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    Equipment Loss Consultants & Technology Recovery Experts

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    Lightning Damage to Electronic Components

    While experts claim that the frequency of thunderstorms (lightning) is currently on the increase globally, it still doesn’t account for the seemingly exponential growth in “lightning” claims submitted by Insureds.  The primary reason for the rise in claims is due to the increasing susceptibility of electronic equipment to damages associated with over-voltage exposure. Read more

    How do insurance policies address reinstatement of equipment warranties?


    One of the most elusive issues addressed during the course of adjusting equipment claims concerns preexisting warranties and/or maintenance agreements.  Consider the following scenario for discussion purposes – An Insured sustains limited water damage to a production machine that was less than a year old.  The machine’s original warranty and supplemental service (maintenance) agreement were active at the time of the incident.  The Insured’s maintenance vendor (who also represented the OEM on warranty issues) replaced all components that exhibited any evidence of damage or even exposure.  While the machine was returned to normal operational condition and displays no indications to suggest latent damage or operational problems, the OEM and maintenance vendor revokes the warranty and service agreements.  In effect, they take the position that the only way that they will reinstate the agreements is if the entire machine is replaced.  Although there are effective options available to resolve this type of scenario, the purpose of this discussion is to specifically address the interpretation and application of the actual insurance policy.  Do any policies specifically address this issue?


    As a Consultant engaged by Adjusters to assess equipment damages I routinely rely on the Adjuster to interpret and apply the insurance policy.  Of the actual policies that I have reviewed I have rarely seen specific language that addresses this issue head-on… and only on equipment breakdown insurance policies.  Absent of specific language indicating that the loss of a preexisting warranty/service agreement is considered “physical damage” and/or classified as a covered peril, the policies are open to wide variations of interpretation.  Most Adjusters seem to apply the intent of the “making the Insured whole” decree and will reasonably attempt to obtain reinstatement of the agreements whenever possible.   Since the underlining issue is commonly a gray area, many Adjusters use it as a negotiating tool when pressed by the Insured and/or their representatives.  How do you handle demands for reinstatement of equipment warranties if the policy doesn’t specifically address this issue?

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    Contamination of electronic components

    Typical loss-related contaminates range from smoke and water/by-products to common (“nuisance”) dust.  Original Equipment Manufacturers (OEM) and their authorized service organizations commonly claim that this contamination compromises the long-term reliability and operational integrity of the exposed equipment.  Supporting their claim, electronic equipment can potentially be compromised by contamination in the following manners:


    1)      Corrosive reaction of susceptible and critical metal components (normally associated with combustion by-products such as chloride, sulfate, and nitrate compounds combined in at complex matrix of carbon soot particles and oxidized organic molecules).

    2)      Galvanic reaction of dissimilar, unprotected, and adjoining metals causing continued degradation) normally associated with water exposure).

    3)      Moisture absorption forming active electrical leakage paths or “shorting” adjoin circuits (normally associated with common/”nuisance” dust, or heavily carbon-based soot contamination after exposure to a high humidity environment).

    4)      Abrasive actions degrading critical mechanical and surface contact areas (normally associated with “nuisance” silica dust contamination such as concrete dust).

    5)      Increased Thermal Load causing overheating (normally associated with gross contamination of common or “nuisance” dust and/or carbon based soot).


    Fortunately, many of the contamination incidents that are presented as “actual” damage are only “potential” concerns.  Components that don’t exhibit evidence of damages as outlined above are generally candidates for successful restoration.   Effective removal of the contamination will remove the potential for the noted reactions and related concerns.  “Real” (actual) damage can be appropriately addressed during the decontamination process.  What many OEMs or their service providers don’t reveal, or don’t realize, is there are a multitude of acceptable processes available to effectively decontaminate typical loss-affected electronics and sensitive mechanisms. 


    Surprising to many, electronic components are designed to withstand cleaning processes employed during the manufacturing and preventative maintenance process.  The processes were originally developed to remove flux residue from soldered printed circuit boards.  Later, in hopes of extending equipment life expectancies and reliability, advances were made to develop procedures capable of cleaning electronics operating in “harsh” environments (aircraft, ships, paper mills, etc.)  These widely accepted processes, developed and utilized by the manufacturers and maintenance companies, were used as a basis for developing “field” cleaning processes to handle loss-related contamination problems.

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    The necessity of being proactive on “smoke” exposures…


    There’s a lesson to be learned here that often goes overlooked.  I have another project that involves a small machine fire in the middle of a large manufacturing facility.  Although the fire was contained to a single machine, the smoke produced by the incident spread throughout the facility.  Initiated by the client’s employees and a local restoration firm, the facility was cleaned in a couple of days and the client resumed a normal production schedule.  Several weeks pass and the Adjuster is informed by the client that they’re having problems with several of their automated production lines.  They claim that the equipment manufacturing representatives are assigning the problems to the “smoke” – suggesting that smoke is corrosive and have (or will) damage the equipment.


    Although I was able to conduct an accurate assessment of the situation by obtaining and analyzing a battery of surface samples throughout the facility, the fact that I’m doing this AFTER there’s a perceived problem magnifies the level of difficulty in getting all parties to agree on the probable conclusions.  The “we need new equipment” bug is now securely planted in the client’s ear.  Ideally, I would have been there shortly after the loss to obtain the samples necessary to map-out the actual exposure.  While it’s obviously important to accurately identify actual damage (including potential issues), it’s equally to important to rule out areas that were NOT affected.


    I’ve never encountered a “call-back” reassessment request on losses that I fully mapped-out the residue exposure levels.  I have however, had claim assignments linger on to address “damage” to equipment that may have been in harm’s way (but weren’t “scientifically” assessed during initial surveys).  My advice – Make sure that “smoke” producing incidents are accurately surveyed and mapped-out to circumvent future concerns.  Taking a pro-active position of actual conditions saves the Insurance Company time and money by not having to combat unsubstantiated claims -which commonly arise long AFTER the files are closed.

    Assessing and documenting content losses…


    The most effective process to minimize the problem with “latent” content/equipment damages is to ensure that an accurate assessment is conducted as soon-as-possible following the loss.  Ideally, the assessment should take place with the all the equipment in its original position/condition following the loss incident.  As much as you want to identify what was exposed and remains suspect, you equally want to determine what equipment was NOT in harm’s way!  The objectives of the initial assessment are relatively simple to establish and be performed by initial loss responders (insured’s personnel) with limited guidance:


    1) Create a general mapping of the affected areas and equipment positions, supported by ample photographic documentation.  Although using an as-built blueprint is ideal, copies of fire evacuation maps or hand-drawn maps are commonly used and effective.


    2) Obtain an accurate inventory of ALL equipment that appears to be affected and/or in harm’s way (however remote).  Provide additional classifications/tagging of probable exposure and/or damage.   A simple, yet highly effective system incorporates the use of colored tags… RED – obvious damage and/or heavy exposure, YELLOW – obvious exposure and/or probable damage and GREEN – no apparent exposure and/or damage).


    3) Mitigate further damage to the equipment as it’s assessed (de-energize and initiate initial drying/preservation).  Unless absolutely necessary, do NOT move the equipment until a qualified Technician or Engineer can verify actual condition and prescribe final testing/recovery efforts.


    The best defense is often the result of a having a great offense…  In the absence of reasonable post-loss assessments, ANY and ALL operational problems become associated with the loss incident as soon as something triggers the connection.  Many times it’s triggered by an overly cautious Manufacturer or service representative that’s called in to inspect the equipment.  More common than not, the inspections result in “damage reports” that either suggests pending catastrophic damage or limit their warranty/service agreements.  Once planted, the concept of latent damage becomes forefront and soon becomes the perceived reason for every operational issue encountered after the loss.  If you proactively document the loss as recommended, you minimize the issues commonly experienced on content/equipment losses that could otherwise result in re-adjusting closed files. 

    Evolution of claim control on property claims…



    The property claims industry has changed dramatically in the past decade.  Prior to 2000 (when deductibles were just a fraction of what they are today), Property Adjusters were commonly dispatched to the loss-site within hours of an incident.  On large and complex losses, a select group of Consultants would accompany the Adjuster and immediately “take control” of the loss.  An equipment and machinery specialist would address the production equipment and computer systems, a building restoration specialist would address the building envelope and general contents while a forensic Accountant would work with the Insured and analyze the possible financial impact of the incident.  As a seasoned team, the Adjuster’s entourage instinctively knew what the loss needed and responded accordingly.  While the Insured provided available resources to assist in the recovery activities, their primary focus was to protect their income and explore the appropriate contingencies.  Actual claim payouts were held to a minimum.


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    As insurance deductibles skyrocketed and Insured’s began to self-insure larger portions of risk in the early 2000’s, serious gaps began to appear in the recovery process.  A general slowdown in the economy and a shift in business models to support “lean and mean” operations left many organizations with minimal resources to manage the self-insured portion of the loss.   Few organizations now have the necessary resources or knowledge to effectively assess actual loss conditions and respond with the appropriate loss-mitigation efforts.  The loss of initial loss control has resulted in many “minor” incidents snowballing to significant insurance claims.


    Unfortunately, the window of opportunity to mitigate many equipment claims is an extremely short period of time following the incident.  Too often, the Adjuster and the loss consultants are notified too late to initiate optimal loss-mitigation and contain actual damages.  Instead of providing pro-active loss control assistance, the Adjuster’s team is relegated to offering limited containment advice or “post mortem” assessments.


    Realizing that you can’t turn the clock back, efforts need to be made to better educate the Insured’s first responders and reinforce the awareness of the loss control gap to the loss prevention and underwriting of the insurance companies.  The good news is that the disaster planning/business continuity industry has acknowledged the shift and developed plans for (smaller) organizations that would have previously believed that assistance to develop a comprehensive plan was unjustified.  On the flip side, the underwriting and loss prevention departments of the major insurance carriers have been slow to help (or force) the Insured’s fill the apparent gap in loss control.  Time will tell on how long it takes to turn this super tanker.

    Content inventories and co-insurance issues…

    As a consultant engaged to assess equipment damage (e.g., lightning, fire, etc.) for carriers, I’ve noticed a trend that I’m trying to better understand.  In short, I’ve noticed that many Insured’s are drastically understating equipment values, while fewer Adjusters are aggressively pursuing the apparent co-insurance issue.  For example, I recently conducted an assessment of a small manufacturing facility that sustained water damage to a single piece of machinery.  Although my focus was directed to only the affected machine, it was obvious to me that the total value of all the Insured’s equipment was understated (the values just happened to be listed on one of the forms that the Adjuster provided).


    Through discussions with the Insured, it appears that they acquired most of their machinery from plant-closing auctions… and used these (heavy discounted) costs as stated values.  In effect, they stated $1,500,000 in values – but in reality, current comparable replacement values were closer to $4,000,000. While I determined that repairs to machine that I assessed were limited (totaling less than $100,000), I mentioned to the Adjuster my belief that the Insured’s total equipment values were understated.  Surprisingly, the Adjuster made the statement that the co-insurance penalty was not applicable.  The Insured was eventually paid $100,000 (less deductible) for their loss.


    Years back, whenever I informed Adjusters of my findings concerning understated values of equipment it seemed like they were all over it and pursued their adjustments accordingly.  Are equipment/content claims treated differently or does a specific type of exclusion apply?  Or better yet… What’s changed recently that would explain this apparent trend?

    Tips for Successful Data Recovery

    No matter how hard you try to protect your data, your system may still fall victim to data loss. Regardless of the cause of your data loss, there are steps you can take to keep your data loss from becoming a data disaster.  The first order of business is to NOT PANIC – You should never assume your lost data is unrecoverable.  In most cases, your data is fully recoverable… IF you take the appropriate steps once you realize that there is a problem with your data.  Although you can maximize your recovery potential by contacting us immediately to assess your situation and guide you through the recovery process, here’s a few tips that may help you avert a major data disaster.

    1.       The first recovery attempt is always the best recovery attempt.

    2.       Do not use file recovery software if you suspect an electrical or mechanical failure. Using file recovery software on a faulty hard drive may destroy what was otherwise recoverable data.

    3.       Do not clean or operate equipment exposed to water or smoke.  There is only one option – Call us immediately. Your chances for a successful recovery are greatly reduced if you make any attempts yourself to clean or dry your damaged computer.

    4.       If your drive is making unusual clicking, grinding or whirring sounds, shut down your computer immediately. These sounds could be the read/write heads making contact with the platters. Severe or complete data loss could result.

    5.       Unplug the power to the computer before removing the hard drive and handle the drive carefully. Hard drives are extremely sensitive to static electricity and physical shock.

    6.       Never remove the cover from the hard drive; this will only cause further damage.

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    7.       “Undelete” tools can save your data from human error. Most disk utility packages contain a function that allows you to retrieve an erased file. This tool must be used immediately; however, because your computer will quickly write new data over the deleted file. For more information see your Windows documentation or help file.

    If you have suffered data loss, seek professional help. Professional data recovery services offer the expertise and tools required to recover your data quickly and efficiently.  As a Kroll Ontrack Data Recovery Certified Partner, you can count on Technical Recovery Process when disaster strikes and compromises your data!

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    NEMA Guidelines for Handling Water-Damaged Electrical Equipment

    Guidelines for Handling Water-damaged Electrical Equipment


    NOTICE AND DISCLAIMER – Please see the last page of this document.


    Use of this Publication:


    This publication provides guidelines on how to handle electrical equipment that has been exposed to water through flooding, fire fighting activities, hurricanes, etc.  It is designed for use by suppliers, installers, inspectors, and users of electrical products.  Electrical equipment exposed to water can be extremely dangerous if reenergized without proper reconditioning or replacement. Reductions in integrity of electrical insulation due to moisture, debris lodged in the equipment components, and other factors, can damage electrical equipment by affecting the ability of the equipment to perform its intended function.  Damage to electrical equipment can also result from flood waters contaminated with chemicals, sewage, oil, and other debris that will affect the integrity and performance of the equipment.  Ocean water and salt spray can be particularly damaging due to the corrosive and conductive nature of the salt water residue.


    Read more

    What to Do After a Fire…

    Although we routinely offer technical advice to clients regarding the recovery of technology assets following a fire, the City of Hibbing, MN provides very informative recommendations on their website for almost everything else that people need to know following a devastating fire.  Here’s the information that they’ve made available…

    Read more

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