Fire at the Distribution Center
At 02:40 on a Sunday a fire destroyed roughly 60% of the inventory in Ridgeway Supply's leased 220,000 sq ft distribution center. The disaster plan, written four years ago, names a crisis team whose call tree relies on mobile numbers that are no longer in service, and no alternate site was pre-arranged. The largest customer, 42% of revenue, had product in the building and is demanding a written recovery schedule; a television crew arrived before the first fire investigator did. By Thursday Ridgeway was shipping from an uninsured third-party site at about three times normal handling cost, with no purchase orders and no time records. The policy provides $8M blanket property, business income with a 72-hour waiting period, $1M extra expense, a $250,000 expediting expense sublimit and a $100,000 deductible. The insurer was notified on day four. The cause report is pending and the landlord is already discussing the lease.
1. Evaluate the crisis response, identify the highest-priority control gaps and say what you would fix in 30, 60 and 90 days.
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Diagnosis
The response failed three tests: notification, decision rights, and pre-positioned capacity. The dead call tree means the plan was a document, not a capability - nothing had been maintained or exercised. No alternate site means continuity depended on improvisation. No spokesperson meant the media set the narrative. Notification on day four is the failure with the largest financial consequence, because late notice is the one error that can cost coverage. Uncontrolled, undocumented emergency spending is the second, because it turns a covered loss into an argued one.
30 days - stop the bleeding
- Stand up incident command: one named leader, one log, and a 24-hour notification protocol covering insurer, broker, landlord, key customer and counsel. Notify in writing with a reservation of rights.
- Bring spend under control: single approver, project code, purchase orders issued (even retrospectively), timesheets, freight invoices. Retroactive documentation is recoverable; undocumented cost is not.
- Preserve evidence: origin and cause, CCTV, maintenance records, sprinkler test logs, alarm history. Assign one spokesperson and one customer liaison.
60 days
- Pre-qualify two alternate sites with 48-hour activation terms and pre-negotiated transport. Publish a recovery schedule to the 42% customer with dates you can actually keep.
90 days
- Rewrite the plan as scenarios (total DC loss, loss of a customer's goods, supplier failure), then tabletop it. Rule: every named number verified quarterly, and a stranger must be able to execute the first hour from the document alone.
Also confirm the temporary site is covered - property policies commonly restrict or sublimit losses at locations not scheduled - and that the third-party operator's liability and your bailee exposure are addressed in writing.
2. What must Ridgeway do to protect the insurance recovery, and how should the customer's separate claim for its own losses be handled?
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Protecting the recovery
- Late notice: notify now, in writing, and put the insurer to proof of prejudice - most jurisdictions require actual prejudice before denying for late notice, but the burden is easier if the delay is explained and the insurer's investigator was on site from day one.
- Split the claim correctly: property, business income (the 72-hour waiting period runs from the damage; the period of indemnity ends when the business is restored with due diligence, not when the company feels whole), extra expense under the $1M line, and expediting under the $250k sublimit. The three-times handling cost is most likely expediting. Read the definitions before conceding the sublimit - if the policy defines expediting narrowly and the cost is really extra expense to continue operations, argue it there.
- Reconstruct the undocumented spend from third-party records: temp labour invoices, freight, landlord statements, customer emails, bank data. Emergency spending without support is the single most common source of claim shrinkage.
- Mitigate, but do not admit: mitigation is a duty, so keep spending to shorten the interruption, while making no voluntary payments or admissions of liability outside the policy.
- Subrogation and lease: check for a mutual waiver of subrogation. If Ridgeway waived it, the property claim against the landlord is gone, but its own policy still responds - knowing which before the landlord's lawyers call matters.
- Segregate inventory: the customer's goods are covered only if the policy insures personal property of others; identify and value them separately now, before the adjuster's spreadsheet is frozen.
The customer's claim
The customer's own lost profits and contract penalties are generally not covered: property and business income policies indemnify the insured's loss, and contractual liability is excluded unless assumed by endorsement. Tender the goods portion as a bailee claim promptly and keep the consequential claim in a separate channel - do not let it contaminate the first-party claim or the recovery relationship. Then check the warehouse contract for a liability cap and a consequential-damages exclusion. If those exist, the customer's leverage is commercial, not legal, and that is the conversation to have with the 42% customer.