Case Studies
A substantial fire occurred at the premises of a company producing highly combustible XPS panels, consuming the entire production area, warehouse, recycling area, and offices. The Dammam plant consisted of two production lines, producing 450 and 600 kgs of XPS per hour. The insured ordered and installed a new line at its Jeddah facility. The lead time was 18 months, and it could only begin production after the end of the maximum indemnity period of 12 months. A second line was ordered and planned to be installed in Jeddah later.
The insured submitted a high-level claim of USD 3.6M. After a detailed analysis of the business’ financial records, J.S. Held measured USD 2.7M. The difference in valuation was mainly due to sales trends, gross profit rate, savings, and increased cost of working.
We reviewed the order process and lead time for a new machine to confirm that reinstatement within the maximum indemnity period was impossible. COVID-19 also hampered the insured due to travel restrictions for staff of the original equipment manufacturer and shipping delays.
The insured applied a +16% sales trend based on the previous year’s performance but did not consider the unprecedented changes in 2020 (“but-for” the loss) due to COVID-19. We measured a trend of -3% after considering the effects of COVID-19 on the trading of the insured’s business, which looked at the performance of unaffected products and benchmarking against construction market indices such as the cement market as a proxy, given the typical use of XPS panels in buildings.
Based on the actual financial data, the claimed gross profit rate was refined from a “round” 30% per the insured’s budget to 28.44%. Our savings assessment was lower than the claim due to duplicating certain items deducted from the gross profit rate. The claimed increased cost of working did not mitigate the loss of turnover during the maximum indemnity period and was therefore excluded. The J.S. Held calculation was included in the overall settlement figure.
Daniel Thorpe
Executive Vice President
Forensic Accounting - Insurance Services
+971 56 658 3620
[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.
> Extra Expense / Increased Cost of Working
Our experts conduct objective, in-depth analyses that evaluate extra or increased costs incurred by Insureds to continue operations and to mitigate their business interruption losses after an insured event. We are retained to verify and quantify necessary, reasonable, and economic costs incurred to continue operations and reduce business interruption losses during an interruption period.