The scenario is common. A piece of equipment (medical, manufacturing, communication) is damaged by an external electrical trauma such as lightning or a power anomaly. Your insured will oftentimes provide a quotation for a replacement system. The claims handler often performs research to determine if the claimed replacement is of a like kind and quality when compared to the claimed system.

For this example, let us presume the claims handler validates that damaged Equipment A is appropriately replaced with Equipment B, updated/upgraded only as time and technology mandate. Henceforth, we have a well-documented file, the insured can be paid, and we've made a proper adjustment, correct? Maybe…or maybe not.

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

Tax Season Phone System Failure

Accountant Jones' office with ten employees utilizes a phone switch (aka PBX) for interoffice and external telephone communications. They suffer a verified lightning strike during tax season in which a four-port trunk card suffers direct physical damage. Their vendor supplies the system's age, manufacturer, model, configuration, and even photographs of the damaged trunk card (which shows visible burn holes). They even submit a replacement quotation for $16,000, which the claims handler knows is “in the ballpark.” The proposed lead time is 5 days, after which Accountant Jones' office will be back to pre-loss operation, save for some frustration, downtime, and possible business interruption in the interim.

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

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

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

Power-Surged Portable Ultrasound System

Doctor Smith's portable ultrasound system suffered damages as a result of a verified power surge. Other inexpensive electronics in the office were promptly replaced for operational readiness. The insured's ultrasound vendor (a factory authorized partner) has troubleshot the system and found a damaged power supply. Although reparable, the lead time for a replacement power supply is 6 months, as there are reportedly back-stock/manufacturing issues in Germany. This ultrasound spends 75 percent of its time in the field and generates revenue for Dr. Smith, who carries business interruption coverage. The vendor has quoted a replacement for $16,000 (plus shipping and training costs) with a twenty day lead time. Given your efforts to date, this file is ready to adjust at current replacement cost, while mitigating the business interruption down to twenty days, correct?

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

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

In both of the above cases, repair was an option, while it was not originally presented as such. The claims handler's due diligence in retaining an expert for a desk review resulted in a more expeditious option, which returned both insureds to a pre-loss condition, thus mitigating downtime and complications to their respective businesses.

Best Settlements

The best conclusion is not necessarily the quickest total loss settlement. As you are probably aware, vendors can provide inaccurate information when an insurance claim is filed. While they frequently stand to make a sale in these conditions, 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. The out-of-service ultrasound compromised Dr. Smith's ability to provide a working unit to his clients. Exploring an alternate (and viable) repair path in both cases resulted in a more expeditious return to pre-loss operations for both parties.

Loss Solutions Group offers free telephone consultations on challenging claims. We staff electrical, mechanical, and structural engineers, as well as experts in all of the respective sub-disciplines. If your claim is reasonable, then we'll let you know. You owe it to yourself and your insured to ensure that best efforts have been provided to service their claims.

Rich Curtis is president of Loss Solutions Group, a nationwide expert consulting firm. He has worked on thousands of claims with billions of dollars of exposure since 1996. Call for your free consultation at 866-899-8756, or visit www.LossSolutionsGroup.com for more information.

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