Indemnification

It has been awhile since I talked about this concept.  Allow me to try a mind experiment and SkunK it down a bit. 

Say you ran across a home insurance policy that cost half of what you are paying now.  Sound like a deal?  For round numbers, say the liquid assets of the insurance company were a million dollars.  Your house was insured for 500K.  Still sounds like a deal - right?  What if you had 10 neighbors on the same block who also had their house insured for 500K with the same company?  If one house burns down the company can cover - no problem.  If two houses burn down, the company can still cover.

What I forgot to tell you, the houses are really condominiums and the Insurance company has their $1M office in the center condo.  They all share external walls.   In fact, it is hard to come up with a scenario where only a single condo or two burns.  If one burns they will all burn.  Does that really sound like a "good deal" now? 

If there is no fire - no problem.  However you paid the premiums to protect you from a fire.  You have to ask yourself - if there is a fire - how will the insurance company apply their liquid $1M in claim assets:  
a.  to rebuild their $1M office?
b.  divide it among the 11 claims so each gets less than 100K?
c.  on lawyer fees to delay having to pay out at all?

Notice none of the answers say pay all their claims in a timely matter.  Because this insurance company cannot.  The math does even come close to adding up.
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By the end of last year GreenShift passed into profitability.  They did not have to make a big announcement.  The only ones reading the GreenShift filings closer than GreenShift investors are the defendants in the litigation.  I am sure the defendants would be rather reading ICM's filings but they cannot - since ICM is a private company.  At the last 10KGreenShift had about 14 full time employees.  In hard times it is all about overhead and the lack thereof.  Compare a profitable small company having 14 employees and a leased office in Alpharetta, Geogia to ICM's overhead.  Has anyone built an ethanol plant lately?  If this becomes a war of attrition GreenShift can attrite all day long. 
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Smarter people than me can do the real math but lets just get a feel for it. Cardinal had $2,508,570 in corn oil revenues in the last quarter.   Cardinal announced the price of corn oil recently dropped to 32 cents a pound.  On an annual rate, using a 20% royalty that is just over $2M.  At treble damages that is $6M .  The patent application goes back to 2004, but say the average COE system did not get up and running until February of 2008.  For just 4 years the total is $24M to indemnify one customer.   Without adding in the rest of the customers, personal liabilities, the liabilities of he who indemnifies and all sorts of other costs the loser might have to pay and one can see that the numbers may quickly move into the "Carl Sagan" levels. 

Maybe I am wrong but the cheap condo insurance may not be quite the bargain - if the only time you need it, there is not enough to go around.

SkunK