Business Interrupted: Lessons Learned from Buncefield

Article, Benchmark, Davies Lavery newsletterDecember 2006

Insurance / Property

Keith Tuffin, Partner in the London office of RGL and Iain Allsopp of Davies Lavery, urge companies to "be prepared."

At the time of going to press, the first anniversary of the Buncefield Disaster - the large-scale explosion and fire which happened at the Hemel Hempstead oil storage terminal in the early morning of 11 December 2005 - was approaching. News reports shortly after the disaster estimated that 5% of the UK's entire petrol stocks had been wiped out by this event. It also emerged that the overall financial impact in the region would amount to some £5 billion, £1 billion of which, according to the local Chamber of Commerce, would be shouldered by local businesses and local authorities. In total, 400 businesses were rendered unable to use their premises, which meant that some 25,000 personnel were either unable to work, or were working from alternative premises.

Fast forward a year and the senior High Court official overseeing the potential litigation has just confirmed that around 3,300 claims have been lodged in relation to the Buncefield disaster, representing possibly hundreds of millions of pounds in potential damages, ranging from personal injury to property damage and business interruption claims.

The Buncefield disaster may be unusual in its size and impact, but it is proving many useful lessons, particularly in the twin areas of business continuity and business interruption, as numerous government and other agencies have been poring over the facts, analysing the detail and identifying the issues and the key learning points going forward. Both RGL and Davies Lavery are involved in various claims and hearings relating to the Buncefield disaster in an advisory capacity, so we are of course restricted to some extent in what we can say. Davies Lavery’s Iain Allsopp, who is personally involved advising on a number of major claims in Buncefield concurs. However there are a number of generic themes that have come out of the Buncefield experience to do with business interruption which have wider application and which are worth exploring here.

Across the multiplicity of analysis and reporting on the incident, a number of common themes have emerged repeatedly, which make interesting reading for the insurance industry in particular.

First, the companies that were the most prepared – in terms of disaster planning, arrangements for alternative accommodation and alternative supply chains – were the ones who proved most able to preserve business continuity and thus suffered the least damage from business interruption Those engaged in closed and regular cooperation between insurer, broker, adjuster and other advisors are the ones that have emerged from the disaster in good shape.

Second, many businesses have learned a hard lesson about the dangers of being under – or inappropriately insured. Many of the business that were under-insured have faced a significant struggle for survival and inevitably some have not made it. Under declaration of values at risk seems to be emerging theme and one that Insureds need to be aware of if they are to avoid this problem in future.

Third, the period commonly covered by business interruption policies run for 12 months from the date of the event. However, the Buncefield experience highlights that this is simply not long enough. Typically rebuild periods could take up much of this time, thereby not allowing enough of the remaining period of indemnity for business to recover properly. The after-effects of the disaster will run much longer into the future.

One outcome of the Buncefield experience that should be welcomed by the insurance community is that the businesses generally are likely to be more open to considering their own exposure to loss from business interruption – and how they need to be covered against this – in a more realistic and expansive way. For many companies that did not have a sophisticated risk management department. Buncefield will have highlighted the need to review their business interruption insurance and will have moved further up the agenda for many financial directors. There is a clear and positive opportunity for insurers to educate the marketplace and encourage insured’s to review their cover for such events.


As appeared in Benchmark, Davies Lavery Newsletter, December 2006.


Additional contributors:
Iain Allsopp
Davies Lavery

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