Claims Examples

Michael Smith, DDS is a dentist that sees patients from Monday through Friday, and occasionally on a Saturday. On October 1, 2019, Dr. Smith was the victim of a ransomware event, which prevented him from scheduling new patients and sending reminders to already scheduled patients for 4 days.

The documents requested by Beazley

Beazley’s forensic accountant requested the following information:

Adjustment methodology

Although there is sometimes seasonality in medical office visits, the accountant noticed that there was none for this practice. It was therefore deemed reasonable to utilize the pre-loss daily average based on the day of the week. Daily averages were determined based on the four prior weeks.

It was also determined that there was no consistency in the number of patients seen. Some days there were 20, other days 30. In a dental practice is may not be uncommon to see a varying number of patients due to varying complexity of work that may need to be performed.

The actual number of patients seen was subtracted from the projected quantity of patients, which yielded a reduction in 60 patients over the four days. Based on the information that demonstrated 14 patients were able to be rescheduled, as well as comparing the actuals for the remaining days in October 2019 to the pre-loss averages, we were able to determine that the insured was able to make-up 26 patients, for a net loss of 34 patients. Some of this make-up was achieved by the doctor’s office opening on a Saturday when it was not originally scheduled to.

The 34 lost patients were multiplied by the average charge per patient of $150 to arrive at $5,100 lost gross revenue. Utilizing the pre-loss billings and collections from January 2018 through September 2019, a collection percentage of 90% was determined. This was applied to the $5,100 to arrive at net lost revenue of $4,590.

The monthly Profit & Loss Statements were then analyzed to determine what expenses were saved by not seeing a patient. These saved expenses included such items as Lab Fees, Credit Card Fees, and Instrument Cleaning. These expenses equated to 15% of revenue. When subtracted from the net lost revenue of $4,590, the measurement subtotal equated to $3,902.

The weekly payroll information was then reviewed to determine if there was any savings or incremental expense. Based on utilizing the pre-loss average, it was determined that Dr. Smith continued to pay his staff during this time and incurred $750 of additional payroll to have the staff come in on a Saturday.

The result

The $750 of labor was added to the $3,902 to arrive at a total business income loss of $4,652.

On June 11, 2018 Jones Construction Supply (“Jones”) was the victim of a ransomware attack. This event brought their email and point-of-sale systems down. For one week, Jones was not able to take electronic orders. Any orders that were made were made via phone call and required physical searching for the item in inventory, which delayed the sales process.

Jones prides itself on selling supplies that are purchased by general contractors with quick turnaround times; anywhere from one to two days. Due to the expected quick turnaround time and inability to meet it, Jones submitted that many customers went to competitors.

The documents requested by Beazley

Beazley’s forensic accountant requested the following information:

The adjustment methodology

Year over year trending of weekly sales was utilized as the insured stated that business is seasonal; more sales occur in the warmer weather months. The trend demonstrated that Jones’ sales were increasing by 10% over the prior year, prior to the loss. This 10% was applied to the prior year sales for the same week of 2017 of $1,000,000 to project sales for 2018 for $1,100,000. Actual sales of $500,000 were then subtracted to arrive at lost sales of $600,000.

The sales achieved the week after the computer systems were down were reviewed to determine if there was any continued sales loss as a result of the event or if there were any make-up sales. Sales returned to normal. The total sales from the monthly Profit & Loss Statements for 2017 were compared to the 2017 Federal Income Tax Return in order to perform due diligence and confirm that the sales information presented is accurate. The monthly Profit & Loss Statements for 2018 were utilized to determine the projected net income that would have been incurred, but for the loss, at 25%. The 25% was applied to the lost sales of $600,000 to arrive at $150,000. The Profit & Loss Statements were also used to determine the continuing expense percentage as a relation to the sales loss at 50% that were incurred during the loss period. The percentage was also applied to the lost sales to arrive at continuing expenses of $300,000.

The result

A total business income loss of $150,000 + $300,000 was computed, amounting to $450,000.

J-Tube Industries produces rubber tubing utilized in water filtration. Production occurs 24 hours a day, 5 days a week. All production is sold and there is no inventory. Due to a malware attack on November 19, 2019, J-Tube’s production facilities came to a halt on the 19th and 20th November. J-Tube stated they were able to make-up production by running Saturday shifts, which are not usually run, on two consecutive Saturdays after the loss.

The documents requested by Beazley

Beazley’s forensic accountant requested the following information:

The adjustment methodology

A review of daily production on a year over year basis demonstrated that the trend was flat. Additionally, as production was run 24 hours a day and essentially the same product was being produced, there were no material variations in quantities produced.

As there is no difference in daily production and the year over year trending was flat, the daily average from the 2 prior weeks was utilized to project production. This amounted to 5,000 pieces per day or 10,000 for the 2 days for which production was halted. Production was analyzed for the 2 weeks subsequent to the loss and as was stated, the production was made up on the 2 consecutive Saturdays. This resulted in no lost income.

What J-Tube did incur was an additional labor expense to make-up production on the subsequent Saturdays. The 4-week pre-loss weekly payroll was utilized to project payroll for the week of the loss and the subsequent 2 weeks. This equated to $100,000 a week of normal payroll. For 2 weeks, this computed to $200,000. The projected amount of $200,000 was compared to the actual payroll incurred of $250,000 resulting in additional payroll of $50,000.

The result

To this amount, the variable and fringe benefits percentage of 10% was added to arrive at total incremental payroll incurred to mitigate the loss of $55,000.