Forensic Accounting Case Studies

Case Studies by Industry

• Domestic Energy Corporation

  Back to back incidents hit a large domestic energy corporation. They lost an oil refinery during a hurricane and suffered a separate loss resulting from a process fire. Working with our client, we documented, analyzed, and prepared property and extra expense claims in excess of $50 million from the hurricane damage. We also prepared a separate business interruption and extra expense claim in excess of $350 million for damages resulting from the fire. Working with underwriters, consultants and adjusters we were able to refine material differences related to market-pricing impacts, opportunity maintenance credits, linear programming model adjustments, and valuing mitigation expenses.

• Resort and Casino

  When a hurricane  ravaged a resort and casino, our team quickly documented, analyzed, prepared and presented property damage, business interruption and several unique extra expense claims. The loss involved damage to the casino, hotel, multiple restaurants, bars, retail stores, spa, theatre, marina and a golf course. We worked daily with the adjusters and construction consultants hired by underwriters, as well as with the client’s reconstruction team and in-house risk management professionals. Our team  provided valuable information used in preparing the settlement strategy and claims negotiations in London, New York and Bermuda, which ultimately resulted in an insurance recovery of several hundred million dollars, far more than expected.

• Global Energy Company

  This repeat client has utilized our loss accounting services for twenty years to calculate more than three hundred million dollars in insurance recovery. We have calculated first party property and third party liability claims from pipeline ruptures to natural disasters to equipment failures to explosions in the US and Venezuela. Our forensic accounting work provides risk management with the loss quantification needed to help settle their insurance claims.

  Most recently, we have been engaged on the following assignments:

  1. A hurricane struck caused a gas processing plant causing extensive physical damage. Our forensic accounting services included quantifying the business interruption of their lost natural gas processing revenues and lost natural gas liquids margin.

  2. Another hurricane caused contingent business interruption losses to an ethylene production facility in Geismar, Louisiana. We calculated the business interruption and extra expense claims resulting from this storm including lost olefins margin for ethylene, propylene, butadiene and DAC, lost tariff revenues, lost marketing fees and commissions, and excess costs to purchase ethylene from alternative sources.

  3. A cooling tower fire at a natural gas processing plant affected operations throughout three natural gas gathering systems, two treating plants and three liquid extraction processing plants. Our business interruption loss calculation included lost natural gas liquids (ethane, propane, butanes and natural gasoline) margin from the plant and the mitigated margins from the surrounding facilities, as well as the effect on gathering and processing operations.

• Global Chemical Company

  For this prestigious global company, we prepared claims for property losses over a six year period including business interruption claims in excess of four hundred million dollars throughout US and European locations. From warehouse fires, to chemical leaks and explosions, our services were retained for all of its claim preparation needs. Due to the complexity of their production process, we created plant diagrams showing the flow of raw materials to finished products for each polycarbonate plant. The client used our diagrams for training purposes for years after the claims were settled. Here are two of the more interesting losses further explained:

  1. A catastrophic explosion occurred at a polyamide thermoplastic resins building in Indiana during a planned annual maintenance shutdown. We consulted with the client from day one to assist in documenting the property damage, business interruption and extra expense losses exceeding $125 million. Our work consisted of calculating lost production and sales of various finished products, documenting an actual loss sustained for these products, compiling all property damage related costs including analysis and distribution of over 8,000 documents, calculating excess costs of mitigation efforts from externally purchased and tolled materials at alternative sources including the extra cost of constructing an alternative manufacturing site. Variable cost calculations included the conversion from raw material to finished monomer for the plant and external suppliers in the US and India.

  2. A fire occurred at the chlorine and caustic soda plant and then later that year the same plant suffered an explosion. Our client engaged us to prepare the property damage, business interruption and extra expense claims. The business interruption calculations included the effect of the two events on the five major manufacturing operations necessary to produce polycarbonate resin including inefficient material usage, lost sales of intermediate products to outside markets, the consumption of commodity driven raw materials, and joint venture operations and contracts in place throughout the manufacturing process.

• Plastics Company

  A polyvinyl chloride plant suffered a devastating explosion and fire that closed the facility for years. While business interruption coverage had not been purchased for this facility, we were engaged to prepare the extra expense, property damage, pollution and liability claims. The extra expense losses required an evaluation of the variable production cost to determine the incremental cost to purchase resin. Production costs included confidential recipe mix information that we managed by including as much detail in claim filings as possible without divulging proprietary information. Additional details required by insurers to confirm production costs were handled with on-site inspections that met insurers needs while keeping proprietary information out of disseminated work product. Our efforts facilitated this review and, barring coverage differences, led to an insurer valuation that did not significantly vary from the claim.

• Grocery Stores Chain

  After a series of unresolved hurricane losses, the partners of Sigma7 RWH Myers were engaged when the claim preparation and response from insurers went sour. Upon our engagement, we evaluated the strengths and weaknesses of the current claim, quantified the components of loss that had yet to be identified, and managed the insurer’s audit to facilitate a successful settlement within three months.

  As a result of our successful efforts on the prior year’s claims, we were immediately engaged once their aggregate deductible was met from yet another hurricane loss the following year. Sigma7 RWH Myers leveraged their technological expertise to manage large data sets for over 300 locations, which in some cases were subject to multiple occurrences. By employing in-house automation tools to analyze financial data for all locations, sizable claims were submitted on nearly a bi-weekly basis to facilitate advance payments before insurers were bogged down with thousands of claims during the new hurricane impact. The volume of location-specific data and the consistency and accuracy of the streamlined analysis left the auditors with only minor adjustments to our claim calculations.

• Global Pulp and Paper Company

  For many years the partners of Sigma7 RWH Myers have been routinely engaged by this company to calculate their business interruption and extra expense claims. A recent example was a recovery boiler explosion at one of their mills.

  Sigma7 RWH Myers was engaged to begin preparing monthly claim submissions to facilitate advance payments. With a good team in place for both the client and the insurer, fostering cooperation, mutual respect, and sound communication, we set an aggressive timetable for claim filings and insurer review. As a result, the client received substantial monthly advance payments and settled the loss prior to fiscal year-end. The total amount recovered was just a few percent of the claimed amount.

• Oil Refinery

  A pipeline rupture caused contingent business interruption and contingent extra expense losses at this refinery during a twenty-month loss period. We prepared the first party property insurance claim and provided accounting expertise during the ensuing legal proceedings and arbitration hearings. Claim complexities included a refinery capacity expansion project completed immediately before the loss, potential “make-up” production at another refinery, possible increased product margin realized on the west coast, environmental projects interrupted by the loss, valuation of intermediate inventories during an extended downtime, as well as accounting for hundreds of alternative product movements via land and marine. Our work included extensive reconciliations used during negotiations with multiple insurers in the US and London, which ultimately resulted in a multi-hundred million-dollar recovery for our client.

• Domestic Chemical Company

  Our team of professionals prepared and resolved property and business interruption losses arising from damage to a liquid hydrogen plant resulting from a severe hurricane. This high-profile loss required extremely tight reporting to the insurance companies to keep up with the aggressive recovery effort. We implemented an interim claim filing strategy that facilitated and expedited the review of claimed losses by adjusters, as well as accounting and engineering experts. This strategy resulted in a final settlement approaching $100 million of all claims only one year after the date of loss. Our work on this claim has led to additional assignments from this client.

• Start-up Chemical Company

  We prepared and helped resolve inventory, property damage and business interruption losses arising from catastrophic damage to this company’s fertilizer plant as a result of hurricane damage. We facilitated communication with all levels of management and the adjusters, accounting, and engineering experts throughout the 18-month process. Our claim strategy resulted in consistent and substantial advanced payments. The success of this strategy was critical for this fledgling company, which had only been in existence for six months prior to this loss. Unrecovered losses are a serious challenge for any company, but for this client, it would have been devastating.