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ST PAUL’S UNIVERSITY – NAIROBI CAMPUS

BACHELOR OF COMMERCE
BCFI 401 – INSURANCE RISK MANAGEMENT
WRITTEN ASSIGNMENT NO 2 FOR JAN-APRIL 2023
Instructions: You are required to careful study the case below and write your assignment in
accordance with the instructions provided below the case.
THE BERKSHIRE CHEMICALS EXPLOSION CASE
During the summer of 1988, David Wilkins, the Plant Engineer at Berkshire Chemicals Plc, was
doing routine inspections on the plant. There was nothing unusual with the plant readings and the
closing report by the plant supervisors later that evening confirmed that the production schedules
for the day had been met and that the engines and boilers were in robust condition. The following
day David called a management meeting and informed the supervisors and senior technicians
that he would be away for a British Engineers conference in London later that evening.
Two days later, while David was preparing for a technical presentation in a London hotel, a
waiter asked if he was David Wilkins, while holding out the telephone receiver. David was
immediately worried that the condition of his ailing father, Harry Wilkins, who was on
medication, may have deteriorated. He jumped off the table and snatched the receiver. That was
not to be. He noticed that the caller was Philip Hornsby, one of his plant supervisors at Berkshire
Chemicals Plc.
The report was grim and the sausage in David’s mouth nearly chocked him! Philip reported that
there was a serious explosion on Machine No.4 and that they were forced to shut down
production to facilitate investigations into the cause of the incident. David was forced to change
plans and quickly headed back to Berkshire where a somber mood greeted him. After several
hours of investigations, David discovers that the cooling system of the machine had failed. The
damage was initially estimated at £500,000 which involved the replacement of the engine caskets
and the rewinding of the cooling system. The Plant was insured in respect of Fire & Perils and
Engineering Machinery breakdown insurance that covered explosion of plant or machinery.
There was a warranty by the engineering insurers regarding plant operations and procedures.
A quick audit of the employee’s present immediately before the explosion indicated that a senior
plant technician, Tom Buckler was working on the water supply system adjoining machine No. 4
late that evening. A cleaner, Ms Becky Johnson had also checked into the engine room earlier
that evening for her routine cleaning duties. Tom admitted that he had disconnected the main
water supply and had left a note at the supervisor’s desk requesting that the machine No.4 should
not be restarted until the water inlet valve was restored. He was surprised that his instructions
had been ignored.
Philip had apparently failed to notice the small note that was tacked inside his daily operations
file. He had started the engine without reading the note!

© Ezekiel Kimosop – Insurance Risk Management 2023

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A fuming David summoned the supervisor and the technician to his plant office and gave them a
dress down. There was an established procedure that any critical instructions should be directly
communicated to the concerned officers to avoid communication lapses. Tom was later fired by
the management and Philip was served with a warning letter. He reported the incident to the
insurers. The machine was restored after one week of intense repairs. The total repair cost
amounted to £545,000. The production losses were yet to be quantified but were estimated at
£300,000. This was the first major loss incident with Berkshire Chemicals Plc in ten years.
The insurers later denied liability for the loss citing breach of engineering insurance warranty by
Berkshire Chemicals Plc. David wrote a detailed response to the insurers arguing that the
negligence was unforeseeable and that the insurers should pay for the loss. Two weeks later,
David was summoned by Thomas Hillman, Chairman of Berkshire Chemicals Plc, who
demanded an explanation from David regarding the circumstances leading to the explosion
incident. David was forced to return to London. He was deeply disturbed.
REQUIRED
Using your knowledge of risk management learnt in this course, answer the following questions:
1) Analyze the case and describe the general status of risk management at the Berkshire
Chemicals Plc. Indicate with reasons if you consider it satisfactory or unsatisfactory for
this type of operations. (20 Marks)

2) Using you knowledge of pre-loss risk control concept, identify and outline in detail the
key risk management lapses at this plant and recommend at least five remedial post-loss
measures that should be taken by the Berkshire Chemicals Plc to address the lapses,
going forward (20 Marks)

3) Do you think that the insurers are justified in denying liability for the loss? Give reasons
for your answer. (5 Marks).
4) Assuming that the insurers stand by their earlier decision in denying liability, do you
think Berkshire would be successful if they sued them? What facts stand in their favour
in this case? (5 Marks)
INSTRUCTIONS ON ASSIGNMENT
a) The work should be free from any typesetting, typographical and spell check errors.
b) The answers should be analytically and logically presented, well researched and concise.
c) Reference sources quoted in the assignment must be cited correctly using official SPU
referencing and citation format.
d) Creativity and individual effort is required. Any copying or sharing of assignment
answers will automatically lead to loss of marks on those affected.
e) ekimosop@midline.co.ke so as to be received on or before Wednesday 22nd February,
2023. No hard copies will be accepted. Any assignment submitted after this date will not
be graded.

© Ezekiel Kimosop – Insurance Risk Management 2023