Hurricane Houston

Hurricane Harvey Contingent Business Interruption Claims

Vertically-Integrated Risks

By Joseph Scarlato

In the wake of this historic event in Houston and the south Texas region, it is important to understand that, with a large affected area, Contingent Business Interruption claims can become complex and hard to mitigate without gathering as much information as possible at the onset of flooding and other devastation. The most complex, in my experience, have been vertically integrated facilities (facilities that integrate raw materials into the manufacturing process to gain procurement advantage, cost advantage, and logistical advantage) who claim CBI. Here is a simple list of questions that will help your forensic accountant in assessing the potential impact of any CBI claim involving a company with a vertical integration strategy.

  • Is the supplier a named insured?
  • Is the supplier owned wholy or partially-owned by the named insured?
  • Where is the supplier located? Foreign country? Out of State? NAFTA?
  • Do they have true transfer pricing? What is the Fair market value?
  • Is it a sole supplier or do they have other suppliers available?
  • Is there proprietary technology or tooling involved with the manufacturing process that would delay the procurement process?

Getting this information early and expeditiously will allow us to ask for the right documentation and estimate the potential economic impact of the reported CBI loss.

If there are any questions regarding this matter, please feel free to contact me or any of the HSNO partners, our CAT hotline 877-367-4766, or visit our CAT response page.

Reposted with permission from linkedin article by Joseph Scarlato, Partner at HSNO 8/30/17