Conditions in order for the Business Interruption or Consequential Loss cover to be triggered

In our opinion, there are three conditions and moreover, it is necessary that all three are met for there to be any indemnity payable under this cover.

The first condition is that the Material Damage that gave rise to the Consequential Loss being claimed, is covered by an Insurance Policy.  This has its logic and rationale since otherwise, if the Insured does not have the resources to repair the damage, the maximum indemnity period prescribed in the Consequential Loss Policy would always be exhausted.

The second is that production activities are resumed after the loss event.  This condition is likewise well founded because otherwise, it could be the case of a businessman whose company is not doing well, who burns it down so as to collect the indemnity for both the Material Damage as well as the Consequential Loss.  If fraud cannot be proven, at least with this second condition you avoid the Consequential Loss having to be indemnified under the Policy.

Lastly, the most important condition and something that is not usually explained to the Insured when contracting the Policy, is that the loss event must affect the company’s financial results.  Thus it is necessary that the loss event has an impact upon the company’s income, or in other words, that there is a loss of sales or that there is an affect upon the costs, i.e. that it causes extra costs.  Both are things that usually occur with major claims.

In many claims where the Company’s inventory or stocks of finished goods is enough for several weeks and their sales capacity is less than their production capacity, which tends to happen in times of crisis, it is pretty unlikely that a loss event with a short duration, of less than a week, will have an impact upon the financial results of the Company.  Therefore, it is absurd to impose Deductibles of just a few days for businesses with high levels of stocks and whose production capacity is greater than their sales capacity.

To avoid the Insureds from subsequently feeling cheated, this third condition must be clearly explained at the time of negotiating the Policy and make them see how important it is that it should be designed for major claims since the smaller ones will hardly affect their financial results.  Furthermore, imposing higher Deductibles in these cases, extending to weeks rather than days, significantly reduces the cost of the Policy.  Unfortunately, this is not normally done and mistakenly they attempt to lower the cost of the Policy by reducing the Maximum Indemnity Period, instead of raising the Deductibles.

At VANTEVO CLAIMS ADVISORS, given our extensive experience with this type of claim, we can help the Insureds and Brokers to set a correct Sum Insured, an adequate Maximum Indemnity Period, and a Deductible that lowers the cost of the Policy but without reducing the cover for the Insured.  To sum up, Business Interruption or Consequential Loss Policies must be drafted with large claims in mind, not the smaller ones.

When a loss event occurs, the moment of truth

The fact is, insurance policies are contracted by companies in view of the chance that a loss event might occur causing them substantial loss and damage.

If there were never any claims, then no policies would ever be contracted, and so it is clearly evident that Insurance plays a very relevant and necessary social function, mutualising the losses in the sense that many of us pay for the damage caused to a few.

That is why it is vitally important that the policy should be well designed and operate correctly so that, following a loss event, the Insured recovers the major part of their loss and damage.  It is when a loss occurs, that everything is put to the test:  whether the policy is adjusted to the risk that it was intended to cover, whether Insurers attend to their client with due diligence and professionalism, whether the Brokers advise them adequately and finally, whether the Loss Adjusters appointed by the Insurance Company are expert and independent professionals.

Preparing and proving a claim after a major loss event is very specialised work, and can be extremely demanding, especially during the first few weeks following the incident.  Being able to rely upon a company such as VANTEVO CLAIMS ADVISORS, composed of expert and independent Loss Assessors who can assist the Policyholder to compile their claim and undertake measures with a view to mitigating their Consequential Losses, can be extremely expedient and result in a substantial economic impact to the benefit of the Insured.

Indeed, a good Loss Assessor can not only suggest valid measures for minimising the Consequential Losses, but can also get the Insurers to make “payments on account” in order to defray any costs that such measures might bring for the Insured.

It is in Europe and North America where this service of assistance for the Policyholder has been most developed, and it has been proven that it expedites the settlement of the claims, since it is easier that an understanding and agreement can be reached between professionals and thus the claim can be “resolved” speedily, professionally and ethically.

The major Insurance Brokers, who have their own loss adjusting teams, include in the policies, particularly those covering All Risks of Material Damage, cover for “fees of the Insured’s expert”, so that the Policyholder will not have to pay any additional cost for this service. VANTEVO CLAIMS ADVISORS, through our international structure and with a solid experience in the adjustment of claims, allows medium sized Brokers, who also have important clients who require comprehensive advice, to offer this type of service on the same terms as the major Brokers, given that VANTEVO CLAIMS ADVISORS is a firm independent of any other interest in the Insurance sector.  In order to be competitive with the major Brokers, we strongly urge that the “fees of the Insured’s expert” clause should be contracted so that these services can be covered by the policy itself.

It would be very useful for those medium sized Brokers that have industrial clients to contract this type of service for complex losses, since a large part of the claims can be resolved without any outside help.  VANTEVO CLAIMS ADVISORS have an international and independent team of expert specialists, some with more than 20 years of experience, for the compiling of claims and the assessing of losses defending the interests of the Policyholder.

The role of the Policyholder’s Risk, Insurance and Loss Assessor

Increasingly in cases of major claims, the Insureds – invariably at the indication of their Lawyers or Brokers – contract a Loss Assessor to help them to prepare and defend their claim that will be submitted to the Insurance Companies.

This has obvious advantages, since firstly:

  • These experts will furnish the Policyholder with a technical report on the causes and consequences of the loss event that can then be compared against the report compiled by the Loss Adjuster acting for the Insurance Company.
  • They can help the Policyholder to adopt measures, something that they are obliged to do, in order to minimise the Consequential Losses.
  • They will free the Policyholder from the work of preparing and documenting the claim to be presented to their Insurers, so that instead they can dedicate themselves primarily to recovering their normal productivity and contacting their suppliers and clients.

Furthermore, with the “fees of the Insured’s expert/loss assessor” clause that the major Brokers currently are contracting in the policies that they negotiate, VANTEVO’s services  may end up being wholly or partially free of charge for the Policyholders.

Likewise an independent and professional Loss Assessor like VANTEVO, can help the Policyholders reduce their claims record by systematically analysing the causes of any loss events that arise and thus undertake measures so as to prevent any similar loss events recurring in the future.

Additionally, based upon the analysis of the incidents that occur, it is possible to achieve a year on year improvement in the safety measures implemented at the risk and thereby improve the covers afforded by their Policy, all of the above in collaboration with the Policyholder’s Broker.

Lastly, an independent Loss Assessor such as VANTEVO CLAIMS ADVISORS can help the Policyholder to avoid any underinsurance by appraising their assets, and to improve their risks by means of the survey report they compile that reflects the necessary hazard prevention and safety measures, and to draw up an “action protocol in the event of a loss” the advantages of which we have explained in a recent communication.

The Usefulness of an Incident Action Protocol in the event of a loss

Incident Action Protocol

A major loss event occurring in an industrial risk generates an emergency situation that requires emergency solutions.  With this type of company, the Consequential Losses arising out of the interruption of the business can be substantial and it is vital not to lose any time and be clear about what must be done after the incident has occurred.

That is the objective of implementing an Incident Action Protocol:

  1. Recover normal productivity within the shortest time possible.
  2. Adequately prepare and document the claim to be presented to Insurers.
  3. Recover as soon as possible the settlement for the loss and damage covered by the insurance policy.

The elaboration and design of an Incident Action Protocol requires the examination of the company’s risks along with their emergency and contingency plans.  Thought must be given in the same to:

  • Who is going to settle the losses: A list should be drawn up of three firms specialising in industrial risks operating locally that can assist the Insured to undertake measures in order to minimise the Consequential Losses.
  • Who is going to repair the damage: A series of firms specialising in the risk should be approved and establish with them what are their rates and work conditions.
  • Who is going to control the repairs and document the cost of the same along with the Consequential Losses brought about by the loss event: VANTEVO suggest that this should be done by the Insured’s Maintenance Department using their own management system.  That would allow a control to be kept of the quality of the repairs and, without any doubt, would expedite the same.
  • An account should be opened in which all the costs associated with the loss event are entered, with some accounting codes for a quick and easy identification and classification of the amounts.

Our experience is that, at the time of the loss event, which is the moment of truth as far as the insurance is concerned, there should be no room for any improvisations or any time wasted, but instead that agreed in the Incident Action Protocol drawn up earlier must be enacted.

We at VANTEVO CLAIMS ADVISORS would be delighted to assist the Policyholders and Brokers to implement an Incident Action Protocol to help them to resume normal productivity as soon as possible and receive from Insurers the settlement for all the losses to which they are entitled on the basis of the insurance Policy that they have contracted.

The study of the cause of Machinery Breakdowns.

We are all well aware that ascertaining the cause of a loss event is essential in order to clarify the cover for the claim, determine liability for the same and to take measures to prevent it from happening again.

In the case of serious fire losses, sometimes given the degree of destruction caused by the fire, it is not easy to pinpoint the origin of the same, despite contracting experts in root cause investigations.

In cases of Machinery Breakdown claims, the study of their cause is less complicated, but nonetheless often requires the intervention of metallurgical or electrical laboratories, depending upon the presumed origin of the loss event.

It is only by means of a metallurgical analysis that you can verify whether the fracture process of a blade or metal part has been a slow and gradual one or sudden and unforeseeable,  besides being accidental.  In the first case, the loss would not be covered whilst in the second, it would be.  Again we would need the assistance of a metallurgical laboratory to ascertain whether any corrosion or erosion was slow and gradual or accidental and fast, and therefore possibly covered in this latter case.

At VANTEVO CLAIMS ADVISORS, we tend to use the laboratories of Engineering Schools, since in the event of any dispute, the courts usually positively weigh the reports signed by professors, since they assume they have the knowledge and independence to issue their opinion.

There are not normally any problems with the conclusions reached in the laboratory reports, since these are usually clear and conclusive, and their conclusions are objective and well documented, and accordingly can be accepted by all the parties involved in the claim.

At VANTEVO CLAIMS ADVISORS, we usually ask that, in addition to ascertaining the “root cause” of the loss event, they suggest measures to avoid similar claims in the future and their recommendations normally are very interesting.