In the 1960 movie The Magnificent Seven, Steve McQueen and Yul Brynner were hired to protect a small Mexican town from outlaw Banditos. The Mexican villagers realized they needed to fight fire with fire by employing their own hired guns.
When adjusting a business interruption loss the insurance company often hires an outside forensic accountant to assist in determining the value of the claim based on the expected loss of revenue. I see the hiring of this consultant as the insurance company’s hired gun. In contrast, with a third party liability claim the insurer will hire outside counsel to represent the insured. This attorney has the legal obligation to defend the claim to the best interest of the policyholder, even if it is to the detriment of the insurer. This is why in liability claims if there is any dispute as to coverage terms or their application, the insurer is obligated to secure separate coverage counsel independent from the legal defense of the claim.
The hiring of a business interruption forensic accountant by the insurer is not done with the intent to find the best possible recovery for the policyholder. Their charge is to minimize the loss payment for the insurance company. Right about now you are starting to see that the insurance company plays the role of Eli Wallach (the Bandito) in the movie. Many policyholders think they can self-represent against these accountants, since they have a sound understanding of finance and an acute knowledge of their own business. These insurance company consultants specialize in the particular industry of the insured and know all of the ways to structure the analysis to minimize loss payment. John Hutson points out that the adjuster and accountant will not always share with the policyholder the entire analysis and worksheets that go into their claim summary.
This all leads to the need for the insured to also secure a hired gun forensic accountant. It will be important to find one who regularly represents policyholders and does not work exclusively for insurance companies. You want to make sure that your consultant has the right perspective to view your situation. This can be a costly expense at times, but I believe that you will easily recover the cost of the consulting expense through the higher loss settlement that will be achieved.
Now, back to the movie. The Mexican peasants never paid for the hired guns since Steve and Yul found satisfaction in their efforts as sufficient reward. You, too, can avoid paying for your hired gun. Many of the comprehensive property policies today have broad coverage grants and provisions. One that should be considered is Professional Fees. This extension pays for the expenses incurred by the insured to hire auditors, accountants, appraisers and engineers in order to certify the particulars and details of the loss. Normally, the limit that is provided is anywhere from $50,000 up to $250,000. This means the insurance company will now be responsible for paying both forensic accountants as expenses under the loss.
If your policy does not currently have this feature, have your broker try to negotiate this coverage extension at your next renewal. This will ensure that you are on equal footing with the insurance company when it comes time to determine the business interruption loss value.
Bob Trompeter
Mr. Trompeter is a principal owner in Risk Resources, an independent risk management and insurance consulting firm. He has been consulting for over 25 years and has developed particularly strong expertise in the analysis of sophisticated casualty insurance programs. He has concentrated much of his efforts in the area of alternate funding techniques and cash flow analysis. He also has acquired a broad knowledge of large property insurance programs and has been involved in the adjustment of many larger property claims, both on property damage and business interruption. You may read more of his posts on his blog, Risk & Insurance Chalkboard.
Need a forensic accountant?
We’re not your typical bean counters. We know how to calculate, present, and defend business interruption insurance claims with off-the-charts winning results for our clients.
We’d love to help you. Please get in touch.
