The difficult job of processing the claim begins
There were fears of a major business interruption loss and extra costs because, according to initial estimates, the blast furnace would be out of operation for a long time due to the fact that provisional repairs were no longer possible. Furthermore, raw material prices were beginning to rise around the world at that time.
It soon became clear why the 25-Hz generator had failed: vibrations in the floor, probably caused by the generator itself, had triggered an emergency switch. Since it had been fitted by a steelworks employee, the recourse option did not look very promising.
In order to minimise the loss of production quickly, the parties involved decided to reactivate another blast furnace that had been deactivated two years earlier. With an investment of approx. US$ 7m, this furnace could have started production in just under a month. While the reactivation work was proceeding, however, the steelworks was placed under creditor protection. From this moment on, all repairs required court permission, thus slowing down the reactivation process and the preparations for inspecting the damaged blast furnace, which was still hot.
And then the plant was sold – four months after the initial loss event. The contractual partners changed and had to be familiarised with the claims handling process, which was already at an advanced stage.
New losses reported
Then the insurers were notified of new damage to the lining of the blast furnace gas preheater. However, the experts determined that this new damage could not be attributed to the damage caused by the power outage but that it had been caused beforehand in the normal course of operations. But further newly discovered damage to the ceramic burners was attributed to the power outage damage.
Financial problems arise
A portion of the insurer’s advance claims payment was held back by one of the banks – on the grounds that the money was not being put into the blast furnace it had financed but into the deactivated one. With inadequate funds, the policyholder was unable to purchase any raw materials, resulting in new delays.
Different opinions in assessing the loss
By now, the blast furnace had cooled sufficiently, the work platforms had been installed, and the solidified pig iron had been extracted. The inspection of the blast furnace, which was undertaken by the surveyors and an engineering firm commissioned by the policyholder, took five weeks. Regular meetings between the contractual partners were intended to ensure that the damage was recorded consistently. Nevertheless, a further three months passed before detailed estimates of the material damage were available. And even then, those inspecting the damage were unable to agree on a common assessment since they differed too much in their opinions regarding the prior damage to the blast furnace.
The reactivated blast furnace fails to work satisfactorily
The capacity of the reactivated furnace was lower than that of the damaged furnace. It consumed more coke, and the policyholder complained of supply problems. Both the quality and quantity of the pig iron were inadequate – and worldwide demand was high. Pig iron production fell short of the target.
Reconstruction under discussion
The engineering firm the insurer had commissioned to rebuild the blast furnace calculated that the damaged blast furnace could have been repaired seven months after the loss event and full capacity could have been reached one month later. Discussions began on the benefit that reconstructing the damaged blast furnace would have for the policyholder: after all, if the damaged furnace were to be repaired, the policyholder would have two active blast furnaces, and that would be a significant improvement in the situation.
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