In October 2014 Thompson & Bryan (UK) Ltd were appointed to deal with a major and complex loss claim following a fire affecting a major food production facility. The company involved, a leading international dry goods brand suffered a fire in which a critical part of their manufacturing process plant was damaged by fire, smoke and water.

Initial assessment of the property damage indicated that large parts of the process machinery required replacement within indicative lead times of around nine months. Added to this, the building within which the plant was situated had severe heat damage at high level resulting in a requirement for complete re-roofing of any area of approximately 5,000 square metres. The logistics involved in dealing with the plant removal and subsequent replacement and high level building works indicated an overall reinstatement timescale of circa fourteen to fifteen months.

Fortunately, the client, via their insurance broker, had comprehensive insurance cover that included declaration linked business interruption cover with the maximum indemnity period of twenty-four months. This was invaluable in affording the company the security of knowing that economic losses and increased costs of working arising from the fire and its associated effects would be reimbursed throughout the period envisaged to complete the reinstatement. Whilst there is a continuing increase in awareness of the benefits of business interruption maximum indemnity periods of twenty-four months or more, there are still alarming number of businesses, particularly in the SME sector that have only twelve months cover which, in the event of a major incident, is often insufficient to fully reinstate the property damage and recover for a business perspective.

Due to the loss of a critical piece of production plant, our client was forced to subcontract an element of their production at significantly increased cost. Whilst the majority of these costs were recoverable under the regular increased costs of working section of the policy, the client’s policy also included additional costs of working cover wherein the requirement to meet certain criteria, notably the economic limit, is removed. This was also a significant benefit to the client and ourselves in dealing with their claim as it provides greater scope for recovery of incurred loss mitigation expenses, even where they may exceed the value of gross profit that may have otherwise be lost.

As stated earlier, the client’s business interruption cover was placed on a declaration linked basis. This is generally a favourable basis of cover as it affords flexibility in terms of the limit of liability in the event of a loss but also, assuming full compliance with policy conditions, and removal of any under-insurance penalty where the cover may be found to be inadequate. As this client operated a manufacturing business, there were differences in the way their rate of gross profit was calculated vis a via accounting methods and insurance policy definition. As typically the case with manufacturing risks, insurable rate of gross profit is generally far higher than the accounting basis. This can often create under-insurance issues albeit where the cover is based on a declaration basis and any miscalculation is innocent we are able to avoid any penalty being applied to the claim settlement.

At the outcome of the process, the client’s business was fully reinstated and their increased operating costs throughout the interruption period were fully recovered under the policy. Whilst this resulted in a large degree from the extensive analysis, research and calculations prepared by our team of specialists, it also resulted in no small part from the business interruption cover put in place by the client’s broker i.e. declaration based, twenty-four month indemnity period and the inclusion of additional costs of working. Without any or all of these features being incorporated within the policy cover, the business would undoubtedly been at greater risk of exposure to some of the costs and/or losses arising from the fire.