The scenario is common. A piece of equipment (medical,manufacturing, communication) is damaged by an external electricaltrauma such as lightning or a power anomaly. Your insured willoftentimes provide a quotation for a replacement system. The claimshandler often performs research to determine if the claimedreplacement is of a like kind and quality when compared to theclaimed system. 

For this example, let us presume the claims handler validatesthat damaged Equipment A is appropriately replaced with EquipmentB, updated/upgraded only as time and technology mandate.Henceforth, we have a well-documented file, the insured can bepaid, and we've made a proper adjustment, correct? Maybe…or maybenot.

While we see these cases on a daily basis, I wanted to share twocommon cases that we also use in our CEU-approved courses.

Tax Season Phone System Failure

Accountant Jones' office with ten employees utilizes a phoneswitch (aka PBX) for interoffice and external telephonecommunications. They suffer a verified lightning strike during taxseason in which a four-port trunk card suffers direct physicaldamage. Their vendor supplies the system's age, manufacturer,model, configuration, and even photographs of the damaged trunkcard (which shows visible burn holes). They even submit areplacement quotation for $16,000, which the claims handler knowsis “in the ballpark.” The proposed lead time is 5 days, after whichAccountant Jones' office will be back to pre-loss operation, savefor some frustration, downtime, and possible business interruptionin the interim.

If you believe this claim has been handled properly, then thisarticle is for you.

In a perfect world, your engineer/expert advises you thatdamages to trunk and line cards due to lightning is common. Good,we have nailed down cause, but what about a return to pre-losscondition? Your expert advises you that trunk cards for this systemare readily available for $600, and can be shipped next-day to theloss location. Your insured could have been returned to pre-losscondition for less than a thousand dollars before this claim evercame to your desk. Don't fret; if you step in now and share thisinformation, you can significantly mitigate your insured'sfrustration, downtime, and interruption to operations.

Of course, some insureds will be more interested in purchasing anew phone system, but by their very nature, PBXs are builtmodularly such that they can be serviced in the event of damages.As the next case shows, repair options are not relegated to phonesystems, but most electrical and mechanical systems.

Power-Surged Portable Ultrasound System

Doctor Smith's portable ultrasound system suffered damages as aresult of a verified power surge. Other inexpensive electronics inthe office were promptly replaced for operational readiness. Theinsured's ultrasound vendor (a factory authorized partner) hastroubleshot the system and found a damaged power supply. Although reparable, the lead time for a replacement power supply is6 months, as there are reportedly back-stock/manufacturing issuesin Germany. This ultrasound spends 75 percent of its time in thefield and generates revenue for Dr. Smith, who carries businessinterruption coverage. The vendor has quoted a replacement for$16,000 (plus shipping and training costs) with a twenty day leadtime. Given your efforts to date, this file is ready to adjust atcurrent replacement cost, while mitigating the businessinterruption down to twenty days, correct?

After reading this far, you have probably concluded that theanswer is “no.”

We interviewed the vendor who provided the same information. Wecontacted the stateside manufacturer's distributor directly,finding that the subject power supplies were in stock and ready toship for $2,500. We shared our findings with the vendor, who agreedto perform the power supply replacement for $975, plus his initialevaluation costs. The insured was returned to pre-loss condition in2 working days for $4,000 and was able to better serve his clientsby having a working portable ultrasound system. 

In both of the above cases, repair was an option, while it wasnot originally presented as such. The claims handler's duediligence in retaining an expert for a desk review resulted in amore expeditious option, which returned both insureds to a pre-losscondition, thus mitigating downtime and complications to theirrespective businesses. 

Best Settlements

The best conclusion is not necessarily the quickest total losssettlement. As you are probably aware, vendors can provideinaccurate information when an insurance claim isfiled. While they frequently stand to make a sale in theseconditions, the quickest path to recovery might be a repair option.For Accountant Jones, who was without an operable phone system,uptime was far more important than a new replacement. Theout-of-service ultrasound compromised Dr. Smith's ability toprovide a working unit to his clients. Exploring an alternate (andviable) repair path in both cases resulted in a more expeditiousreturn to pre-loss operations for both parties.

Loss Solutions Group offers free telephone consultations onchallenging claims. We staff electrical, mechanical, and structuralengineers, as well as experts in all of the respectivesub-disciplines. If your claim is reasonable, then we'll let youknow. You owe it to yourself and your insured to ensure that bestefforts have been provided to service theirclaims.  

Rich Curtis is president of Loss SolutionsGroup, a nationwide expert consulting firm. He has workedon thousands of claims with billions of dollars of exposure since1996. Call for your free consultation at 866-899-8756, or visit www.LossSolutionsGroup.com for moreinformation.