As soon as they were able the owners of the restaurant (the insured) notified their brokers and a Loss Adjuster was appointed to inspect the premises, contents and stock. As soon as access was granted after the premises were released by London Fire Brigade all the interested parties met on site to agree a plan of action to reinstate the premises as quickly as possible to allow the recommencement of trading.
Initially it was necessary to establish that all sums insured were adequate to ensure that costs were not incurred that would prove to be uneconomic based upon the policy wording and result in the owners of the restaurant having to fund a substantial portion of the claim themselves due to any area of underinsurance. Fortunately the sums insured proved adequate which meant that policy could respond in full without the insured having to resort to using any of their own resources.
It was agreed by all parties concerned that a specification of works would be prepared once the premises were dry and all the relevant tests carried out to equipment and the electrical system. The premises were declared dry in mid October 2009 by an expert appointed by insurers and the full specifications for the repairs to the premises, Restaurant, Basement Bar area, Kitchen and the replacement of water damaged Contents and Stock could be prepared.
It was at this point 19 October 2009 that the method of isolating the gas supply was discovered when the suspended ceiling tiles were removed to allow inspection of the ceiling void and the cut pipes were discovered. This meant that the gas supply company had to be requested to reinstate the pipe work allowing the reestablishment of the gas supply to the kitchen. The earliest date that the work could be carried out was at the beginning of December 2009 and this extended timescale underpins the importance of requesting any supply services to be reinstated as soon as the need is known. All work could be finished and then have to wait for an extended time scale for either gas or electric supplies to be reconnected – it is essential that the request for any reinstatement work from any power company is made immediately that a problem is identified.
The detailed specifications were discussed with the Loss Adjusters and costs agreed and an accelerated programme of work was put into place in an effort to have the restaurant open for Christmas trading. The accelerated programme allowed work to be undertaken over and above the normal schedule and the extra costs incurred to be dealt with as part of the Increased Cost of Working claim falling within the Business Interruption section of the policy.
Work commenced and orders were placed for replacement equipment and furniture to ensure that everything was available for installation at its programmed date within the overall programme of reinstatement. The final date of completion was on 19 December 2009 and it was on this day that the gas cooking range was first able to be tested and it was found that only two thirds of the burners were in operation and spare parts were needed to make the range fully usable. The supplier in France was contacted and the insured were informed that due to Christmas and New Year holidays nothing could be despatched until January 2010 and no firm date for delivery could be given until they reopened. The delay in being able to source the parts for the gas range meant that the reopening of the restaurant was delayed until 20 January 2010. Immediately that the parts arrived on 19 January 2010 they were fitted immediately and the restaurant reopened on 20 January 2010.
The retention of staff was discussed early on in the claim and it was agreed with the Loss Adjusters that the staff had to be retained since they provided an important contribution to the generation of income. This was due both their detailed knowledge of the food being offered to the customers and their own relationship with a large proportion of those dining at restaurant.
In order to maintain the staff it was agreed with the Loss Adjusters to pay the staff at the same level that they had been receiving pre loss. This meant that it was necessary to deal with Gratuities or “Tronc” as part of the Increased Costs of Working claim within the Business Interruption Section of the policy. The cost was incurred in order to protect the future turnover of the business when it reopened by having staff that the customers knew and had a detailed knowledge of the products on the menu.
This action resulted in all staff being retained and the restaurant being fully and properly staffed immediately it reopened thus returning the income to normal levels by May 2009.
Fortunately in this instance the policy cover in place was adequate for the loss that occurred. However, in a high proportion of claims, cover is inadequate in many areas resulting in underinsurance being applied to any settlement figures being agreed. The reductions that underinsurance causes means that the business has to look to its own resources to make up the shortfall in the settlements being received from insurers.
This raises the concern as to whether any business has the ability to meet the shortfall from the settlements caused by the underinsurance without damaging either its immediate or even long term future. The inability to reinstate Plant & Machinery, Content or Stock properly due to lack of funds underlines the importance of getting the Sums Insured correct at the inception and subsequent renewals of any Business Combined Policy.
If underinsurance is applicable and the business cannot reinstate itself as it was prior to the loss and this creates a shortfall in turnover that flows from underinsurance rather than the root cause of the insured peril that is being claimed against e.g. fire, flood or explosion then insurers will not deal with the shortfall in turnover that then happens. Any Loss Adjuster will argue a loss flowing from the underinsurance is not payable under the policy and leave the business further disadvantaged due to underinsurance being applied.
In the same way if the sum insured against the Business Interruption section of the policy is incorrectly calculated the same principal will apply in that if you have a policy which has an understated sum insured then underinsurance will apply. The underinsurance will result in a diluted offer of settlement being made by Loss Adjusters acting for your insurer.
Not only should the sums insured be correct but if they are out by a significant magnitude then this could give the Insurer the opportunity to avoid the claim completely. If for example Plant and Machinery had been insured for the written down value as shown in the books of a business at £100,000 where under the terms of the policy in place at the date of loss being one of reinstatement and the actual value of replacement is £1,000,000 then in all likelihood insurers would avoid the policy and make no payment due to the misrepresentation of the Sum Insured. The misrepresentation does not have to be deliberate but once given may allow the insurer the opportunity to rely on the fact that had the correct Sum Insured been known at inception then this may have meant that the policy may not have been granted.
The same principal will apply to all sections of the policy where Sums Insured are given including that relating to Business Interruption. Even where a policy given as Estimated Gross Profit it is essential that the amount calculated as Gross Profit is reasonably stated for the Indemnity Period chosen. The Gross Profit calculation must reflect a reasonable representation of the projection being given to insurers. The calculation of Gross Profit must also reflect any future growth that is anticipated and bear in mind that if the loss takes place on the last day of the policy period that the claim will be for the Gross Profit to be earned in the specified Indemnity period beyond the date of loss.
THE IMPORTANCE OF INSURANCE
Adequate insurance is not the only variable that ensures business survival in the event of a major crisis. Nonetheless, it is one, if not the most, important. A businessperson invests a significant amount of time and resources in building or acquiring a business, and it is in their own best interests to give themselves a fighting chance should the unthinkable happen. If your clients do not have it, it should be in the “urgent and important” quadrant of your things you need to do matrix.
It is because business interruption insurance is so very important to the client’s business that this site was developed. After you review the summary of this case study please explore the rest of the site to learn more about the cover.
Remember two simple things. It could happen to you and no one remembers the cost of insurance after the event. Every one just wants the Rolls Royce cover. With this site there is no reason not to get it right.
SUMMARY OF CASE STUDY
This case study examined the difficulties that were faced by one business owner following a major fire in their business. Many of the problems described are faced in every major claim. However, every loss has different obstacles that need to be overcome.
The insurance industry employs experts to assist them in reaching an acceptable settlement for themselves. Traditionally, the business owner, who has typically never gone through such a crisis, has been left on their own. At a time of great stress, they are expected to resurrect the business, project manage the rebuild or repair of the destroyed or damaged property, and understand all the nuances of the insurance cover for both Material Damage and Business Interruption. Assistance should be sort from a Loss Assessor.
Clearly, business owners require assistance at this time to safeguard their investment and future income streams, and to guide them through the process, thereby maximising the opportunities that inevitably arise, as well as minimising the threat to their business at this time.
Well before a loss occurring, the insurance protecting the business assets and future income streams needs to be tailored to the requirements of the business. It is bad enough having one crisis, namely the loss of the assets, but it is devastating to a business when they are confronted with inadequate insurance cover. This equates to a second, often harder to overcome, crisis. No one remembers the premium after the loss. Everyone just wants the Rolls-Royce cover to ensure their business survives?
This website provides some assistance, however, this website is only a guide albeit a practical one. It is not designed to be exhaustive. It should not be used or relied upon as a substitute for detailed advice or as a basis for formulating a business decision on its own. Expert advice is available, and it is imperative that the advice is tailored to the individual needs of the business.