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Business interruption insurance – Case study

  • Adroit Insurance and Risk
  • September 21, 2015

As part of our series on business interruption insurance, we’d like to share with you a case study. We think this real-life scenario highlights the crucial need for all businesses to take up interruption cover, as it shows us that business can be pretty unpredictable and – as sad as it may seem – you need to be prepared for the worst.

The Bayside General Store is a cafe on the picturesque shores of Port Philip Bay. A popular spot amongst locals, business was going well until one busy weekend a number of patrons were struck down with severe bouts of salmonella.

The cases kept stacking up, to the point where the cafe closed for a number of weeks until they could figure out what was going on. The Health Department conducted a thorough inspection and investigation of the salmonella outbreak. The owners of the cafe were adamant that their food preparation procedures were not the cause of the sickness and ultimately, they were vindicated.

The health authorities found that the cause of the salmonella outbreak actually arose from dishes containing raw eggs – namely the cafe’s homemade mayonnaise. The eggs delivered by the cafe’s local supplier unfortunately contained bacteria that were not destroyed as they normally would have been through cooking.

This was a reasonably unforeseeable incident that had far reaching consequences for the owners of The Bayside General Store.

The cafe’s voluntary closure then led to a loss of revenue, as well as losses sustained from employer wages, contracts with suppliers, perishable stock and bank loans, to name a few.

Fortunately, all costs were covered under the cafe’s Business Interruption insurance and they were able to pay their staff, honour their contracts with their suppliers and make up for the money they would have made had none of this happened.

BI also freed up funds that were used to make the most of the business’ downtime and make some renovations that would have been difficult otherwise. You could say that Business Interruption insurance turned a negative outcome right around into a positive one!

Keep in mind that this was a complex set of circumstances – had it not have been for the cafe’s risk adviser working for them to drive the claim, the owners may have been without compensation for longer. Having a risk adviser who understands your business inside and out and works with you to ensure you survive setbacks like these is invaluable.

When looking at your own business interruption cover, you need to consider the following with your risk adviser:

  • If there was a major loss, do you have a contingency plan? Do you have a checklist of things to run through immediately after damage has been sustained?
  • How long would it take you to get back up and running if you were to suffer a serious disaster?
  • Is your sum insured correct? You need to make sure you’re accurately insured by letting your risk adviser run through your books.

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