If you work in the commercial property claim environment and you do not know what the concept of the Material Damage Business Interruption Overlap (MDBIO) is then you need to learn about it.
Where a loss occurs to manufactured stock, that includes a claim for labour and/or overheads, or where internal labour is used by the policy holder to effect cleaning or repairs, and a contribution is made for these costs by an Insurer, then when assessing a Business Interruption claim that arises from the same loss and is covered under the same insurance policy, due consideration must be made for a potential MDBIO.
The overlap arises where the costs paid for labour and overheads (such as power) are not separately identifies in an Insured’s Profit & Loss accounts.
In dealing with a Business Interruption claim part of the calculated loss is to consider potential savings. In relation to labour the calculation is to compare the expected labour costs during the Indemnity period against the actual labour costs.
Let us imagine the expected labour costs are $500,000 and the actual labour costs are $500,000. The simple comparison between the two might lead one to conclude there is no saving in labour.
However, if one were to be further advised that a contribution of $50,000 had been made for internal labour under the Material Damage section of the policy then under the concept of the MDBIO the assumption of a $Nil saving would be incorrect.
Instead, you would need to deduct the $50,000 paid for internal labour costs from the actual labour costs reducing them to $450,000, which when compared to the expected labour costs would produce a calculated saving of $50,000 being the adjustment for the MDBIO.
The MDBIO is most often not included in the assessment of loss where:
An external Forensic Accountant is employed to deal with the Business Interruption loss and there is a disconnect between them and the Loss Adjuster appointed to deal with the Material Damage claim.
There is a lack of awareness of the MDBIO concept generally amongst Forensic Accountants, Loss Adjusters and Insurers.
The lack of consideration of the MDBIO concept, in our opinion is one of the primary reasons for claim leakage within a Business Interruption settlement.
If you would like to know more, then contact A&M Claims Specialists and take advantage of the services, we offer.
