Case Studies

BI Loss Due to Equipment Failure

J.S. Held’s Inaugural Global Risk Report Examines Potential Business Risks & Opportunities in 2024

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The Situation

During a test with the electric arc furnace, the high-temperature alarm was triggered, resulting in a complete shutdown due to the melting of key machinery. Once the damage was repaired after the first heating process of the restart of the furnaces, the plant lost power due to a fire because the switchgear failed to provide power to the refining furnace. The plant was shut down for 3 additional days, and partial operation resumed. The refining furnace returned to operation 9 days later.

How We Advised

This loss involved two separate claims with different causes. Therefore, we engaged local J.S. Held team members for their building consulting, equipment consulting, and fire origin and cause expertise to advise the insured and expedite the claims process.

The insured was unsure of the extent of the BI losses. However, following initial meetings and responses to our documentation requests, we prepared a model for reserve purposes based on our understanding of the plant’s nature and impact on normal operations. We prepared our initial reserve for insurers within weeks of being instructed of around $4.5M.

The loss was based on mitigating a loss of sales with third-party purchases of stock and increased costs of working when the plant was operational to make up the loss of production without impacting sales. To verify the loss, we reviewed the third-party purchases of finished goods. We deducted the normal cost of manufacturing the products with the additional freight and utilities usage due to operating the plant at higher than normal levels and efficiency losses while it was being repaired.

After further discussions with the insured, we understand they have adopted our reserve model and agreed with the methodology. We also understand that this calculation was included in the basis for settlement with losses totaling $4.1M.

Key Contact

Giles Archer, ACA
Vice President
Forensic Accounting - Insurance Services
+44 20 4576 0624
[email protected]

Related Practice Areas

> Business Interruption / Lost Profits
We provide specialized expertise in the quantification of damages related to claims and disputes involving business interruption and lost profits. Our team combines their financial expertise and diverse backgrounds to effectively evaluate the insured's/claimant's operations and industry/market-specific factors, to quantify interruptions and lost profits.

> Industrial Equipment
We provide high quality technical assistance in the evaluation of industrial equipment and systems. Our team has been called upon across the globe to deliver objective and independent analyses based on years of industry experience, technical expertise, and market knowledge.

> Fire Origin & Cause Investigations
J.S. Held's fire investigative team is comprised of the top forensic experts with unrivaled expertise on fire-related matters of all types and sizes. Using a scientific approach, our fire investigators utilize state-of-the-art techniques and unparalleled experience to determine origin and causation, ensuring we deliver our clients a reliable and defensible report.

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