Reference no: EM132798789

Corporate Risk Management Case Study Texas Bank Tornado

In March 2000, at 5:30 p.m., a tornado hit several major buildings in downtown Fort Worth, Texas. Among the buildings damaged by the windstorm was a tall glass tower that a large bank had leased mostly for administrative offices for its 600 employees, but that also had public banking facilities on the lower floors. Because the tornado hit just after the end of the workday, there was no loss of life, but property damage to the building and its contents was extensive. Since the bank did not own the building, the bank had to arrange for access to the property after the loss through the building's owners. Moreover, the city of Fort Worth's building inspectors declared the building to be imminently dangerous. After it was labeled imminently dangerous, the bank's officers and employees had no access to the building for over a week. During this week wind and rain caused further damage to the furniture, equipment and valuable papers.

The bank's risk manager had made prior arrangements with a disaster recovery facility in a remote location that allowed the bank to use the emergency facility's computers, phones, and fax machines after a disaster. This facility provided workspace for about one-third of the bank's critical personnel. The bank's risk manager also made arrangements for a shuttle bus service between the loss location and office space available in nearby Dallas, Texas. Employees were not able to retrieve critical papers from the loss site until two weeks after the tornado struck, by which time the glass windows in the tower had been replaced or boarded over with plywood.

The company had planned to replace all the destroyed furniture, carpeting, and electronic equipment, as well as repaint its entire premises before reoccupying the damaged property. While the building was unusable, the bank had to find and rent alternate locations for many of its employees. It also had to continue the expensive shuttle service to Dallas and to provide many employees with an allowance for their commuting expense. In addition, the bank experienced much inefficiency, such as the inability to hold needed conferences and meetings that would normally have taken place in the damaged location. Perhaps the greatest complication arose when the building owner declared that it was too expensive to repair the building and therefore it was terminating all the leases. Leasing the same amount of space in a new location would likely cost the bank about twice what it had been paying at the damaged location.

Based on the information provided, you are to complete the following assignments:

1. List all the direct losses the bank experienced.

2. List all the indirect losses the bank experienced.

3. In a maximum probable loss event arising from a tornado, identify the additional losses that you would expect.