The following case study demonstrates the application of the Departmental Clause in a Mark IV Industrial Special Risks (ISR) Policy.
Suits 2 Suit Pty Ltd is a retailer of mens’ suits established by Mr Renzo Farfalla. Renzo has successfully captured a broad demographic by segmenting his store into three departments: -
- The lower priced, hard wearing suit for every day work wear.
- The medium priced suit for those important meetings.
- The high fashion, expensive, imported suit for that really special occasion.
During the early hours of Sunday 24 July 2005 thieves broke into the store and made away with a large quantity of stock.
Renzo suspects the thieves wear Armani as they had stolen all the high fashion numbers.
After gathering himself together Renzo supervised a stocktake of the remaining garments. As expected his premier stock was gone.
This created two problems: -
- It was his high margin stock.
- The current season stock could not be replaced as suppliers were now making garments for the next season.
Renzo replaced the stolen suits with the stock available from suppliers but this was limited to lower margin product. A Business Interruption loss was inevitable.
Renzo supplied the loss adjuster with a history of monthly sales figures and ongoing monthly results as these became available. He also supplied a detailed Profit & Loss Statement for the financial year to 30 June 2005.
The loss adjuster calculated the Reduction in Turnover and applied the Rate of Gross Profit to the shortage. The Rate of Gross Profit was determined from the Profit & Loss Statement for the financial year to 30 June 2005.
Renzo was unhappy with the result. He felt it did not reflect the Loss of Gross Profit associated with the loss of sales of his high fashion, high margin suits.
A review of the figures revealed that the Loss of Gross Profit did not reflect the margin for the high end product. The Profit & Loss Statement for the 30 June 2005 covered all departments and only reflected an average profit margin.
The Mark IV Industrial Special Risks (ISR) policy contains a departmental clause that indicates that if the independent trading results of each department are ascertainable the Loss of Gross Profit can be identified on a departmental basis.
With help Renzo was able to work through the history of sales and purchases for the fashion suits to ascertain the true Rate of Gross Profit applicable to this claim.
Like Renzo’s suits, the insurance policy was made to fit the client!
Author
Published with permission of Claim Solutions Pty Ltd.
Insurance Policy
Country: - Australia
Policy Description: - Mark IV Industrial Special Risks (ISR) policy
Insurer: - Various
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