Optimizing Profits: A Guide to Insurance Claims

This is a true story from an insurance claim.

I can’t release the name of the company, but it was a profitable mid-size company making canned fruit juice. Like typical businesses, they suddenly faced a severe cash flow problem. Executives came to a conclusion that it was in their best interest to shut down the business.

Any business owner may guess how hard it is to shut down a business. The difficulty that comes with shutting down a business is much more than when you are setting up a new business. The company has no control over the process; equipment is disposed either at an auction or to the bank, and the merchandises are sold at discounted price.

The bank auctioned the remaining items in order to recover as much as possible. All of the equipment and merchandises had to be sold in order to minimize the loan loss.

Another beverage company found out about the auction and decided to buy all of the products at 20 cents per can for a total of $2,000,000. It originally cost $1 to manufacture the canned juice. It was a good deal for the buyer even when it had to pay to transport the merchandise to its factory that was in different state.

The buyer planned to store the merchandise and slowly sell the items. However, even before the buyer was able to sell, a snow storm brought 30 mm of snow, which collapsed the roof of the storage area.

Due to the damaged storage, lots of the cans were damaged, leaking and frozen, causing severe merchandise loss. Fortunately, they had business insurance and hired a public adjuster to receive maximum compensation possible.

The insurance company wanted to compensate only for damaged goods and refused to compensate for cans that were not damaged or frozen. However, public adjuster claimed that the company had to inform the customers about what happened to entire products and therefore would not be able to charge a regular price for them.

The public adjuster argued that the company needed to discard the entire goods because it would be unethical to sell potentially damaged products. The insurance company agreed.

The only remaining issue was determining the amount of indemnity. The insurance company offered to pay $2 million or 20 cents per can, which was the purchase price. However, public adjuster claimed that compensation should be based on $1 per can, because since the merchandise could not be repurchased or produced, it would be fair to claim $1 per can. These types of conflicts occur frequently during settlement process.

Neither the insurance company nor the public adjuster was willing to concede, because depending on the outcome of negotiations, the compensation difference could be up to $8 million. After futile attempts to negotiate, both parties ultimately decided to go into arbitration, which was the last resort before filing a lawsuit. Both parties agreed to accept outcome of the arbitration as the final decision.

After a long time, the decision was finally reached.

The insurance company was ordered to pay the company $1 per can because the arbitration ruled that it was fair to pay the amount that would cost to reproduce the can. The insurance company ended up paying $10 million in indemnification.

The company gained 80 cents per can in profit when it originally paid 20 cents per can, realizing tremendous profit even before selling anything. It’s as if the company invested $2 million and gained $8 million by doing nothing.

Please have a professional public adjuster take care of insurance claims.

Jung Park, PA

Excel Public Adjusters