We were recently involved in an expert determination case of loss of profits and cost of replacing items in respect of an insurance claim referred to the Financial Ombudsman Service.
Whilst there was no dispute over the liability of the insurer to make good the loss, the quantification had been difficult. That’s where we came in.
A designer who had been operating as a sole trader for three years, lost her portfolio following water damage to the property in which she lived. A significant claim was made in respect of the cost of replacing damaged items and the loss of income suffered as a result. It was alleged that the damage to the claimant’s portfolio meant she was unable to obtain new work since the portfolio was necessary in order to pitch for work.
The claim was based on rudimentary calculations with reference to a previous business in which the claimant had been involved. This more established business continued to operate and run in direct competition with the claimant’s new business. The claimant also had other commitments which distracted her from growing the new business throughout the period under consideration. She was also involved in an accident which, whilst unrelated to the claim, further impacted on the development of the new business.
Loss of profits
With regard to the loss of profit it was clear that the claimant’s business had not been a successful venture prior to the water damage. There was no basis on which to calculate a loss of profit as it appeared that an initial flurry of work undertaken on setting up as a sole trader had been a one off event and was not repeated in subsequent years prior to the water damage.
With regard to the cost of replacing the damaged items the claimant had provided some evidence of printing costs. We obtained additional quotes from third parties on which to base the quantum calculations and interviewed the claimant to determine the number of copies which were damaged.
The claimant was also claiming for damaged items to which she did not have legal title. Firstly, we obtained independent counsel’s opinion on this matter before concluding.
We determined the claimant’s loss at a fraction of the amount claimed. We identified a number of obvious errors in the claim which did not appear to have been considered at either a micro or macro level. The purpose of the insurance award was to put the claimant in the position she would have been in but for the loss of her portfolio. In this case, had the proposed claim succeeded, the claimant would have been many times better off as a result of the water damage.
In this expert determination case, the claim was significantly greater than our determination of loss. Perhaps if the amount claimed had been more realistic the matter would have been settled earlier. Thus enabling the claimant to move on. As it was the claim took over two years to be referred to us. This simply prolonged the agony of an unhappy situation.