LMI Group Business Interruption Questions

Business Interruption Insurance & Claims: Questions & Answers

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Chapter 2

Q2. 1

What is the purpose of the Material Damage Proviso?

To establish in which circumstances the Business Interruption policy will respond.

To avoid the insurer having to list the policy exclusions that are to apply to the policy and risk the chance that their Business Interruption policy will cover the loss, whereas the Material Damage insurer may exclude it.

Protect the Business Interruption insurer from carrying the risk of there not being any Material Damage insurance at all.

All of the above.

None of the above.

Q2. 2

A business interruption loss occurring at a manufacturing plant caused by a labour dispute at an electricity supplier that provides power to the insured manufacturing plant, would be covered if the Insured had a Public Utilities extension (with no time or monetary deductible and with no sub-limit).

True

False

Q2. 3

A fire causing damage to a kiln of an Australian-based glass manufacturing plant, which results in the insured business (an Australian wine maker and a customer of the glass manufacturer) not being able to bottle their wine, resulting in significant disruption to their business, would be covered if the Insured had a Customers & Suppliers extension (with no time or monetary deductible) up to any policy sub-limit.

True

False

Q2. 4

Standard Turnover starts with:

The commencement date of the policy.

The date of the damage.

Exactly one year to the day before the commencement date of the policy.

Exactly one year to the day before the date of the damage.

Q2. 5

The Adjustments Clause, when it comes to Standard Turnover, is designed to:

Make every effort to indemnify the Insured fully.

Adjust the Standard Turnover to reflect the trend of the business so as to arrive at the Turnover that would have been achieved had the loss never happened.

Adjust the Standard Turnover to reflect any special circumstances of the business so as to arrive at the Turnover that would have been achieved had the loss never happened.

All of the above.

None of the above.

Q2. 6

The Adjustments Clause allows adjustments to the Standard Turnover for which of the following?

Seasonal Variation: Cycles that occur over short periods of time

Trend: Long-term, relatively smooth pattern of the business

Economic Cycles: A wave-like pattern, which varies about the long-term trend (boom and recessions).

Irregular Fluctuations: Any random movements after trend, cycles and seasonal variations are removed.

All of the above.

None of the above.

Q2. 7

Which of the following need not be considered when determining the adjustment that should be made to Standard Turnover?

Adverse weather conditions during the period of disruption.

Change in Cost of Goods Sold, occurring 6 months prior to the loss.

A similar business three doors away has closed due to retirement of owner.

Release of new product line.

All of the above.

None of the above.

Q2. 8

The Shortfall in Turnover is arrived at by deducting the Actual Turnover achieved during the period of the disruption from the Standard Turnover for the same period. That is:

		Standard Turnover (during Period of Disruption)
Less		Turnover achieved (during Period of Disruption)
Balance	=	Shortfall in Turnover

True

False

Q2. 9

The following is the definition for Gross Profit as set out in the Mark IV ISR policy (Modified wording).

“GROSS PROFIT

the amount by which:

(a) the sum of the Turnover and the amount of the Closing Stock and Work in Progress shall exceed

(b) the sum of the amount of the Opening Stock and Work in Progress and the amount of the Uninsured Working Expenses as set out in the Schedule.

Note: The amounts of the Opening and Closing Stocks and Work in Progress shall be arrived at in accordance with the Insured’s normal accountancy methods, due provision being made for depreciation.”

True

False

Q2. 10

It is not necessary to record the Uninsured Working Expenses on the Placing Slip and/or Policy Schedule, as it allows the Insured more flexibility after the loss.

True

False

Q2. 11

The Adjustments Clause does not apply to the Rate of Gross Profit.

True

False

Q2. 12

All increased costs of working to the business are payable under Item No. 1(b) - Loss of Gross Profit in respect of Increase in Cost of Working.

True

False

Q2. 13

All savings in manufacturing and other expenses made during the period of disruption are deducted from the Insured’s claim.

True

False

Q2. 14

Under-insurance or non-insurance in Business Interruption policies is not a major issue in the Australian insurance market.

True

False

Q2. 15

The co-insurance or Average Clause under an ISR Mark IV base policy (without endorsement) is applied where the Declared Value is less than 85% of the adjusted Rate of Gross Profit times the Adjusted Annual Turnover.

True

False

Q2. 16

The definition of Annual Turnover in the Mark IV ISR policy (Modified wording) is:

“The Turnover during the twelve months immediately before the date of the damage.”

True

False

Q2. 17

The test for under-insurance (Average or co-insurance) in a policy with 100% Average is:

Adjusted Loss =	Sum Insured/Declared Value	x Loss
	Value at Risk

True

False

Q2. 18

Additional Increased Cost of Working cover is subject to 100% Average under an ISR Mark IV policy (Modified wording).

True

False

Q2. 19

You are not able to claim for otherwise uninsured losses arising due to under-insurance under the Increase in Cost of Working cover of the policy, subject to any sub-limit.

True

False

Q2. 20

$5,000 is the minimum cover recommended for Claims Preparation.

True

False

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