Catastrophe response: all in a day’s work

April 18, 2022

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By Andrew Bone, ACILA, Dip CII, chartered loss adjuster, MCL, New Zealand

Nearly one year ago, an Auckland-based manufacturer experienced a major fire that had a devastating impact.

With the business, brand and the livelihoods of 50 employees at stake, the range of immediate concerns and challenges went beyond anything the company had ever faced before. The crisis required swift action; insurers leaned on our team to handle the material damage (MD) and business interruption (BI) aspect of this substantial NZ$10M loss.

Mitigating the loss

The fire — which forensic investigators later determined was caused by an electrical fault — started in the office area and destroyed approximately one third of the building. The production lines, including 40 large machines and ancillary equipment, as well as stock, had been damaged by a combination of soot contamination and extinguishment water. Swift action was vital to mitigate the loss, although determining the best solution to every issue wasn’t straightforward; that’s when the knowledge and experience of a major and complex loss professional makes a difference.

Taking the lead

After building rapport with the organization’s management team and discussing the immediate needs, we worked collaboratively to implement a business recovery strategy.

  • Securing the site – The damaged building was fenced off, and static guards engaged to prevent looting by potential thieves as the unsecured building contained around NZ$5M worth of machinery. Wet and covered in soot, the building was degrading fast and required urgent repair. We instructed a specialist mechanical restoration company to spray the plant with anti-corrosion solution to preserve it and mitigate the loss.
  • Engineering expertise – With a six-month lead time to replace the machinery from the European supplier (should it be required), early assessment was critical. COVID-19 restrictions meant that the European-based technicians could not feasibly travel to New Zealand (NZ) to assess the plant due to quarantine restrictions. Instead, our own specialist engineering adjusting team based in NZ worked alongside the service agents to undertake detailed assessments and determine the repairability of the machinery within two days — as opposed to the four weeks that it would have been to get the overseas technicians into the country. The quick actions of the team identified that the largest injection moulding machine was beyond repair, and a new, NZ$500k replacement could be ordered quickly.
  • Damaged production machinery – Local resources were secured to undertake repairs to the remaining equipment — prioritising the machinery that were vital to resuming production. However, to repair so many large machines required about 900m² of floor space at an alternative site given the building required extensive repair. This created significant challenges given the extreme shortage of short-term warehousing options available across Auckland.

Nevertheless, within two weeks of the loss, we managed to assist the insured in securing suitable temporary premises where repairs could be undertaken. Production machinery was disconnected, carefully packed and relocated, the logistics of which was complex given the size and weight of each machine. It was estimated that it could have taken as long as six months to repair all the larger machinery which could have been catastrophic for the insured. With some ‘outside-the-box’ thinking and a collaborative approach, we managed to organise additional resources to expediate and complete the repairs in under three months. A valiant effort allowed the resumption of normal operations quicker, thereby reducing the business insurance loss.

  • Accounting expertise and early progress payments – Our team of experienced forensic accountants worked closely with the insured to understand the business and quickly determined that urgent working capital was required to pay staff salaries and other expenses to ensure business continuity. We therefore calculated an appropriate amount and recommended that insurers issued a substantial payment to the insured, which was organised immediately once policy liability was confirmed.
  • Relocation – We assessed that the severely damaged building, which the company had occupied for around 40 years, would take 10 to 12 months to reinstate. BI losses were mounting quickly and, with the added risk of losing substantial market share, we suggested that the insured considered permanently relocating the business to an alternative site. The insured decided to progress with this option in the greater interest of their business, albeit a somewhat bitter-sweet decision given the history of their business at the current site.
  • New site requirements – Apart from being adequate in size and location, the building had to accommodate a large gantry crane, specialist water storage and supply systems and an enhanced electrical supply to serve the production lines. Specialist property agents were engaged and after viewing over 80 different properties, a suitable site was secured just eight weeks after the fire. The insured was able to resume operations at a reduced capacity soon after as repaired machinery was transported from the temporary premises.

Balancing act

This claim was about as complicated as they get and selecting the easiest solution to each challenge could have ultimately led to exceeding the total MD and BI sums insured. By working closely and collaboratively with all stakeholders, our loss team quickly identified critical path items and helped create fast, practical resolutions that enabled the business to get back into production in the shortest possible timeframe and at the lowest ultimate cost. It was a balancing act, but our alternative ideas and suggestions kept the claim within the limits of policy cover and achieved a successful outcome for the insured.

Trust is essential

The key to the successful outcome of any major loss claim is to be proactive, solutions focused and in control of every issue from the outset. Looking at the situation holistically, identifying risks and thinking ‘outside of the box’ will ensure every issue and available option is considered. It’s not worth saving NZ$20K on one aspect of the loss when it might trigger a NZ$100K loss elsewhere. A collaborative approach — as well as building strong relationships with the insured and insurers — grows a level of trust.

Swift action and a collaborative, creative approach remains a top priority. For more information about major and complex losses, visit our website.

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