Sugar Not So Sweet When Fire Damages a Sugar Cane Mill

Insurance Claim, South & Central America

This article pertains to the basis for a business interruption insurance claim for a sugar cane mill that sustained production losses after an explosion and fire. We applied our process operations expertise to understand the basis of the claim as it pertained to sugar cane harvesting, mill operations, capacity utilization, reliability, operating costs, and bagasse utilization. Our expert report-used by the parties in subsequent negotiations-addressed the key point of whether damages had been remediated in an appropriate and timely manner.

Sugar cane mills process harvested sugar cane into raw sugar. A sugar cane mill is distinct from a sugar refinery that converts raw sugar into the refined "white" sugar used by households or in soft drinks. In a sugar cane mill, harvested sugar cane is first crushed to separate the juice. The juice is then filtered before being subjected to a process called "crystallization" in which solid raw sugar crystals are formed. In addition to raw sugar, such mills also produce several by-products, most importantly a fibrous solid called "bagasse" that is burned in the mill's steam boilers to produce most of the steam and power needed to operate the facility. Any surplus power produced can often be sold back into the power grid.

A sugar cane mill in South America experienced a fire and explosion in the steam/power generation portion of the mill. The resulting damage caused the mill to be shut down for repairs for approximately two weeks. The owner filed a business interruption (BI) claim with its insurance carrier for lost production during the outage. Baker & O'Brien was engaged to independently evaluate the BI claim.

Our consultants visited the plant site and examined relevant production, operations, maintenance, and financial records. During the site visit, they were also able to interview key management and operations personnel, as well as observe mill operations and understand the sugar cane harvesting process. In our analysis of the BI claim, we applied our knowledge in the areas of: (1) common practices in sugar cane harvesting and receiving; (2) standard sugar mill operations; (3) typical capacity utilization and reliability; (4) typical operating costs; and (5) bagasse utilization. A key issue was whether the owner had mitigated damages to the most reasonable extent possible. Our findings were delivered in a detailed report. Subsequent negotiations between the affected parties resulted in a settlement.

Gary N. Devenish

Vice President

Renewable Fuels
Insurance Claims / Accident / Incident Investigation / Quantum/Damages Assessment
South and Central America