Business Interruption

Most property damage accidents result in business interruption and financial loss. A contact need not necessarily cause injury or damage to cause some form of interruption of the business. The interruption may either be major or minor, depending on the severity of the contact. Invariably a contact causes some form of loss. If substantial time is lost restarting a machine or rectifying a continuous process that has been interrupted as a result of an accidental contact, it is a loss. 

The losses caused by business interruption may not be as severe as losses incurred by injuries or property and equipment damage accidents. The exchange of energy in a business interruption is sometimes not as severe, but is sufficient to disrupt the woik. 

The work output would be affected because of the delay. Extra effort is needed to rectify this delay. Time to clean up, readjust, aud realign is a loss as a result of the business disruption. In certain instances a critical part may be affected by the contact and, if not damaged, may be malfunctioning or temporarily displaced. AU business work, process, and flow interruptions cost money. 

Each accident results in some form of loss, and all losses cost money. Time may be lost, forms need to be filled out, and the business is interrupted to a degree. Many of the costs of an accident are hidden and therefore go unnoticed. Direct costs or 

The final phase of the accident sequence and the last link in the chain reaction are costs. All contacts and exchange of energy result in some form of loss. Losses could include both direct and indirect costs of the accident. In mining and industry, property damage costs could be up to 50 times greater than the direct costs of accidents. A third is the hidden costs, which are seldom identified or tallied. The hidden costs of the accident are also losses that are hard to determine, but which exist nevertheless. 

---

Explosion prevention by inerting has several advantages over explosion protection techniques, such as explosion venting. For example, with successful inerting, fires or business interruptions cannot occur. Nevertheless, beware of the potential of asphyxiation with inerting proper vessel entry procedures must be implemented and occasionally it may be prudent to monitor for oxygen in workplaces. 

An experienced candidate toller probably carries the basic insurance required for the industry but contracts are typically dependent upon proof of adequate coverage. Depending on the anticipated contract terms and the financial assessment of both firms, other insurance or bonds may need to be evaluated. These may address business interruption, third party liability, or other identified loss potential. 

The systematic application of management policies, procedures, and practices to the tasks of analyzing, assessing, and controlling risk in order to protect employees, the general public, and the environment, as well as company assets, while avoiding business interruptions... 

Potential property damage, product loss, and business interruption costs if an incident occurs. 

Fatal accident rate Lost-time injury rate Capital cost of accidents Number of plant/community evacuations Cost of business interruption Cost of workers compensation claims Number of hazardous material spills (in excess of a threshold) Tonnage of hazardous material spilled Tonnage of air, water, liquid and solid effluent Tonnage of polluting materials released into the environment Employee exposure monitoring Number of work related sickness claims Number of regulatory citations and fines Ecological impact of operations (loss or restoration of biodiversity, species, habitats)... 

Cost of business interruption. The cost of business interruption is significantly influenced by various commercial factors. For example, if you are not producing at fiill capacity it may be possible to make up lost production at other facilities or when the plant comes back into operation. The business interruption costs will only be the additional costs of production, transportation and any lost sales. As these conditions can vary from month to month it may be more appropriate to adopt a standard method of calculating business interruption costs for PSM and ESH purposes. One commonly adopted approach is to estimate the tonnage of production lost and calculate the cost as being the difference between the sale price and all manufacturing, storage and transportation costs. 

The rapid growth and expansion of the chemical industry has been accompanied by a spontaneous rise in human, material, and property losses because of fires, explosions, hazardous and toxic spills, equipment failures, other accidents, and business interruptions. Concern over the potential consequences of catastrophic accidents, particularly at chemical and petrochemical plants, has sparked interest at both the industrial and regulatory levels in obtaining a better understanding of the subject of this book Health, Safety, and Accident Management (HS AM). The writing of this book was undertaken, in part, as a result of this growing concern. 

Business interruption policies (also known as loss of profits or consequential loss) are designed to cover the trading loss due to the occurrence of the fire or other insured peril. This loss is normally identified either by a reduction in turnover as a result of the disruption caused to the business or by increased costs incurred to minimize the loss of turnover, or indeed a combination of the two. The cover under the policy does not last for an indefinite period after the loss but is restricted to a time scale expressed in the policy as the maximum indemnity period. This time limit is chosen by the management of the business, and is the time they think that they would need to recover the trading position of the company following the incident. With fire insurance, there is a limit to the amount payable, which is the insured sum chosen by the management of the business. 

For accidents affecting process plant buildings, the potential for serious or fatal injury to building occupants is the foremost concern. Additionally, in cases where buildings house critical controls or equipment, proper design and siting may also help reduce indirect safety impacts (e.g., due to loss of process control), as well as business interruption costs and property loss from such events. 

Management is concerned with both the protection of building occupants, as well as long-term business interruption risks. For occupancy, management has established the following criteria ... 

Additional initial screening may be performed by identifying buildings that should be considered for evaluation because of either their occupancy or their function (e.g., importance to an orderly and safe shutdown in the event of a major incident, or because their loss would result in significant business interruption). Organizations should establish appropriate criteria for classifying buildings. Some considerations include ... 

Preventive measures are those activities aimed at reducing the frequency of event occurrence. In the case of process plant explosions and fires, preventive measures will have additional benefits, including reduction in risk to the process plant equipment, and reduced property damage and business interruption costs. 

Determining the value of potential benefits from risk reduction is relatively straightforward for tangible losses such as property damage, business interruption, and increased insurance costs. However, intangibles such as loss of reputation are difficult to estimate and must be considered on a case-by-case basis. In addition to increased staff costs associated with public relations, items such as possible employee attrition due to low morale and possible loss of market share must be considered. 

The major disadvantage of large plants is their vulnerability to large losses. In 1967 an explosion and tire in a Cities Service oil refinery at Lake Charles killed 7 employees and injured 14.6 The damage and business interruption costs exceeded 30,000,000. Usually the losses are not this large. However, in 1966 there were 20 fires in the chemical and petroleum industry, which caused damages in excess of 250,000.7 Even if there is no fire, the failure of a bearing on an ammonia compressor can cause the plant to shut down for a number of days two days for cool down, one day for repairs, two days for startup. The loss in sales from this interruption alone could exceed 50,000 per day, or a total of 250,000. ... 

Climate change will affect, and in some cases is already affecting, most major types of insurance products. Insurers will feel the impact of climate change on property and casualty insurance, where the insurer bears the risk of a loss suffered directly by the policy holder. These property and casualty claims include not only damage to insured property as a direct result of weather but also claims for business interruptions and other consequences of weather-induced events. Also, health and life insurers are going to face increasing costs. 

The PSM Rule requires all PrHAs to address "any previous incident which had a likely potential for catastrophic consequences in the workplace," 29 CFR 1910.119(e)(3)(ii). An incident is an unplanned event that may or may not result in injuries and/or loss. For example, an incident might involve a flammable gas leak that does not ignite. An accident, on the other hand, is an unplanned event that actually leads to personal injury, property damage, environmental damage, and/or business interruption losses, such as the ignition of a flammable gas leak resulting in burns and fire damage. 

Chemical and hydrocarbon plant losses resulting from fires and explosions are substantial, with yearly property losses in the United States estimated at almost 300 million (1997 dollars).1 Additional losses in life and business interruptions are also substantial. To prevent accidents resulting from fires and explosions, engineers must be familiar with... 

In 1997, an explosion occurred in a furnace of an oil distillation unit, resulting in a shutdown of the whole unit. The explosion occurred during a hot restart and resulted in a rupture of the entire furnace, which badly injured one operator. The total costs of damage was estimated to be 10,000,000 for loss of production and business interruption. 

Property damages and legal liabilities are not the only sources of financial impacts a company may suffer at the time of an incident. Business interruption losses will also occur since the facility will not longer be able to function as intended. Analysis of insurance industry claims data shows that business interruption losses are generally three times the amount of physical property damage. Often the justification for a safety feature may not be the loss of the component itself but of the impact to operations and loss revenue it produces. 

The following is a brief selective listing of major worldwide fire and explosion incidents within the hydrocarbon and chemical industries during the last 25 years (1970 - 1994), both onshore and offshore. Numerous smaller incidents have been recorded that are not listed here but may be studied in other references. Where the number of fatalities has been reported in public accounts they are listed next to the financial loss. Financial losses are direct property damage losses and do not include business interruption, legal, or environmental impacts. 

Beyond playing a significant role as a measurement tool, audits provide the opportunity to share a set of fresh perspectives on areas where requirements have yet to be codified (e.g., process control procedures, management information systems, and maintenance programs). Audits also serve to indicate ongoing efforts to reexamine and reevaluate operations to further reduce operational risks and consequent liabilities (including property damage and business interruption). 

At least a dozen incidents in the CSB data resulted in property damage alone exceeding 10 million, with three cases in which loss exceeded 100 million (Figure 8).27 These numbers do not include further financial losses due to business interruption or lost market share. 

Management focuses on safety-oriented programs to prevent business interruptions. 

For example, a company, based on financial requirements, may choose a low deductible ( 1 million/incident) another company, with different financial requirements, may elect a higher deductible ( 5 - 10 million). For business interruption (Bl), market conditions may influence the need for insurance coverage. For example, when capacity is high, a company may elect to have Bl coverage, however, if market conditions are weak, Bl coverage may not be warranted. 

---