March/April 2006

Property claims arising out of catastrophic perils can present unique challenges and complexities when measuring contingent business interruption (“CBI”) and contingent extra expense (“CEE”) losses.  These coverages  protect an insured against interruption and extra expense losses at one of their named locations as a result of direct physical damage caused by a covered peril to property that it does not own, operate or control.  Each of these claims is unique to the insured’s business, location of operations and market it serves.

For instance, following Hurricanes Katrina and Rita, many businesses found that their suppliers and/or customers were unable to continue business operations because of the physical damage sustained at those locations.

Further complicating the matter following major catastrophes is isolating the loss of market when either suppliers or customers choose to move or no longer continue in business.  Civil authority, idle periods and provisions of the policy also play an important role.

If brought in early in the process, a qualified forensic accountant can help establish a protocol to capture covered expenses and business interruption losses during the period of indemnity.  This individual will become part of the investigative team to monitor the financial impact on the insured’s business, evaluate the mitigation strategies and analyze periodic claims made to insurers . 

A forensic accountant can help identify instances where the business may be able to mitigate its losses by purchasing from alternative sources, out-sourcing certain services, drawing from pre-existing inventory levels, relying on subsidiaries to compensate for the loss or increasing production capacity upon resuming normal operations.

Serving as an authority in its field, forensic accountants will facilitate the loss measurement process for all parties through the period of indemnity, documenting expenses, quantifying losses and in some cases, providing expert testimony in a court or law if an impasse occurs on the resolution of the claim.

Jeffrey P. Belack is a P artner in Matson, Driscoll & Damico’s Pittsburgh office. Belack has been a CPA for almost 18 years. His expertise resides in business interruption, property damage claims and litigation services. He has worked with insurance carriers and independent adjusters on major national losses with Fortune 500 companies and a wide variety of other industries including steel and aluminum plants, coal mining, restaurants, hospitals, chemical manufacturers and technology. For more information, please contact him at jbelack@mdd.net.