The claims of business interruption
Co-authored with Stewart Dymant of Harris Balcombe
December 11 2009 marks the fourth anniversary of the Buncefield oil depot disaster. The explosions, starting at around 6am, were audible over 100 miles away, jolting people awake as millions of gallons of jet fuel exploded or burned. But even now the owners of businesses affected by the disaster are continuing to suffer sleepless nights, still fighting for compensation for both Insured and Uninsured Losses.
Even if the material damage claims may have been settled, there is still much going on over Business Interruption and Loss of Profit Claims.
It will come as a shock to many, having worked all hours, called in favours and stretched credit agreements to get trading again over a tough 12 months, to find that such an uphill struggle is necessary to receive fair and reasonable compensation. One cannot speculate when, and what settlement, a company will receive.
The Buncefield case, handling compensation claim four years on, is not atypical of these cases.
It used to be that an insurance company would consider and pay appropriate compensation fairly quickly. But the principle of subrogation means that if an insurer expects to be able to hold another party liable for their insured losses, it will be unwilling to pay out in the first place if it seems unlikely that it will fully recover its payment. Winning this battle for insured losses is a challenge, but for uninsured losses, the trials are in a different league. It can be quite normal for the affected company and its insurer to join together and sue the party considered to be liable for the loss.
And uninsured losses can be more substantial. A company many be compensated for a site being inoperable for 12 months as an Insured loss. But the knock-on effect of, for example, a fire at a factory which feeds other locations, or at a distribution centre, not only grinds your logistics to a halt but can mean the loss of contracts you expected to win or grow, as potential customers are no longer sure you can cope with demand. The effect of this may go well beyond the policy’s indemnity period.
This was the case for one company. With a big contract almost in its grasp, the prospect pulled out, fearing the company would be unable to measure up to its requirements. That prospect has expanded greatly, and it was clear that this contract would have done so proportionally. With this in mind, the loss to the company was actually around five times that of its insured losses alone. Any companies working in high growth markets face similar battles to regain their losses.
The greatest action a company can take to strengthen its case, and to shorten its battles, will be in the first 24 hours following the incident. As soon as the site is accessible, or you have access to other sites, get hold of all data (as detailed in the ‘saving data’ box) that is current and store it safely.
Cases such as the Buncefield disaster have forced companies to learn the strange realities of compensation as quickly as the fire spread through their property. If more manufacturers can ensure they are adequately protected, well-informed and ready to act should the worst happen, they can be confident that they can survive and prosper through any unforeseen disaster.