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INDUSTRIAL PROCESS FAILURES

Industrial Process Failures generate some of the largest claims received by the insurance industry. Multi-million dollar claims are not uncommon. Major issues include coverage, subrogation possibilities and courses or action available to minimize losses. Technical input is clearly required to assist in decisions regarding liability and to determine direction in order to mitigate losses.

An example of a coverage issue involves a juice and beverage manufacturer. Glass containers of product began to spoil, as indicated by the lids popping upwards on their caps shortly after manufacturer. Fermentation was also observed, as well as fungus and mould growth on the surface of the liquid and upper extremities of the containers. The product was returned to the manufacturer resulting in an estimated loss of over half a million dollars at production cost.

Through a comprehensive analysis of their process, it was determined that the spoilage was caused by insufficient pasteurization of the caps and upper levels of the filled containers. Although the containers were washed and filled at temperatures above the maximum survival temperatures for yeast and bacteria, the caps were not. The caps were placed on the containers shortly after filling, and sprayed by a jet of steam at this time. The temperature increase experienced by the caps was not maintained long enough to properly pasteurize this area, owing to the radiation properties of the metal and poor conductivity of the glass and air space above the liquid. This allowed the caps to cool quickly relative to the rest of the container. Therefore, the yeast and bacteria existing on the cap and possibly exposed to the upper extremities of the container prior to capping were not properly pasteurized and resulted in the spoilage of the product.

The manufacturer made a claim for the loss based on "contamination of the product by yeast and bacteria which was covered under the policy. However, it was successfully argued that the "contamination" never occurred since the yeast and bacteria were always present within the product, on the containers and lids, and in the surrounding area. The claim was successfully denied without proceeding to litigation.

Subrogation was possible in a case involving the lamination of two plastic parts for a packaging company. Lamination is a heat treating process where plastic is moulded to the desired shape, ad lids are then laminated (melted) on top. We were retained to determine why the lamination process was faulty. This had created a significant loss as the improper lamination did not appear until the package was in the marketplace.

As a result of our investigation, subrogation meetings were held with the plastic supplier that resulted in reimbursement for the problem.

Regardless of the questions of liability and coverage, mitigation of the loss should always be maximized. Assistance in this area, whether technical or not, can provide an important negotiation tool in the settlement of claims. One situation comes to mind concerning a furniture manufacturer and a supplier of finishing products. The insured was the finish manufacturer who supplied Melamine Formaldehyde/Urea Formaldehyde resins to the furniture manufacturer who used them to finish the exposed surfaces of the furniture.

After the production, the product was packaged in closed-cell styrofoam packaging and placed in cardboard boxes. The product passed all required tests and was shipped to the marketplace. The problem was realized when the product was subsequently removed from the packaging and set up for display. After approximately 3-10 days, the product developed cracks in the finish which followed the lines of the grain of the wood veneer. Over $2 million of product was affected, resulting in a claim against the finish supplier.

The cause was determined to be directly related to the formulation of the particular finish supplied by the insured. The chemical formulation caused the finish to cure (or set) prior to completion of solvent evaporation. In other words, the cross linking bonds, which give a finish hardness and durability, cured or set before the solvent carrier, which fluidizes the resin for the purposes of application, was permitted to evaporate or dry. The solvent evaporation process was stopped when the product was wrapped in the closed-cell styrofoam packaging, and essentially sealed from the atmosphere. When the product was opened, the solvent evaporation process continued, resulting in a loss of mass of the finish surface. In other words, the surface coating on the furniture shrank. This put stress on the surface coating which resulted in failure at the weakest point (thinnest areas), along the grains of the wood veneer.

Although the liability clearly rested on the insured, significant mitigation of this loss was possible. The effect was limited to heavily finished surfaces. Surfaces with a lighter finish were not affected. In addition, components of the furniture which were not finished were not affected by this loss. Therefore, significant quantities of material could be unpackaged and re-used, significantly reducing the loss. In addition, methods to strip and refinish the affected surfaces were developed, further mitigating the claim.

Walters Consulting Corporation engineers not only have experience in most industrial industries, but also understand the needs of the insurance industry when addressed with these types of problems. If you have a claim involving an industrial process loss, please advise the office nearest you.

 
The information contained in this web site is intended for marketing purposes only. It is not all-inclusive, and does not fully describe the many and varied services that the company provides, nor does it completely describe the education, training, skills, or expertise of our staff.

 
 
 

Walters Forensic Engineering | 277 Wellington Street West, Suite 800 | Toronto, ON M5V 3H2
Information contact: engineering@waltersforensic.com