high performing employee - Australia: The employee of a printing company had been working for this company for a short time but was outperforming all sales targets. The employee was rewarded with a greater sales area and higher profile clients. The employee’s sales continued to sore but receivables balances started to increase. Within 9 months the employee started to miss work and health issues became a matter of concern. At this time clients were requested to pay on their account and it was noted that the employee doctored invoices, offered significant discounts for cash payments and was using payments from one account to pay on another account. The employee was terminated and the loss quantified. The insurer accepted that all payments accepted by the employee were a loss and to be reimbursed but that the discounts granted were not to be reimbursed. A paper was presented that showed that the discounts were improperly granted, the employee benefited from these discounts and that a loss was suffered by the insured. As all policy requirements for a loss were proven the insurer paid on a discounts granted (over $250k).

Employee hides fraud behind specialized knowledge – USA: 
A systems manager was working for a manufacturing company for 14 years and stole property worth $150,000 during the last 7 years of his employment. The employee was responsible for ordering all IT equipment required for use by the company. The employers were impressed by the employee’s expertise and trusted him with the entire IT budget, without ensuring adequate controls were in place to record the type and amount of products ordered and whether they were accounted for on the premises. A colleague had become suspicious of the employee’s activities and mentioned this to senior management. An inventory was performed and quantification completed verifying the loss. Procedures were developed and implemented to prevent further occurrences.

Internal gang uses stolen passwords to manipulate sales system – USA: 
A retail computer company made a claim for $112,000 after it discovered three of its employees, in collusion with a third party, had stolen 40 computers through sales at four regional department stores. By using other colleagues’ passwords to access the orders and sales system, the employees were able to raise fraudulent orders and issue fictional invoices. Delivery of the insured’s property was made to third parties without payment for 8 months. It was not until a fraudulent delivery was returned to the insured’s premises that the fraud was discovered. An inventory was performed and quantification completed verifying the loss. Procedures were developed and implemented to prevent further occurrences.

Loss of power at a refinery - Australia: The site lost power for 5 minutes but significant damaged occurred due to the loss of available heat to applicable units. The loss was reviewed, prepared and submitted totalling $55m. The loss adjuster and insurer queried several production variables and noted that event was to be considered as multiple loss events with 5 separate deductibles to be applied (offer of $28m). Significant effort was employed to analyse expert reports, to provide irrefutable production substantiation and to document plant operations all in an effort to respond to the insurer and loss adjuster’s queries. A final settlement meeting was held to review all points. At the end of the meeting the settlement was agreed at $50m (including a second $5m deductible which was subject to legal interpretation). Additional fees incurred as a result of the insurer and loss adjuster queries were $500k which the insurer covered.

Loss of an auxiliary transformer at a power generator - Australia: The site lost ability to fully generate power due a fire and the loss of equipment. The facility employed mitigation measures that allowed for the recovery of some generation but a claim was made for any lost generation. A sophisticated model was developed to measure the lost generation considering all aspects of the operation, market aspects and alternative locations in the insured portfolio for “make-up” generation. The insurer, loss adjuster and forensic accountant questioned the applicability of a credit to the claim for inflated market prices achieved by the portfolio during the loss period as a result of lower supply in the market. A paper was submitted that noted that whilst theoretically a credit for the price spike due to less supply of generation into the market could be applied, in this case no price spike occurred and no credit was warranted. The insurer, loss adjuster and forensic accountant reviewed the paper and agreed with the conclusion that no credit was warranted. The insurer, loss adjuster and forensic accountant further noted that policy called for a dollar cap on each unit of generation lost. It was argued that the policy did not state that the cap applied to “each” generation unit lost but to the total generation lost. Again the insurer agreed and paid the full amount of the loss calculated.

Product recall - Korea: Due to an extorsion plot utilising a product tamper against a global manufacturer, product was recalled from the market. The loss from the product tamper and recall not only included the specific tampered product but all products manufactured by the insured. Further complicating the quantification of the claim was the fact that the insured was releasing a new product into the market at the time of the tamper and recall. The insurer was reluctant to accept that any of the other products suffered a loss and that the new product would not have reached the sales level predicted. Extensive research and documentation had to be compiled to prove how and why the market reacted after the tamper and recall which caused a significant loss of sales for all products. Further, research and documentation had to be produced to justify the sales forecast for the new product launch in the foreign market. Experts were consulted on both sides and through extensive meetings and negotiation an agreed settlement was reached that included the loss of sales for all products and for the new to market product.

Loss of generator at a power generator - Vietnam: The site lost the ability to generate full power due to the loss of equipment. Whilst testing of the damaged equipment was occurring at the OEM a temporary generator was located to mitigate the loss. It was demonstrated to the insurer that the mitigation strategy was viable and the insurer agreed to purchase the temporary generator and complete minimal a refit to suit the facility. At commissioning of the temporary generator it was found that the temporary generator mitigated the loss 100% (investment of $4m saved $28m in business interruption). Upon reinstatement of the damaged transformer it was noted that 6 weeks were required for the change over from the temporary transformer. There was a scheduled 4 week shutdown prior to the end of the maximum indemnity period. It was further noted that there was a 6 week shutdown schedule for 6 months subsequent to the end of the maximum indemnity period. It was negotiated with the insurer to maintain cover past the end of the maximum indemnity period so that the change over could occur at the time of the longer shutdown period when no further business interruption would occur. All parties agreed and the changeover occurred at the later date with no further business interruption occurring. Saving in business interruption due to the negotiation was $20m.

Hot forging tool manufacturer - China: The site lost the ability to produce product due to a fire. Complicating the claim calculation was the fact the damaged location was only the forging location for the tools whereas other multiple locations completed the manufacture and sale of the items. Analysis had to be completed to isolate where the loss occurred and what costs were incurred. Selling price and intercompany transfer price had to be reviewed, understood and documented. Further, mitigation strategies were developed and discussed with the insurer prior to implementation which resulted in significant savings in the loss calculation. Loss fully substantiated and settled with the insurer.

Semi conductor molding system manufacturer - Malaysia: The site lost the ability to produce product due to a fire. Substantiation was provided to note damage to equipment and loss of sales. The insurer questioned damage to some equipment and denied cover and resultant business interruption for these items. Significant analysis and review of policy wording was completed to present to the insurer as to how and why damage occurred and why cover was applicable. The insurer agreed with the interpretation and agreed on cover. Amount recommended for settlement by the insurer increased 350%.

Specialty Chemical Processor - Singapore: A significant fire destroyed two storage tanks and significantly impaired production. During the rebuild approval process the statutory authorities required new build requirements. The insurer claimed that these were enhancements and any associated business interruption was not covered. A paper was prepared that noted the statutory requirements and impairment on production during the rebuild. The insurer reviewed and agreed with the assessment. Full cover was provided for the rebuild and the related business interruption.