Case
Flickering fluorescent lightning tube cause of fire
at Brazilian transloading facility
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A telephone call to the headquarters of a Dutch textile manufacturer leaves everyone stunned. A fire in Brazil. The transloading facility at a logistics service provider in São Paulo has gone up in flames, including 250 racks storing the pallets with their property. Jeans, packaged in cardboard boxes. The maximum stock level, as the shipment of Kendrick Lamar Super Bowl-inspired flared jeans was destined for outlets in South America in time for the new fashion season. But fate had other plans.
The warehouse had recently been given a new layout and the storage racks relocated. In the new set-up, the racks were situated under the fluorescent lighting tubes. One of the lights had been flickering for a few days but replacing it did not seem urgent. It would later turn out to have been the cause of the fire. Fluorescent tubes can reach temperatures of up to 220 degrees Celsius when left to flicker on and off and it was this that caused the plastic fittings to melt and drip onto the cardboard boxes below. Apparently, a safety starter costing no more than three euros had not yet been installed. By the time the local security guard discovered the fire, it was already too late. He attempted to put out the flames rising from the cardboard boxes, wooden pallets and textiles but didn’t have enough water and it only led to more smoke and soot. In the huge hall, unequipped with sprinklers, the other 750 racks soon caught fire, too. The fire department eventually decided to allow the fire to burn itself out in a controlled manner, fortunately without any fatalities or injuries.
Crisis team quickly on the scene
The Meijers Global & Specialty Team received a call from the local Brazilian insurance broker, who had been informed of the fire by the client. The news had yet to reach the headquarters of the textile manufacturer in the Netherlands. Given the extent of the damage, experts and Meijers were soon boarding a flight to Brazil. As the parent company is based in the Netherlands, the situation had to be assessed by a Dutch agency, which would then file a report based on Dutch regulations. Meijers arrived on the scene to support the client in their communication with the local market and help them execute their back-up plans so that they could find a way to deliver the products on time.
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Calculation claim at a glance
Based on 625,000 pairs of jeans
Local coverage
€ 31,25 million
Worldwide coverage
€ 106,25 million
Difference
€ 75 million
(paid to the insured party in the Netherlands)
Advance payment and redistribution of stock
Within two weeks, the textile manufacturer received an advance payment of 5 million euros that guaranteed compliance with the suppliers’ conditions of payment. This was followed by the redistribution of flared jeans from other warehouses around the world. The extra costs involved were covered by the Property Damage Business Interruption insurance on the local textile manufacturer’s policy.
Local insurance versus international cover
Through its headquarters in the Netherlands, the textile manufacturer was covered by a global insurance policy known as an international controlled master programme. However, many countries, including Brazil, do not permit goods and buildings to be insured by a party beyond their own borders. That explains why this particular location was covered by an additional insurance policy in Brazil, in accordance with good local standard. The insurance company managing this policy possessed the required licenses and was compliant with all local legislation, tax laws and claims procedures.
Best of both worlds
In this case, the damage was covered by the Brazilian policy on the basis of the replacement costs (50 euros). This differed significantly from the international master cover, which was based on the sale price (170 euros). Damage is always compensated first according to the terms of the local policy, after which the master cover is applied. This provides the coverage known as Difference in Conditions and Difference in Limits, an extra insurance on top of the good local standard in the country in question. The local coverage on the basis of 625,000 pairs of jeans was 62.5 million euros. The worldwide coverage amounted to 106.25 million euros. The difference (75 million euros) was paid to the insured in the Netherlands, with no tax liable in Brazil.
First priority: create a crisis team. The local insurance broking company’s claims handlers and an account manager from Meijers, the clients’ CFO and Logistics Director in the Netherlands and the Managing Director in Brazil
Lessons learned
1. Awareness of importance of international spread of stock storage
Pascal Saura, Risk Engineer at Meijers: ‘In the case of significant interests, it is wise to enlist a Risk Engineer to carry out a risk assessment of third-party warehouses (transloading facilities). This is especially important in the case of large volumes of stock. If the stock is spread over several countries and locations, it is important to obtain as much information as possible. This allows you to make well-informed decisions with regard to risk management and insurance.’
2. Awareness of local insurance regulations in specific countries
Ruben Oostwouder, Manager International at Meijers: ‘In some countries it is mandatory to issue a local policy out of the international controlled master programme. This applies to countries that do not permit such policies to be arranged outside of the country in question. A combination of master cover and local policies with good local standard cover, offers a best of both worlds solution.’
Table of contents
Case
Flickering fluorescent lightning tube cause of fire at Brazilian transloading facility
Table of contents
more?
(paid to the insured party in the Netherlands)
Difference
€ 75 million
Worldwide coverage
€ 106,25 million
Local coverage
€ 31,25 million
Based on 625,000 pairs of jeans
Calculation claim at a glance
Lessons learned
1. Awareness of importance of international spread of stock storage
Pascal Saura, Risk Engineer at Meijers: ‘In the case of significant interests, it is wise to enlist a Risk Engineer to carry out a risk assessment of third-party warehouses (transloading facilities). This is especially important in the case of large volumes of stock. If the stock is spread over several countries and locations, it is important to obtain as much information as possible. This allows you to make well-informed decisions with regard to risk management and insurance.’
2. Awareness of local insurance regulations in specific countries
Ruben Oostwouder, Manager International at Meijers: ‘In some countries it is mandatory to issue a local policy out of the international controlled master programme. This applies to countries that do not permit such policies to be arranged outside of the country in question. A combination of master cover and local policies with good local standard cover, offers a best of both worlds solution.’
Advance payment and redistribution of stock
Within two weeks, the textile manufacturer received an advance payment of 5 million euros that guaranteed compliance with the suppliers’ conditions of payment. This was followed by the redistribution of flared jeans from other warehouses around the world. The extra costs involved were covered by the Property Damage Business Interruption insurance on the local textile manufacturer’s policy.
Local insurance versus international cover
Through its headquarters in the Netherlands, the textile manufacturer was covered by a global insurance policy known as an international controlled master programme. However, many countries, including Brazil, do not permit goods and buildings to be insured by a party beyond their own borders. That explains why this particular location was covered by an additional insurance policy in Brazil, in accordance with good local standard. The insurance company managing this policy possessed the required licenses and was compliant with all local legislation, tax laws and claims procedures.
Best of both worlds
In this case, the damage was covered by the Brazilian policy on the basis of the replacement costs (50 euros). This differed significantly from the international master cover, which was based on the sale price (170 euros). Damage is always compensated first according to the terms of the local policy, after which the master cover is applied. This provides the coverage known as Difference in Conditions and Difference in Limits, an extra insurance on top of the good local standard in the country in question. The local coverage on the basis of 625,000 pairs of jeans was 62.5 million euros. The worldwide coverage amounted to 106.25 million euros. The difference (75 million euros) was paid to the insured in the Netherlands, with no tax liable in Brazil.
First priority: create a crisis team. The local insurance broking company’s claims handlers and an account manager from Meijers, the clients’ CFO and Logistics Director in the Netherlands and the Managing Director in Brazil
Share:
The warehouse had recently been given a new layout and the storage racks relocated. In the new set-up, the racks were situated under the fluorescent lighting tubes. One of the lights had been flickering for a few days but replacing it did not seem urgent. It would later turn out to have been the cause of the fire. Fluorescent tubes can reach temperatures of up to 220 degrees Celsius when left to flicker on and off and it was this that caused the plastic fittings to melt and drip onto the cardboard boxes below. Apparently, a safety starter costing no more than three euros had not yet been installed. By the time the local security guard discovered the fire, it was already too late. He attempted to put out the flames rising from the cardboard boxes, wooden pallets and textiles but didn’t have enough water and it only led to more smoke and soot. In the huge hall, unequipped with sprinklers, the other 750 racks soon caught fire, too. The fire department eventually decided to allow the fire to burn itself out in a controlled manner, fortunately without any fatalities or injuries.
Crisis team quickly on the scene
The Meijers Global & Specialty Team received a call from the local Brazilian insurance broker, who had been informed of the fire by the client. The news had yet to reach the headquarters of the textile manufacturer in the Netherlands. Given the extent of the damage, experts and Meijers were soon boarding a flight to Brazil. As the parent company is based in the Netherlands, the situation had to be assessed by a Dutch agency, which would then file a report based on Dutch regulations. Meijers arrived on the scene to support the client in their communication with the local market and help them execute their back-up plans so that they could find a way to deliver the products on time.
A telephone call to the headquarters of a Dutch textile manufacturer leaves everyone stunned. A fire in Brazil. The transloading facility at a logistics service provider in São Paulo has gone up in flames, including 250 racks storing the pallets with their property. Jeans, packaged in cardboard boxes. The maximum stock level, as the shipment of Kendrick Lamar Super Bowl-inspired flared jeans was destined for outlets in South America in time for the new fashion season. But fate had other plans.
