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Technical Notes
In "Technical Notes" we will provide training programmes for our clients at three levels, "Introduction", "General" and "Advanced". We will also make comments on subjects of technical and general interest, concerning Business Interruption claims and policies.
Finally, there will interesting case studies. For privacy we will not name the parties and if we suspect that they might be identifiable, we will obtain written permission before publishing.
Most of the files will be restricted to clients of GAB Robins. If you want to be on our client list, simply contact us. The only restriction on sharing our intellectual property is that we ask our clients to acknowledge our authorship if you use it for your own purposes.
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So, you want to make a claim, do you?
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A Guide to Making a BI Claim (October 2004)
So, your business has been interrupted and you think that your BI policy should respond! This article explains what interruptions are typically insured and how the BI policy specifies that the claim should be calculated. It could be termed "What you hoped you would never need to know about BI insurance".
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Training Programme: Introduction to BI
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Training Programme: General BI Subjects
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Training Programme: Advanced BI Subjects
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Interest as an Additional Increased Cost (September 2005)
Following a claimable business interruption, how do companies survive the immediate need to finance recovery of the business while they formulate property and BI claims and receive payment from insurers? They borrow! Is the increased interest expense claimable as an increase in cost of working?
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Stock & BI Claims: Analysing the Overlap (September 2005)
If a reduction in turnover results from damage to manufactured stock there is a potential for duplication between the BI and stock claims, both of which reimburse manufacturing overheads. If the stock could be insured at a value that included profit would this avoid the need to make a BI claim? This article explains how the overlap arises, provides a case study and comments on practical resolution of claims.
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The Overlap between Business Interruption and Manufacturers' Stock Claims
If wages are insured by a Business Interruption policy but also paid in a Material Damage claim (for staff cleaning up debris, handling a salvage sale, repairing plant) there is a potential double-recovery. If we assume that this should be avoided, what is the correct mechanism for doing so?
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The Overlap Between Business Interruption and Retailers' Stock (Salvage) Claims
A Business Interruption claim can be modified according to how the proceeds of a “fire sale” are treated in the stock claim. As a result the practice has developed, of deducting the total value of the salvage from the stock claim. This is not a problem for an insured that has a BI policy but it is not an equitable treatment for one that does not insure BI.
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Policy of Indemnty or Valued Contract: The Coalex Case (March 2007)
In 1999 my student text, “The Insurance of Profits” was being modified for Australian law and practice by a friend and colleague, Tony Morgan. He was keen to add a chapter on the principles that were stated by the Supreme Court of NSW in the 1986 “Coalex” case, which deals, against the background of the "Output Option", with the debated question of whether a BI policy is one of indemnity or a valued contract.
At the time I thought Tony was over-emphasising Coalex’s importance but I have recently re-read the chapter and was surprised at how interesting it was. I am delighted to pay tribute to Tony's expertise by re-producing it here.
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Time Deductibles in BI Claims
Business Interruption policies usually state the length of a time deductible but make no further reference to it in the specification of “the amount payable”. This can create problems in the adjustment of claims or provide flexibility depending on one’s perspective.
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More BI Articles
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Case Studies
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Property Used or to be Used at the Premises (October 2004)
Following damage at the premises, to property being used for the business, insurers tried to deny liability for a portion of the loss, which arose from delay in completing a new business extension.
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The BI Impact of the Repair or Replace Decision (October 2004)
The insured wanted a replacement machine (3½ weeks). The insurers wanted to decontaminate it (eventually took 6 months). The manufacturer said that it could be repaired if it was returned its European factory (8 months). How did this impact the BI claim?
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Case Study: Interest as an Increased Cost (December 2004)
Following a claimable business interruption, how does the insured survive while waiting for property and BI claims to be paid by insurers? It borrows temporary funds! Is the increased interest expense on additional borrowings a claimable increase in cost of working?
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Reduced Margin on Maintained Turnover (January 2005)
BI policies that follow the UK market form, characterised by the Gross Profit Item, primarily reimburse the loss resulting from a reduction in turnover (and increased costs). They are not structured to include a loss caused by a reduction in Gross Profit margin on maintained turnover and additional clauses must be included if the claim is to produce an indemnity for such a loss.
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Advance Profits, also known as Delay in Start-up Insurance (January 2005)
A specialised form of insurance policy is required for financial losses which result from a delay in the commencement of new business operations as distinct from interruption to an existing business. This case study deals with how to select the Indemnity Period and set the sum insured for the Gross Profit item of such a policy.
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The Use & Abuse of Trends (July 2005)
The key to most BI claims is an assessment of the level of sales that would have been achieved but for the fire, flood or machinery breakdown. The simplest and most common method is to assume that pre-fire "trends" would have continued but for the damage. Is it fair?
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Lessons from the Auckland Power Cut of 12 June 2006 (September 2006)
If you muck about with the conventional policy words do it with care! Several apparently “cover all” Business Interruption policies proved to have serious gaps when claims were submitted for losses resulting from the power cut.
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In the Context of a BI Interruption, what is Property? (November 2006)
The contractual clauses of BI policies set out the commitment of insurers to pay a loss resulting from interruption caused by Damage to property used by the insured, at the premises, and for the purpose of the business. Various memoranda extend the coverage to include the results of damage to property at the premises of customers, suppliers, or providers of utilities, as if it were damage to property the insured used at its premises. I have two case studies dealing with the question “What is PROPERTY?”
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