Problem
You are a claims handler for a commercial property and business interruption insurer. One of the insurer's policyholders, XYZ Ltd, is a clothing wholesaler who owns and operates a single warehouse. XYZ Ltd has a commercial property and business interruption insurance policy. XYZ Ltd has notified you of a claim following an extensive fire to its warehouse, which occurred last night. The fire and rescue service identified that the fire originated in the roof and spread, damaging the entire warehouse. The warehouse contained a significant amount of seasonal stock, stored in preparation for imminent delivery to clothing retailers. In addition, there was some out of season stock stored in the warehouse. All of the stock was damaged by fire and smoke. The insurance broker for XYZ Ltd considers the total cost for the property damage and stock will exceed $5 million. A financial estimate for business interruption has not yet been established. The insurance broker advised that repairs were being made to the warehouse's roof structure, shortly before the fire. These repairs were undertaken by a roofing contractor engaged by XYZ Ltd. It has not yet been established whether the contractor has insurance.
1. Outline the appropriate assessment of XYZ Ltd's claim under its commercial property and business interruption policy for the following:
a. Property damage.
b. Seasonal stock.
c. Out of season stock.
d. Business interruption.
2. Explain, with justification, two appropriate options that may be available to the insurer to reduce its financial exposure to this claim.
3. Explain, with justification, four potential issues that the insurer may face in its attempts to reduce its financial exposure to this claim.