Business Interruption Insurance & Claims: Questions & Answers

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Chapter 15

Q15. 1 The Insured’s premises are severely damaged by fire. In which of the following circumstances would the Insured need to take the sales into account when presenting their claim under a traditional Business Interruption policy?








Q15. 2

If the Insured operated three separate departments, and a fire affected the Turnover in one, but the other two remained unaffected, the Insured would have the choice of lodging their claim using the company’s Insurable Gross Profit or by lodging a claim using the Departmental Clause and having the claim calculated using the Rate of Insurable Gross Profit for the department affected.



Q15. 3 Under an ISR policy, the Departmental Clause only applies to Item No. 1(a) - Loss of Gross Profit as a result of a Reduction in Turnover.


Q15. 4 The Departmental Clause within an ISR policy is quite specific. It applies to departments and is not to be applied to branches of the same department, or divisions within a department.


Q15. 5 In the New Business memorandum under an ISR policy, the policy provides a special formula for which of the following items?









Q15. 6 Even though the New Business memorandum refines the formula or definition of a number of items such as Standard Turnover, the Adjustments Clause is still available and can be activated if appropriate.


Q15. 7 If there is a business interruption claim to be prepared for a disruption involving a business that has been operating for less than 12 months, it is prudent to engage a loss manager/claims preparer as promptly as possible, to gather the data and present the claim.


Q15. 8 The Accumulated Stocks memorandum is involved in every claim where the Indemnity Period is exhausted before the insured business has returned to normal sales and/or production.


Q15. 9 An insurer will want to be certain that the Insured cannot possibly make up lost production, and that the Insured does in fact sell all they manufacture, before they will entertain a claim being calculated on the Turnover/Output Alternative.


Q15. 10 The Insured has the right to have part of their claim prepared under the Output Alternative of the Turnover/Output memorandum, with the balance using the standard Turnover basis.


Q15. 11 After a major fire, it is always best for a retail business to hold a ‘fire’ or ‘salvage’ sale to attract business back to the store.


Q15. 12 The concept behind the Salvage Sale memorandum is to allow the Insured to receive some benefit, equal to their normal margin for running the sale, which otherwise may only be for the benefit of the insurer.


Q15. 13 There is a real danger for an underwriter to agree to include a Reduced Margin endorsement under the ISR policy as it may undo the landmark decision regarding margins set down in the Polikoff case. (Polikoff Ltd and another v North British & Mercantile Insurance Co Ltd (1936) 55Li L Rep 279).


Q15. 14 The Adjustments Clause is the embodiment of the underlying principle of a Business Interruption policy, that is, to place the Insured in the same position that they would have enjoyed but for the loss.


Q15. 15 The Adjustments Clause is designed to make adjustments for the trend of the business and seasonal fluctuations, but nothing more.


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