Business interrupted? ; What next?
Very often we forget that being part of a business’ structure is what puts food on our tables, and that the slightest interruption in the business’ operations could be dire to our livelihood.
Advertisement
Recently, an internet data service provider, in the national capital, had parts of its network installation guttered by fire. Even though the company’s management downplayed the impact, it undoubtedly interrupted their operations for days before returning to normalcy.
Suffice it to say, you can only manage a problem before fully fixing it! However, the losses during the problem management could be inundating.
Instructively, business operations may be interrupted by both technical and non-technical events such as fire outbreaks, floods and allied perils. Unfortunately, these interruptions may occasion several losses, including profits.
A classic scenario
Nkyenkyen Oil, an Accra-based Oil Marketing Company, shut down its operations for about two months due to an inferno that destroyed two of its fuel pumps. The company, consequently, lost several thousands of Ghana cedis in revenue.
Though the company had taken a Fire Insurance, the claim could only be paid, among others, after an investigative report had been concluded. The claim was eventually paid.
Unsatisfied with the turn of events, the company sued the insurer for compensation in lieu of the delayed payment, stating that it had lost both revenue and loyal customers, as a result of the delay. Without prejudice to the possible outcomes, this scenario typifies the essence of Business Interruption Policy (BIP).
Effects of businesses interruption
Undoubtedly, the lifeblood of every business entity is its cash flow. In the scenario above, though the insurer paid the claim after two months, the company, allegedly, had already lost both customers and revenue, which could significantly affect the livelihood of its employees.
Other Trending Stories
Arguably, revenue (e.g. from sales) is what companies rely on to pay salaries, rent, utilities, procure raw materials, etc. hence any truncation of the source of revenue could have dire consequences for the company. Indeed, in other jurisdictions, companies in such distress would be obliged to declare some employees ‘redundant,’ and thus, pay them compensation.
Does Nkyenkyen Oil Company have a case?
From the scenario, the company may not succeed in its suit, as the insurer could not be compelled to pay claims without recourse to thorough investigations considering the fact that there could be the possibility of some criminal intent such as arson.
The company should rather have taken a BIP against consequential losses; arising from such operational interruption in addition to the other ‘physical’ policies.
This may be likened to the loss of a family breadwinner, with its attendant threat to family livelihood and survival.
What is business interruption policy (BIP)?
Business Interruption Policy (BIP), which is also called Loss of Profit Insurance or Consequential Loss, provides indemnity against losses arising from business operational interruptions, including loss in turnover.
The associated financial compensation for the insured will normally not exceed the circumstances immediately prior to the material destruction.
For instance, if gross trading profit is turning into a net loss from overhead expenses, a business interruption policy would still respond after a disaster (e.g. fire or flooding).
In this regard, the indemnity would be equivalent to the underwritten expenditure on overheads (i.e. insured charges). It’s however, most appropriate for insurers to accept such liability under a typical fire policy.
Meanwhile, experienced loss adjusters are required to ascertain the actual loss before the claim payment. This is to ensure that the indemnity is not increased as a result of pre-existing cash flow challenges.