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After the Storm: Mitigating Losses involving High-Technology Equipment following a Flood

By: Envista Forensics - Bruce Swales
Tel: (800) 326-5075
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The role that water plays in our existence is well understood. Without it, most living things will rapidly wither and die. Equally catastrophic of course, are the consequences of too much water. Not only to living things, in terms of widespread flooding, but also in terms of damage to machinery and equipment from exposure to water.

Asia is renowned for its typhoons and tropical storms, and in some countries their legendary tropical downpours during the wet season. This often results in major or widespread flooding during the typhoon season belt or during the wet season (depending upon the country). Areas that appear particularly flood-prone year after year include Jakarta (Indonesia) and Manila (Philippines) however China, India, South Korea, Taiwan, Vietnam and several other East and South Asian countries are also quite familiar with widespread flooding.

After a catastrophic storm, such as a typhoon, hurricane, cyclone or tropical storm, the potential for damage to electrical and mechanical equipment and machinery is significant. The risk increases with various factors, such as damage to the structure where the equipment is located, and exposure to the elements. Being near the coast increases the potential of major flooding from the initial tidal surge induced by high winds, wind-blown salt water and rain. All of these issues, along with the normally elevated humidity and temperature conditions encountered in many parts of Asia, can result in the rapid deterioration of water contaminated equipment.

So, the question for Insurers who take up the challenge of providing flood cover in many of these areas is 'How can we minimise the risk of large flood claims?' One cannot realistically predict flood occurrences nor how widespread flooding could be if it did occur in a particular area, so from an underwriting perspective providing flood cover (like providing any insurance cover) basically comes down to understanding the risks and determining suitable premiums given the risk. In some situation it is probably a much more simple question - will we provide flood cover or not?

In regard to flood claims, however, Insurers do have some ability to control the value of flood claims, particularly with respect to equipment/machinery property losses, by the way the claim is managed and the support provided to Policyholders after a loss has occurred. The key is to provide rapid, professional advice to Policyholders on how to mitigate further damage from occurring to floodwater contaminated equipment, and to have various reinstatement options, such as restoration, available.

The primary question to address is what are the chances of a rapid and successful recovery after such an event? The good news is that a very large percentage of technical equipment can be recovered and put back into action quickly. Success will depend on a number of factors under the Policyholders control. These include swift decision-making, and accessing the right experience for the job.

Water can damage electronic equipment by two methods. Lets look at the simpler case first, where the affected equipment is not energised when it comes into contact with the water. The potential danger in this case is corrosion, caused by contaminants in the water. Halogens are the major concern here and include ionic chlorides, bromides and fluorides (halogens are a group of non-metal elements that are abundant in the environment, usually in compounds or ions, such as in minerals, in sea water or in a raft of other compounds. Halogens are highly reactive and, therefore, in regard to metallic components, quite corrosive). Other factors that will contribute to the generation of corrosion include the pH value of the water, the materials used in the equipment componentry, and the degree of protection provided to metallic surfaces by coatings or plating.

In the case where water invades equipment that is energised, the risk of more severe damage is greater. In addition to the risk of corrosion, some degree of electrical 'short circuit' damage can be expected, depending on the type of equipment and the operating voltage and wattages employed. The spectrum of damage though, can range from serious, to relatively minor, and depends upon many factors. In general, however, the amount of short circuit damage is often less than one (even the manufacturer's own engineers) may have initially imagined.

It is important to note that the viability of even extensive repair is usually an economic question rather than a technical one. There is no difficulty in undertaking repair of damage caused by short circuiting of components; all damaged components can be totally replaced and the equipment restored to at least its previous condition. However, if you are the manager who has to make the decision on the most appropriate reinstatement action, you will want to weigh up the economic and risk factors involved.

Specifically, to achieve a cost-effective flood claim settlement involving technical equipment, you will want to ensure, firstly, that only personnel with the appropriate professional expertise and competence are given the task of repair or restoration, and secondly that the cooperation of the equipment manufacturer can be secured, if necessary.

After Floodwater Contamination - What you can do:

As an insurance professional assisting a policyholder following a water contamination/damage incident, you can help by advising the Policyholder what he can do to help rescue his equipment and mitigate further damage from occurring. The following steps, while not all-inclusive, can help reduce property damage, business interruption and extra expenses when correctly applied following a water damage loss.

1. Ensure that all power supplies to the equipment have been disconnected, preferably at the circuit breaker. This includes disconnecting Uninterruptable Power Supply (UPS) systems, if installed. One common mistake, made even by the equipment service engineer, is to apply power to equipment in order to test it, because it now looks dry. Equipment should never be electrically energized before it is thoroughly inspected because it can be subjected to further damage due to short circuiting if water is still present within.

a.The equipment needs to be stabilised by relocating it to a humidity and temperature-controlled environment. If the equipment can't be moved, use air-conditioning and/or dehumidifiers to lower the relative humidity. This will slow down the onset and progression of corrosion. Ideally, humidity should be limited to 45%-55% and the temperature should be as cool as is practical. Humidity higher than this level will not sufficiently retard the corrosion process.

2.Additional steps should be taken in order to facilitate drying. Open equipment cabinet doors, drawers and covers to allow air movement through the equipment.Next, remove water by draining or using a wet type vacuum cleaner to suck out excess water. Compressed air can also be used, if available, to further facilitate drying. Following the removal of internal water, wipe down and dry accessible surfaces in order to remove the remaining water as much as possible. Finally, use fans to circulate air throughout equipment.

3.Consider contacting a qualified equipment loss consultant or equipment restoration specialist prior to contacting the service vendor or manufacturer. As mentioned earlier, vendor/manufacturer service personnel may be tempted to power on the equipment, thus potentially causing further damage. The equipment loss consultant can also assist with sourcing and installation of loan or rental equipment in order to further reduce costs whilst the original equipment is being restored/repaired. The restoration specialist can carry out more comprehensive equipment preservation activities, for example applying a preservative compound to unprotected metallic surfaces on mechanical equipment. They may also elect to rinse the equipment with fresh water to displace storm-related saltwater, which is far more corrosive.

Once the risk of further damage has been mitigated, reinstatement options can be assessed and the appropriate course of action taken. Unless the equipment in question has been so severely damaged, professional restoration will usually be quite viable and will normally prove to be a prudent option in order to minimize the reinstatement cost and, in particular, to reduce the business interruption period (restoration typically costs a fraction of the new replacement price, and can be carried out far more rapidly, in most cases, than procuring new equipment).

Decisions made during the initial hours following a flood loss can be crucial to setting the scene for a rapid recovery of business operations, particularly in regard to the reinstatement of high-technology equipment. When carried out in a timely and effective manner, the above actions will help to reduce water damage to equipment and, therefore, also reduce the overall quantum of the ensuing insurance claim.

Envista Forensics is a global leader in Forensic Engineering & Recovery Solutions. They provide Cause & Origin, Failure Analysis, Fire and Explosion Investigations, Accident Reconstruction, Damage Evaluations and Equipment Restoration Services following disasters of all kinds. Envista has offered Consulting Services to the insurance, legal and risk management industries as well as businesses, public entities, and universities for over 25 years. Their Experts travel globally from 30 offices located across the U.S., Canada, Mexico, the U.K., Australia, and Singapore.

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