Proprietary Equipment Loss Evaluation: Process and Case Study

Specialized equipment losses are challenging for the adjuster and can involve large dollar amounts in not only the equipment, but also in downtime and business interruption claims. For instance, Pie Forensic Consultants (Pie) has evaluated  losses consisting of  complex  equipment  damaged during shipment. The manufacturer may claim the equipment is damaged beyond salvage and thus is a total loss. If the equipment is obscure and technical in nature, how can one confirm or refute this? This article will address this question by presenting a generalized process for handling these types of claims along with a description of  real-life claims.

The Process

The generalized process for handling loss evaluation of specialized equipment begins by conducting an in-depth loss assessment. This loss assessment is crucial to establishing a fair and accurate claim amount. The loss assessment consists of the following steps:

  1. Thoroughly document how the accident occurred including all the circumstances leading up to the accident and using as many sources as possible to corroborate statements. These sources include any eyewitness accounts and police or accident reports.
  2. Determine if there is a potential for subrogation on the claim.
  3. Systematically document damage to the equipment. Take numerous photographs of equipment showing all sides of the equipment regardless if the damage is apparent or not. Include close-up photos of damaged areas to aid in engineering failure assessment at a later date.  This may include selective de-construction of the equipment in order to view and document hidden components.  The analysis may include functional testing of certain high-value components.
  4. Identify and understand overall purpose of the equipment and specific major components. Create a spreadsheet listing all the specifics of the damaged parts such as cost, quantity, part number, weight, etc. These tasks are best completed by an in-person interview with a company project manager and/or engineer during inspection of the damaged equipment.
  5. Determine if the equipment can be repaired or rebuilt using undamaged and salvaged parts. This step may require an engineering analysis in conjunction with technical discussions with the engineers who designed the equipment. While some of the components may not be able to be salvaged, it does not necessarily mean the entire piece of equipment cannot be rebuilt with select new components.  Eventually, a mutually agreed upon list of reusable and scrap parts will have to be determined.
  6. Generate and verify cost data for the claim. The replacement cost minus the value of the salvaged and reused parts needs to be verified carefully using company database information. This may also include an analysis of the manufacturing process lead times, time to rebuilt, and a determination of the insured’s attempt to mitigate damages as it relates to a business interruption claim.  These claim types can be challenging for all involved due to numerous variables, documentation, and nature of the industry.
  7. Determine the value and find buyers for the scrap components, if any.

Case Study Description

Highly-sophisticated proprietary carbon-fiber equipment worth over $500,000 each was damaged during shipment to the end user. The insured reported the damage was significant and the equipment was a total loss and no parts could be salvaged.  Pie was retained to observe, document, and analyze the damage and specific components to determine if the equipment was unsalvageable or if some of the valuable components were functioning and able to be salvaged and re-used.

Our analysis included verification of the insured’s build cost data, documentation of the valuable components and feasibility of integration with a new equipment, market analysis for selling or re-use of the non-salvaged components, and an opinion of the actual cost of loss.

Pie’s analysis revealed inaccuracies with the original claim’s cost data and damaged components and determined the equipment was not a total loss. Indeed, some of the valuable components were able to be re-used and the insured’s cost to re-build was corrected, reducing our client’s exposure on this unique claim.

Summary

A generalized process for evaluating proprietary equipment loss evaluation has been presented along with a specific real-life case study. By following the process presented herein the loss amount in this case study was reduced substantially to reflect actual damage costs and salvage ability of various components.

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