CIn

Tuesday, March 5, 2013Houston, TX

4:15–5:30 p.m.

BUSINESS INTERRUPTION CHALLENGES

Presented by

Raymond S. Hutnik, CPA, CFE, CFF, FCPAManaging Director

Marsh Risk Consulting

Tracy Alan Saxe, Esq.Partner

Saxe Doernberger & Vita, P.C.

Donna Stone, CIC, ARM, CRM, CPCUDirector of Insurance and Risk Management

GDF Suez Energy North America

When operations are disrupted to the extent that normal operations can no longer be main-tained, the loss of revenue can be substantial. This session will consider the various types ofcoverages available to cover business interruption risks (i.e., loss of hire, loss of use, extraexpense, and contingent business interruption risks), and factors to consider when buyingcoverage will be reviewed. Since many large business interruption claims involve disputedareas of policy interpretation, the session will also review how claims are settled.

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opyright © 2013 International Risk Management stitute, Inc.

www.IRMI.com

Raymond S. Hutnik, CPA, CFE, CFF, FCPAManaging Director

Marsh Risk Consulting

Ray Hutnik is a senior managing consultant for Marsh Risk Consulting’s Forensic Accounting andClaims Services (FACS) Practice. Based out of the Philadelphia office, he serves as the FACSNortheast Region leader. Mr. Hutnik’s responsibilities include supervising a staff of experiencedprofessionals in the preparation and review of financial damages claims and insurance valuationswhere accounting expertise applies.

Mr. Hutnik joined Marsh Risk Consulting in 2001. He focuses his practice on providing forensic ac-counting services in the measurement of damages, valuations, and financial investigations. Theservices are provided on both a national and international level. Mr. Hutnik is presently involvedin the supervision of numerous financial investigations, utilizing a staff of experienced profes-sionals to assist in the completion of the assignments. His projects encompass a wide variety ofindustries, including manufacturing, chemicals, life sciences, education, tech/telecomm/media,hospitality/gaming, retail/wholesale, power/utilities, financial institutions, and professional ser-vices.

Since 1985, Mr. Hutnik has focused his career entirely on investigative auditing, the measure-ment of damages, and forensic accounting. He has diversified experience in matters dealing withloss of earnings, loss of profits, product liability, business valuations, stock losses, property loss-es, fidelity losses, arson, and fraud. He has also provided deposition and expert witness testimo-ny services on various matters related to financial damages measurement and valuation.

Mr. Hutnick holds a B.A. in economics from Rutgers University, New Brunswick, New Jersey.

Tracy SaxePartner

Saxe Doernberger & Vita, P.C.

Mr. Saxe is a skilled commercial litigator with more than 25 years of trial experience. Since 1990,he has focused his practice on insurance coverage issues, disputes, litigation, and trials on behalfof policyholders, handling cases involving coverage for comprehensive general liability, directorsand officers, professional liability, builders risk, subguard, first-party property damage, additionalinsured, business interruption claims, and crime bonds. Mr. Saxe has handled cases involvingcoverage for construction defects, completed operations, product liability, property damage andbodily injury related to mold and asbestos, bodily injury related to construction, “sick building”syndrome, environmental claims, business interruption, employment disputes, patent infringe-ment, contempt, RICO, unfair practices, breach of fiduciary duty, bad faith, and professional

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malpractice. He is well versed in issues relating to late notice, allocation, subrogation, contribu-tion, indemnification, and the duty to defend.

Mr. Saxe was a principal at the law firm of Sachs, Berman, Rashba & Shure, P.C., from 1987 to1994. He joined that firm following 4 years as an associate with Wofsey, Rosen, Kweskin & Kurian-sky in Stamford, Connecticut. During that time Mr. Saxe tried numerous civil and criminal trials,including a murder trial in which his client was acquitted based upon self-defense. He left in 1994to open the Connecticut office of Anderson, Kill, Olick & Oshinsky, a firm specializing in insurancecoverage on behalf of policyholders. In 1996, Mr. Saxe founded Saxe Doernberger & Vita, P.C.

Mr. Saxe has successfully tried numerous jury and court trials in state and federal courts, has liti-gated cases before the federal, state trial, and appellate courts in Connecticut, New York, Pennsyl-vania, Virginia, Maryland, Massachusetts, California, Washington state, Texas, Florida, Delaware,Indiana, and Michigan, and has successfully mediated and arbitrated many disputes. Mr. Saxe hasbeen an adjunct professor of law at Quinnipiac University School of Law where he has taughtcourses in insurance law. He is also a frequent lecturer nationally on insurance coverage topics.

Mr. Saxe holds a J.D. from Georgetown University Law Center, 1983, and a B.A., policy studies,magna cum laude, Phi Beta Kappa, from Syracuse University, 1980.

His admissions include the state courts of Connecticut, New York, District of Columbia, Common-wealth of Pennsylvania, and Washington State. His federal court admissions include U.S. DistrictCourt, District of Connecticut; U.S. District Court, District of Columbia; U.S. District Court, South-ern District of Indiana; U.S. District Court, Eastern District of Michigan; U.S. District Court, South-ern and Eastern Districts of New York; U.S. Court of Appeals, Second Circuit; U.S. Court of Ap-peals, Sixth Circuit; U.S. Court of Appeals, Seventh Circuit; and U.S. Supreme Court.

He is American Bar Association Insurance Coverage Litigation Committee (ICLC) Construction Sub-committee cochair and ABA ICLC Program Committee co-vice-chair. His other professional activi-ties include membership in Association of General Contractors of America and the ConnecticutBar Association.

Donna L. StoneDirector of Insurance & Risk Management

GDF SUEZ Energy

Ms. Stone’s focus is identification and analysis of corporate property and liability risks, includingplacement and administration of various insurance risk transfer programs. Previously, she was in-surance manager for Texaco/Chevron.

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Ms. Stone has worked in the insurance industry for over 38 years and has held positions in multi-national insurance brokerage firms and insurance companies and as an independent insuranceconsultant in the private sector. She is a licensed General Agent and Risk Manager in the State ofTexas and holds several professional designations including: Chartered Property Casualty Under-writer, Associate in Risk Management, Certified Insurance Counselor, and Certified Risk Manager.

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Notes

This file is set up for duplexed printing. Therefore, there are pages that are intentionally leftblank. If you print this file, we suggest that you set your printer to duplex.

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Presented By:

Raymond S. Hutnik, CPA, CFE, CFF, FCPAMarsh Risk Consulting

Tracy Alan Saxe, Esq.Saxe Doernberger & Vita, P.C.

Donna Stone, CIC, ARM, CRM, CPCUGDF Suez Energy North America

Business Interruption Challenges

RECENT CATASTROPHIC LOSSESA SIGN OF THINGS TO COME?

2012 was a quiet year … untilSuperstorm Sandy, Q4 2012

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OBTAINING APPROPRIATE INSURANCE

• Direct physical damage

• Time element losses

• Contingent losses

• Civil authority

• Increased building costs

• Ingress/Egress

• Service interruption

• Preservation of property

• Valuable papers

• Loss adjustment consultant coverage

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PREPARING FOR THE UNPREDICTABLEENSURING THAT LOSSES ARE FULLY RECOVERED: STEP ONE

• Step one: work with your broker and confirm that policy coverages and limits for your property and potential loss of income are sufficient

– How accurate are your reported values for property and business interruption?

– Test your business income limits, and calculate your anticipated maximum business interruption loss amount for key locations

– Are deductibles too high (flood, earthquake, wind)?

– Are limits and sublimits sufficiently high (property, BI, service interruption)?

– Are contingent business interruption (CBI) coverages in place for both direct CBI and indirect CBI events?

– Exclusions, waiting periods, valuation considerations

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PREPARING FOR THE UNPREDICTABLEENSURING THAT LOSSES ARE FULLY RECOVERED: STEP TWO

• Step two: have your team in place

– In-house team- Risk manager- Claims manager- Safety manager- Corporate counsel- Operations, finance, IT

– Outside experts- Claims advocacy - Forensic accounting- Claims engineering- Legal

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COVERAGE OBLIGATIONS

• Don’t lose coverage because of an oversight!

– Timely notice

– Protect evidence, including computer information and e-mails

– Responding to insurers/outside adjusters

– Proof of claim compliance

– Preservation of property (sue and labor)

– Avoidance of voluntary payments

– Independent appraisal (sometimes)

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TYPES OF COVERAGECIVIL AUTHORITY AND SERVICE INTERRUPTION

• Losses caused by acts of civil authority that impact access to their facilities

– May apply when government acts prohibit access to property of suppliers, providers, or vendors

– Some policies require a prohibition of access

– Often limited to 30 days from date of civil action prohibiting access

• Damage to utility (electric, gas, data) interrupts service to your location

– Damage to transmission and distribution lines typically excluded

– Caused by covered peril (wind versus flood)

– What happens when utility intentionally shuts down grid to prevent further damage?

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POST-LOSS ACTIVITIES INITIAL STEPS FOR OBTAINING FINANCIAL RECOVERY

• Perform initial damage assessments

– Inspect loss site

– Take photographs and/or videos to capture extent of damages

– Create inventory/lists of damaged items

– Meet with vendors/contractors to obtain replacement cost or repair costs for damaged buildings and equipment

– Experts needed?

• Create overall estimate of loss

• Present estimate to adjuster

– Adjuster sets reserves

– Adjuster processes advance payment

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MEASUREMENT OF THE LOSS MAXIMIZE RECOVERY BY ALLOCATING TO THE RIGHT COVERAGE BUCKETS

• Physical damage– Buildings, equipment, inventory– Sublimits: debris removal, expediting– Exclusions: nuclear, environmental

• Time element losses– Business interruption/mitigating costs– Inefficiencies and additional costs to

operate = extra expenses

• Time element extensions– Extended period of indemnity– Contingent time element/CBI – Service interruption– Ingress/egress, possibly civil and military authority

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ISSUES THAT INHIBIT SETTLEMENTISSUES ENCOUNTERED FOLLOWING RECENT CATASTROPHES

Period of Indemnity

Multiple Perils

Consequential Loss

Nuclear Exclusion

Rolling Blackout

Actual Loss Sustained

Loss of Market/Market Conditions

Idle Period

Concurrent Causation

ContingentBusiness Interruption

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Efficient Proximate Cause

FireDamagedSheetrockMoldWater

DamageSprinklerTriggered

CONCURRENT CAUSATION

What is “proximate”—predominant, first, or most recent cause?

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CBI POLICY LANGUAGE

• Direct physical loss or damage to a dependent property (supplier or customer)

• The loss or damage is caused by a covered cause of loss

• The loss results in a suspension of operations at a location of supplier or customer

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Guardsman

Nisto

Wheaton Digital

RENA

Freeweight

MAX Manufacturing

National Axle

Delta

Auto Maker 1

Auto Maker 2

Auto Maker 3

Indirect

Indirect

Direct

EXAMPLE OF TYPICAL 2011 JAPAN EARTHQUAKE LOSS SCENARIO

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Guardsman$20 million

Nisto$10 million

Wheaton Digital$50 million

Freeweight$100 million

Max Manufacturing$50 million

National Axle$40 million

Delta$30 million

BI = $300mmCBI = $300mm

EARTHQUAKE DAMAGE: RESULTING BI, CBI CLAIMS (EXAMPLE)

Insurer 1$140 million

Insurer 2$245 million

Insurer 3$215 million

Policyholder: BI/CBI Loss

Rena$300 million

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KEY TAKEAWAYS

• Being faced with an event ... just a matter of time?

• Be prepared

– Review coverage

– Team in place

– Have your facts and evidence in place

• Be proactive

– Take charge of the claims process

• Differences are inevitable

– Assess your options

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Raymond S. Hutnik, CPA, CFE, CFF, FCPA

Marsh Risk Consulting

raymond.s.hutnik@marsh.com

Donna L. Stone, CIC, ARM, CRM, CPCUDirector Insurance Risk Management

GDF Suez Energy North America

Tracy Alan Saxe, Esq.Saxe Doernberger & Vita, P.C.

tas@sdvlaw.com

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Notes

This file is set up for duplexed printing. Therefore, there are pages that are intentionally leftblank. If you print this file, we suggest that you set your printer to duplex.

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