12/03/2018
With the first quarter of 2018 yet to close, Britain has seen three major firms fall into either liquidation or administration, costing thousands of jobs and leaving many SME suppliers and contractors struggling to survive.
The collapse of construction giant Carillion has affected thousands of businesses across the UK. The company owes up to 30,000 businesses around £1 billion in unpaid costs and putting thousands of jobs and pensions at risk.
Last week saw the embattled retailers Toys R Us (UK arm) and electronics giant Maplin fall into administration after both entities failed to secure buyers.
Administrators must return as much as possible to the creditors. An asset often overlooked in this process is a pre-existing disaster-recovery claim.
Not only can pursuing a successful disaster-recovery claim and recovering damages result in administrators securing an additional source of funds to pass on to creditors, but the capital required can also be enough to haul the embattled organisation into a position to begin trading its way into the black.
What causes a disaster-recovery claim to be present when a company goes into administration?
A catastrophic warehouse fire or flood, a plant destroyed by an explosion; although such occurrences present huge challenges to an organisation, if the insurance company pays out, the business can usually survive. It is when the insurance fails to respond that such a disaster can lead to an organisation’s collapse, especially if its cash flow was already stretched to breaking point prior to the incident.
Unfortunately, many organisations only discover their insurance coverage was not fit for purpose after they try and make a claim. Reasons include:
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at the time the insurance was taken out full disclosure was not made
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the value of the stock or the address where it was being held changed and the insurers were not notified
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there is a lack of evidence to prove the amount of stock lost
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the value of the stock/equipment exceeded the cover
Can business interruption insurance offer protection from a disaster?
Business interruption insurance is designed to provide coverage if you cannot trade.
For example, the extreme winter of 2010/11 saw some £900 million in property damage insurance claims from December alone. And last week’s ‘Beast from the East’ and this week’s Storm Emma caused power failures in parts of Scotland, South West England, and South Wales, which were under a Red Weather Warning. Many businesses will have struggled to open, move stock, or meet contractual demands, and hence bring in enough revenue to cover the overheads during the bad weather. Stock may have also been damaged due to melting snow and/or freezing weather conditions.
Unfortunately, creditors and landlords still require payment, regardless of the weather. Those who had business interruption insurance may be able to claim a sum for a limited period (usually a period of 18-24 months), to return to operation and hopefully break even.
However, business interruption insurance may fail to respond if the claimant is not fully aware of what their policy will and will not cover. For example, the policy may respond to stock damage but not provide coverage for roads being closed, thereby preventing trade.
Speed is key – investigating disaster recovery claims
Insurance companies are commercial entities, with responsibilities to their shareholders. It is therefore understandable they will only pay out on a claim if the policyholder has made a full disclosure and paid for the cover required. Insurance company investigators are quickly on the scene of a fire, explosion, flood, or other catastrophe, establishing liability.
Insurance companies will employ forensic accountants, loss adjusters, and other experts to look at the running of the company as well as the circumstances of the disaster itself. This can result in months or even years of delay in insurance pay-outs, crippling an organisation’s cash flow and leaving it (or its creditors) with no choice but to call in the administrators.
It is therefore imperative that if a disaster occurs, independent investigators for the organisation are also immediately called in. They can make their own investigations, examining how and what caused the calamity and inform the insurer or their findings. If a dispute develops, the business is then able to argue their case in negotiation, mediation, or before the court.
Questions may also be asked of the broker who sold the policy to the business. If they are found to have been negligent in giving their advice, a claim may also be actionable against them.
How Fisher Scoggins Waters can assist with disaster recovery claims in insolvency situations
As a niche practice, Fisher Scoggins Waters has years of experience in emergency response and disaster recovery claims. Our quick actions have seen embattled companies who have fallen into administration have their fortunes turned around by settling a successful claim against insurers, brokers, or another negligent party.
Our team will conduct in-depth investigations with witnesses to the accident and collate the evidence needed to bring a successful claim. Not only can this mean a higher return for creditors, but the capital injected into the business following a successful disaster recover claim can also result in the company being able to trade its way out of insolvency.
Fisher Scoggins Waters is a London based law firm who are experts in construction, manufacturing, and engineering law. If you would like more information on emergency response or making a disaster recovery claim, please phone us on 0207 993 6960.