An emergency can arise from many foreseen and unforeseen situations, the most common being fire, flood, explosions, vehicle impact and spillages.
Serious damage to business premises can inflict long term harm on a business. It may even affect other businesses in your locality and result in claims against your business.
What are the legal issues arising from such disasters?
Planning for emergencies is key
The starting point is to consider your obligations as a business to plan for the risk of a disaster.
Section 8 of the Management of Health and Safety at Work Regulations 1999 requires a business owner to have made plans for procedures, in the event of an emergency, to save lives. If your business needs to store dangerous substances, your business also needs to comply with the Dangerous Substances (Notification and Marking of Sites) Regulations 1990.
You also need to consider whether the business is safe, and how it can survive the damage caused by the emergency. It is vitally important to have a disaster recovery plan that is up to date and ready to be implemented.
If the worst happens
Notifying the insurers should be part of the emergency plan, as should notifying the landlord if you are a tenant. Understanding the terms of your insurance policies and your lease if appropriate, and any implications for assessing the consequential costs to your business will be fundamental.
A key feature of the investigation of a serious emergency will be managing the insurers and the authorities. If there is a criminal investigation, typically for a breach of the Health and Safety at Work Act legislation, the insurer will want to wait for the outcome of the criminal investigation for the determination of the facts before it considers your claim.
Such investigations can be a long nerve-racking experience for everyone involved, and it can be helpful for a solicitor to attend and support directors and staff during any investigations that may involve interviews under caution by the police or the Health and Safety Executive.
Collecting and preserving the evidence
You will need to collect as much evidence as possible to support your insurance claims dependent upon the extent of your insurance cover.
CCTV recordings and photographs of the property before and afterwards will be helpful. Take care to maintain an accurate record of expenditure on any urgent and essential repairs to make the property safe, or other costs necessary to mitigate the losses.
You should expect to produce an inventory of goods and materials and the work in progress that was lost. It may be that some materials or other products have been damaged or destroyed that are subject to a retention of title by suppliers that may also need to be resolved.
Calculating the value of lost business is also complex. You may need to produce evidence of anticipated future sales in the order book. If you had plans for expansion and investment into the business, careful consideration will be required as to whether there is sufficient evidence to support a claim for additional losses.
Be prepared for a difficult negotiation with the insurer
Identifying the fullest extent of the losses is essential in seeking recovery of the total cost of the damage and lost production for the future. More contentious is the analysis of the loss of production, business interruption and consequential loss of profits.
The insurer will almost certainly employ a loss adjuster who will investigate the claim on its behalf to establish the cause of any loss and to determine whether it is covered by your insurance policy and, if so, to what extent. The scope of the insurance policy and the extent of the loss are often disputed by the insured. Frequently, it is necessary to have legal advice on the interpretation of the insurance policy in such circumstances. It may also be advisable to employ an independent loss assessor. Sometimes the nature of the damage is very specialised, and the loss assessor will need to put together a team of experts to assist with the analysis.
In many situations there will be an urgent need to replace buildings, equipment, and plant, but that is not always the case. There has been a recent judgment from the Court of Appeal arising from an insurance dispute following a fire that highlights the need to identify the fullest extent of the losses.
The facts in the case of Endurance Corporate Capital v Sartex Quilts and Textiles  EWCA Civ 308 involved a fire that seriously damaged the insured’s premises. The insured made a claim under its policy for material damage and business interruption. Although liability was accepted by the insurer, the criteria for assessing the value of the damage was disputed.
Under the terms of the policy, the insured was entitled to an indemnity on a reinstatement basis, but only if reinstatement had commenced and proceeded without unreasonable delay and that costs of reinstatement had been incurred. However, the insured had not commenced any works to reinstate the premises, and no costs had been incurred. Although there was no disagreement that the reinstatement works conditions had not been met, the issue was as to the criteria determining whether the indemnity should be on a reinstatement basis or market value basis.
After taking all the facts and arguments into consideration presented by the respective legal teams, the Court of Appeal decided that the insured had an entitlement to be compensated on a reinstatement basis, even though the reinstatement did not have to be the same as had been destroyed. The court did not establish any fundamental principle for the basis of assessing loss because it acknowledged that every case would have its own unique facts.
Raworths’ Dispute Resolution team is experienced in marshalling and presenting the facts arising from a major incident, based on the evidence that will be necessary to persuade a court to decide in favour of the fullest extent of the insured’s losses.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
Published on 5 December 2022