When the Press Stops: Managing a Complex Business Interruption Claim in Automotive Manufacturing

When the Press Stops: Managing a Complex Business Interruption Claim in Automotive Manufacturing

In automotive manufacturing, one malfunctioning machine can disrupt an entire supply chain. When that machine is a large hydraulic press responsible for producing specialized pressed parts for car body panels, the stakes rise exponentially. This case study examines a real-world scenario where a catastrophic press failure led to months of business interruption (BI), complex negotiations with insurers, and high-stakes decisions on freight options. It illustrates how proactive communication, detailed monthly claims, and data-driven decision-making helped prevent financial surprises—and ultimately saved the insurer money.

 
1. The Incident: When a Critical Press Explodes

The insured company operated a high-volume stamping plant supplying pressed metal components to several automotive OEMs. One of its key assets was a German-manufactured hydraulic press designed for deep-draw components that could not be easily manufactured on other machines.

A sudden hydraulic failure caused the press to explode, severely damaging the cylinder, ram, and upper frame. The press was entirely inoperable.

The immediate consequences:

The primary production line halted.
Only some components could be reallocated to other presses.
Complex parts requiring the destroyed press could not be manufactured on-site.
Two parts could be outsourced to competitors at a premium.
The majority of parts had no feasible alternative production method.
Every day the press was down meant units not shipped, OEM production gaps, and contractual penalties looming.

 
2. Understanding the Financial Stakes
The numbers quickly told the story:

Insured gross profit loss: approximately $550,000 per month
Lead time for a replacement press: 2 months to manufacture
Sea freight time from Germany to Canada: ~2 months
Sea freight cost: ~$70,000
Air freight cost: ~$500,000
The initial timeline suggested four months of downtime, equating to $2.2 million in gross profit losses, plus overtime, outsourcing, and mitigation costs.

The standard BI indemnity period would respond, but only if decisions were made quickly—and justified clearly to the insurer.

 
3. Immediate Mitigation: Overtime and Production Reallocation

The company acted quickly to reduce its losses:

Production planners reviewed all parts normally run on the damaged press.
Some parts could be transferred to other lines, but only if operators worked significant overtime.
Overtime ran across multiple shifts, incurring tens of thousands per month in additional wage costs.
For two critical components, the company sourced short-term production through competitors—but at a premium.
These mitigation measures enabled partial production, but only covered a fraction of the output.

The BI loss continued to accumulate.

 
4. Early Engagement With the Insurer: Avoiding Surprises

A common mistake in BI claims is to “wait until the end” and submit a massive consolidated claim. This almost always leads to disagreements, delays, and sometimes denied elements of coverage.

In this case, the company took the opposite approach.

Within the first week:

They notified the insurer and loss adjuster immediately.
Daily production data and early loss estimates were shared openly.
An agreed format for monthly BI updates was established.
The insurer appointed a forensic accountant to work with the company’s finance team.
This early, structured collaboration set the tone. Both sides understood the projected losses and the cost of various mitigation options, and decisions were data-driven rather than emotional.

 
5. The Freight Decision: Air vs. Sea
With the replacement press on a two-month manufacturing timeline in Germany, the biggest question remained: How do we ship it?

The choice was as simple as it was expensive:

Sea Freight
Cost: ~$70,000
Shipping time: 2 months
Total downtime: 4 months
Projected BI loss: ~$2.2M
Air Freight
Cost: ~$500,000
Shipping time: ~7–10 days
Total downtime: 2 months + 10 days
Projected BI loss: ~$1.15M
Difference in BI loss: ~$1.05M
Additional cost of air freight: $430,000

Financially, air freight created a net savings of roughly $620,000 for the insurer—if the insurer was willing to fund it.

 
6. Negotiating With the Insurer

The insurer was initially reluctant. A $500,000 air freight bill was highly unusual and outside the company’s normal operations. But the BI section of the policy required mitigation of loss “as far as practicable,” and the numbers clearly supported air shipment.

The company built its argument around three principles:

Mitigation Requirement:
The policy required reasonable steps to minimize loss. Sea freight added two months of unnecessary downtime.
Financial Benefit to the Insurer:
A detailed financial model demonstrated:

Air freight cost: ~$500,000
Avoided BI loss: ~$1,050,000
Net savings: ~$620,000
Operational Necessity:
Without the press, certain OEM contracts were at risk. Long-term loss of business would compound the BI claim far beyond the immediate period.

After reviewing the financial model, the insurer agreed that air shipment was the most economical solution under the policy's mitigation clause.

The press was flown in, arriving just over a week after leaving Germany.

 
7. Structuring Monthly Claims: Transparency Is Everything

Complex BI claims require organization. The company established a monthly reporting process that became a model of best practice.

Every month, the company submitted:

Updated lost production calculations (part-by-part, press-by-press).
Revised gross profit losses based on actual sales impacts.
Overtime reports listing hours, rates, and incremental costs.
Outsourcing invoices for work done by competitors.
Repair and replacement costs for the press.
Revised projections for the remaining period of interruption.
Correspondence logs confirming OEM requirements and supply obligations.

The insurer received:

• Complete transparency
• No surprises
• Documents structured to match policy wording
  

This avoided the most common BI claim disputes: causation, measurement methodology, duty to mitigate, and betterment.

The insurer approved interim payments monthly, ensuring the company’s cash flow remained stable.

 
8. Bringing the Claim to a Smooth Close

With the press installed rapidly thanks to air shipment, production returned to normal far earlier than originally projected.

Final reconciliation of the claim—which often drags on in complex manufacturing losses—took place within weeks rather than months. Because both parties had agreed on the methodology from the outset, the final BI settlement required only minor adjustments for:

• Actual gross margin achieved
• Final overtime tallies
• Final outsourcing costs
• Period of restoration ending date
  

The insurer was satisfied. The company was paid in full. No disputes, no lengthy arguments, no post-loss surprises.

 
9. Key Lessons for Manufacturers Facing a BI Loss

This case highlights several important principles for any company dealing with catastrophic equipment failure:

1. Notify early and communicate openly.
Delays in communication lead to higher losses and friction with insurers.

2. Submit structured monthly claims.
A predictable reporting rhythm prevents disputes and keeps everyone aligned.

3. Use data to justify mitigation decisions.
Large expenditures—such as air freight—must be backed by clear financial modeling.

4. Work collaboratively with the insurer’s forensic accountant.
Early engagement fosters trust and accelerates interim payments.

5. Mitigation is a policy obligation—but also a negotiation tool.
When done strategically, it can save both the business and the insurer significant money.