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ALTERNATIVE BASIS CLAUSE UNDER LOSS OF PROFITS INSURANCE

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ALTERNATIVE BASIS CLAUSE UNDER LOSS OF PROFITS INSURANCE

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Insurers prefer to use “Turnover” as an index of activity compared to “Output”.

However, some clients insist on an Output basis.

On an Output basis, the insured wishes to be paid for what he has been unable to produce instead of what he is unable to sell. The distinction can be very significant since by selling accumulated stocks, turnover can many times be maintained either wholly or in part, even though production has been interrupted due to the occurrence of damage.

Whenever Output Basis” has been given to an insured, the insurers invariably put the “Alternative Basis Clause”. The Alternative Basis Clause reads as follows:

“It is agreed and declared that, whenever found necessary, the term “Output‟ may be substituted for the term “Turnover‟ and for the purpose of this policy “Output‟ shall mean the sale value of goods manufactured by the “Insured‟ in the course of the business at the premises….”.

The key question to be answered is:

Who can decide at the time of loss assessment whether to substitute Output by Turnover?

Answer:

  1. Insured
  2. Insurer
  3. Loss Adjustor

Please answer in the comments with logic or a case law to back up your answer.

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