Case Studies
J.S. Held Acquires Shechter & Everett to Expand Forensic Accounting Capabilities for Family Law Disputes in Florida
Read MoreAn oil refinery in the United States suffered a major fire, shutting down its Ultra Reformer (UU3)—which converted naphtha to a high-octane reformate for use as gasoline base stock, hydrogen, and liquefied petroleum gas—for more than six months. The UU3 was a “money-maker” at the refinery, and without it the refinery was forced to sell naphtha at 60%-70% of the price of gasoline.
As a result of the fire and subsequent losses, the insured presented a business interruption claim in excess of $500 million. Forensic accounting experts from J.S. Held were engaged by the insurer to analyze the claim and the refinery’s stated losses.
After a review of the refinery’s data, J.S. Held experts measured >$100 million less in losses than the claim stated. The primary difference was in the Projected Normal Revenues, the first and most critical measurement in business interruption (BI) claims, which analyzes what revenues would have been “but for” the loss. Refineries do not depend on budgets; however, they are driven by linear programming (LP) models. LP models are run at the beginning of every month, when the refinery projects inputs (crude) and outputs (saleable products) allowing planners to identify the optimal mix of crude oil to process and products to produce based on market demands and unit constraints. By definition, an LP model is going to overstate the “but for” revenues in a given month. The insured’s claim was based on the LP model as their Projected Normal Revenues.
The J.S. Held team looked at several “clean” months pre-fire, where the refinery was running at capacity and without operational issues, in projecting a variance from the LP model. The method employed, called “back-casting,” generated an unfavorable variance based on the analysis, which adjusted the claimed losses downward by nearly $100 million.
The insured disagreed with the experts’ approach and findings. They presented a major factor indicating that the back-casting was not sound. Primarily, in the year following our base period the refinery realized $1 billion in upgrades which contributed to a more efficient plant. Our experts agreed the plant’s efficiency would have improved following the upgrades; however, based on our experience with other refineries, we strongly opined the refinery would still not reach 100% optimization of the LP model.
We presented our solution to the insurance market: the options were to A) wait for three months post-loss to measure post-upgrade performance, or B) negotiate a settlement of the projected unfavorable variance. The market and insured chose the latter and settled within an acceptable range for both parties, insured and insurers.
The J.S. Held forensic accounting team, along with the independent adjuster, earned the respect of the insured due to our knowledge of their operation, our timeliness in providing monthly measures for advances, and a willingness to take a reasonable approach to the loss measurements. Without mutual respect it is likely the file would have remained open a great deal longer, potentially in litigation.
Peter Hagen, CPA, CFF
Executive Vice President
Forensic Accounting - Insurance Services
+1 972 980 5063
[email protected]
> 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. We are retained to deliver expert services that quickly resolve claims and disputes.
> Forensic Accounting
Our Forensic Accounting Practice includes Certified Public Accountants, Certified Fraud Examiners, Certified Financial Forensics experts, and other financial experts who specialize in financial investigations, dispute resolution, and regulatory compliance. We deliver the truth behind the numbers in financial matters involving insurance claims and disputes, business interruption/lost profits, cyber damages, Delay in Start-Up (DSU) / soft costs, extra expense, family disputes, fraud, labor & employment disputes, personal injury damages, and bankruptcy/insolvency.