When a manufacturing facility is hit by fire, flood, mechanical failure, or a critical supply chain disruption, business interruption (BI) insurance is often the most important tool for financial recovery. But in practice, BI claims are rarely straightforward—particularly in manufacturing environments where complexity, interdependency, and throughput variability create fertile ground for disputes.
At Sigma7 RWH Myers, we work exclusively with policyholders to navigate the claims process, resolve technical disputes, and accelerate recovery. For risk managers, understanding the most common challenges can help proactively mitigate friction—and maximize recovery.
1. Forecasting Lost Sales and Revenues
Perhaps the most frequent point of contention is projecting what revenues “would have been” but for the loss. Insurers often push back on forward-looking assumptions, even when grounded in data such as signed contracts, backlog reports, or sales trends.
Risk Manager Tip: Ensure solid pre-loss documentation is maintained and accessible—budgets, production forecasts, sales orders, and market expansion plans provide critical support for projecting losses.
2. Establishing the True Loss Period
Insurers often argue the loss period ends when production resumes. However, ramp-up periods, bottlenecks, retraining, and lost contracts can extend the impact well beyond the restart date.
Risk Manager Tip: Advocate for a holistic view of recovery—demonstrating not just when machines restarted, but when operations returned to full efficiency and profitability.
3. Mitigation and Extra Expense
To minimize loss, manufacturers may incur significant extra costs—overtime labor, outsourcing, expedited shipping, or reconfiguring lines. Insurers often challenge the necessity or reasonableness of these costs.
Risk Manager Tip: Work with your team to document the rationale behind each mitigation action and tie it clearly to loss minimization.
4. Treatment of Ordinary Payroll
Policies often exclude “ordinary payroll” unless specifically endorsed. For manufacturers with large hourly workforces, this exclusion can be significant—especially when idle workers are retained or redeployed during downtime.
Risk Manager Tip: Review your BI policy language in advance and consider endorsements to cover necessary workforce retention. At claim time, document how retained labor supported recovery.
5. Contingent Business Interruption (CBI) and Supply Chain Losses
When a supplier or customer suffers a loss, the downstream impact on manufacturing operations can be dramatic. Yet CBI claims are heavily scrutinized and often denied due to ambiguous wording or insufficient causation.
Risk Manager Tip: Identify critical partners proactively and review policy language for CBI triggers, geographic scope, and limits.
6. Partial Losses and Bottlenecks
Disputes frequently arise when only part of the plant is damaged. Insurers may argue operations could have continued or been rerouted, minimizing the loss.
Risk Manager Tip: Map your operational dependencies and explain clearly how bottlenecks, line imbalances, or specialty equipment impacted production.
7. Saved Expenses and Offsets
Insurers will seek to offset the BI claim by identifying expenses saved during the downtime (e.g., raw materials, freight, utilities). These offsets are often overstated or misclassified.
Risk Manager Tip: Provide a clean breakdown of fixed vs. variable expenses. Clarify which costs were truly avoided and which were incurred regardless of production.
8. Disputes Over Policy Interpretation and Methodology
Manufacturers often face disagreements around gross earnings vs. gross profit models, inventory valuation, and other technical accounting issues.
Risk Manager Tip: Partner with forensic accountants early to model claims accurately and preempt insurer challenges—before negotiations become adversarial.
Final Thoughts
For manufacturing operations, business interruption claims are complex and heavily fact-dependent. By understanding common dispute areas and preparing documentation in advance, risk managers can play a central role in driving successful outcomes.
At Sigma7 RWH Myers, we specialize in supporting manufacturers through every stage of the claims process—from quantification and documentation to strategy and settlement. Our role is not just to measure losses, but to protect your organization’s long-term resilience and recovery.
By Christopher Hess
Managing Director, Sigma7 RWH Myers
