Claim vs Actual Loss

Sometimes things go wrong in the manufacturing process and the company may unknowingly sell product that is defective then have a claim filed against them. However, the cost as presented by the claimant may not be quite accurate.

Such was the case when Company A made 10,000 defective fittings of the type shown in the photo. They were sold to Company B, who then enrobed the fitting with a stainless steel sheath and filled the interstitial space with wax for the final assembly. Our investigation on behalf of Company A’s insurance carrier concluded that, indeed, Company A was at fault and a site survey and interviews corroborated Company B’s claim.

 

However, the difference between Company B’s cost for the fitting and the price of the final assembly was $47. Company’s B claim for a credit was based on this cost difference. A site survey and interviews at Company B showed that the value added to the fitting before it was sold as a final assembly was actually on the order of $10.

 

The result was that after astute manufacturing engineering analyses, Company A’s carrier did accept liability, but their payout was about one fourth of the initial claim.