Page 328 - Fire Insurance Ebook IC 57

Fire and Consequential Loss Insurance

n The insured will usually ask his auditors to produce the
information required.

n The auditors fees for this work can be insured.
n These fees are to be distinguished from normal audit fees paid in

the ordinary course of business and which are insured as standing
charge.

'Output' basis of specification

n Turnover is used as the index of business activity - and therefore
as the measure of loss - in the great majority of consequential loss
insurances.

n Every unit of production earns its due proportion of gross
profit, and it follows that loss of gross profit can be measured
by ascertaining the rate of gross profit per unit of production
and applying it to the shortage in the number of units
produced.

n The wording of the 'Output' basis of specification is the same as
that used for 'turnover specification, except that 'turnover' is
substituted by 'output.

n The rate of gross profit is defined as the rate of gross profit per
unit earned on the output during the financial year immediately
before the date of damage.

n The output basis is adopted where loss measurement under
turnover basis does not provide a fair indemnity to the insured as
when accumulated stocks are used by the insured to maintain
turnover in which case there will be no reduction in turnover
although there is reduction in output.

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