Estimating Economic Loss for the Multi-Product Business

The basic model for estimating economic losses to a company that has some type of business interruption is well-documented in the forensic economics literature. A summary of much of this literature is contained in Gaughan (2000). The general method used to measure damages is essentially the same regardless of whether the loss occurs because of some type of natural disaster (as in insurance claims resulting from flood, fire, or hurricane) or whether it is caused by the actions of another party (as with potential tort claims). The interruption prevents the firm from selling units of product, which would otherwise have been supplied to the market. Economic damage is the loss of revenues less the incremental production costs of the units not sold, plus or minus some adjustment factors described in Gaughan (2000, 2004), and elsewhere.