BUSINESS INTERRUPTION
How to file a loss of
business income insurance claim
Business income insurance, also known as business interruption insurance, provides coverage to businesses that lose income and incur expenses due to a covered loss, typically associated with physical damage or civil authority and dependent on your specific policy language.
1. Read the full policy for coverage, exclusions, deductible, your rights, terms, and conditions.
2. Put your insurer on notice of loss in writing if you anticipate a loss of income with an explanation of why you believe your loss is covered.
3. Submit your mitigation expenses and financial records evidencing the actual and/or anticipated damages to your business that exceed your deductible.
4. Work with your insurer.
5. If your insurer denies your claim, they are required to provide you with an explanation.
COVID-19: Business interruption general information
Attention business owners: Has the COVID-19 virus or a civil authority order disrupted your business?
The news stories regarding insurance claim lawsuits are everywhere. Business owners are facing tough decisions. The need for truth and full disclosure in order to make the best-informed decisions possible is paramount. Before you decide to use your insurance company, we strongly encourage you to know all your rights and remedies as it may make very good business sense for you to consider a non-litigious approach to handling the settlement of any covered loss of business income.
You see, when commercial and multifamily property owners suffer a covered fire, flood, wind or another disaster that damages their buildings, we process both their physical property and the loss of business income. We’re experienced in interpreting policy language, documenting business income losses and most importantly, getting claims settled fairly. In a nutshell, we help clients avoid unnecessary litigation.
4 Things you need to understand regarding your business insurance policy
We encourage you to diligently understand the claims handling process you choose to follow, as it may make a significant difference between getting settled in months versus years. In order to determine if you have insurance coverage for COVID-19, you need to take certain actions and understand 4 truths so you can make an educated business decision in order to determine the best course of action to protect your business, your rights, and revenue.
1. Read your full policy language regarding viruses, civil authority and business interruption. Your insurance may have provisions and exclusions that could trigger coverage depending on what your policy says, doesn’t say, your circumstances and industry.
2. Know that as public adjusters, our firm has years of experience in successfully negotiating millions of dollars in business interruption insurance claims.
3. Get a complimentary review and consultation of your business insurance policy coverage as it relates to civil authority orders and viruses.
4. Ask your legal advisor if a licensed public insurance adjuster can legally represent your interest in handling your business insurance claim.
How are Business Interruption
insurance claims calculated?
The intention of loss of business income or business interruption (B.I.) insurance is to put you back into the same financial position you would have been had the damage and ensuing interruption not occurred. Typically, B.I. insurance covers four key aspects:
+ Loss of gross profit / rent
+ Additional expenses incurred (e.g. hire mitigation company)
– Savings in expenses (non recurring)
+ Reasonable claim preparation costs (e.g. accountant’s costs)
The approach to calculating your claim will depend on your BI policy language, your business and the records available. An example business interruption claim calculation is shown below:
| Example BI calculation | $ |
| + Expected sales (i.e. if the premises had not suffered damage) | 1,000,000 |
| – Actual sales | (200,000) |
| Reduction in sales | 800,000 |
| – Cost of sales (say 30%) | (240,000) |
| = Reduction in gross profit | 560,000 |
| + Additional expenses (e.g. rental of temporary premises) | 100,000 |
| – Cost savings (e.g. lease of damaged premises) | (200,000) |
| + Claim preparation costs (e.g. accountant’s costs) | 50,000 |
| = Total BI Claim | $510,000 |
The calculation is conceptually straight forward. However, applying it can quickly become challenging when faced with the realities of:
- Incomplete records;
- Seasonality and trends;
- Determining the level of sales that would have occurred had the premises not been damaged given the change in demand following the occurrence;
- Determining the level of business successfully transferred to other properties.
What is the indemnity period? Why does it matter?
Often, Policyholders are unknowingly in a race against time. The indemnity period is the period of insurance protection. It normally commences from the date of the event or damage and normally ends when your business is fully operational again or when the specified indemnity period has expired, whichever occurs first.
Referring to the example above, if this loss of $510,000 occurred over a six month period, but the indemnity period is for three months, then some of the loss suffered will not be covered by the BI insurance policy.
The indemnity period should be defined in your policy or schedule.
What is the sum insured? Why does it matter?
The sum insured is the level of insurance cover in place. It is the maximum amount of BI cover you have for your business. Referring to the example above, if the sum insured is $400,000, the last $110,000 of the loss will not be covered by the BI insurance policy, leaving aside any excess.
What can I do to ensure my Business Interruption
insurance claim is accepted and payment is received
quickly?
Insurers are inundated with insurance claims following any major catastrophic event. Submitting a complete claim that the insurers can quickly understand will increase the chances of the coverage being extended and receiving a settlement.
What is the indemnity period? Why does it matter?
Often, Policyholders are unknowingly in a race against time. The indemnity period is the period of insurance protection. It normally commences from the date of the event or damage and normally ends when your business is fully operational again or when the specified indemnity period has expired, whichever occurs first.
Referring to the example above, if this loss of $510,000 occurred over a six month period, but the indemnity period is for three months, then some of the loss suffered will not be covered by the BI insurance policy.
The indemnity period should be defined in your policy or schedule.
What is the sum insured? Why does it matter?
The sum insured is the level of insurance cover in place. It is the maximum amount of BI cover you have for your business. Referring to the example above, if the sum insured is $400,000, the last $110,000 of the loss will not be covered by the BI insurance policy, leaving aside any excess.
What can I do to ensure my Business Interruption insurance
claim is accepted and payment is received quickly?
Insurers are inundated with insurance claims following any major catastrophic event. Submitting a complete claim that the insurers can quickly understand will increase the chances of the coverage being extended and receiving a settlement.
When putting together the
BI claim it will be important to consider:
Policy
The BI insurance policy language is the underlying driver in claim acceptance. It sets out what is covered or excluded and the definitions to be applied in your situation.
Damage to the property
The BI insurance policy normally requires there to be damage to the business premises or other property.
Extensions
Your BI policy (or schedule) may include extensions or items that are covered in addition to loss arising from damage to the premises. Extensions may include:
- Prevention of access to the premises (e.g. civil authority orders);
- Interruption to the supply of goods and services (e.g. loss of electricity and water);
- Interruption caused by damage to the premises at suppliers and customers. (Supply chain interruption)
Exclusions
The BI policy will include a list of exclusions or items that are not covered by the BI policy. Some BI policies specifically exclude the loss arising from damage caused by natural disasters including earthquakes and viruses.
Financial loss
The financial loss suffered will normally need to be as a result of damage to the business premises (or covered by extension and not excluded).
Presentation
The presentation of your claim is critical. The insurer processing your claim is likely to be dealing with thousands of claims and have limited knowledge of your business. It is important that you provide your insurer with all of the relevant background and financial information needed to process the claim. We recommend you provide your insurer with the following:
a) A brief cover letter providing:
- An overview of your business including the location(s) of your business;
- Details of the damaged premises, details of prevention of access to the premises or details of interrupted supplies/utilities;
- Current operations (e.g. did a tenant need to transfer, are you operating from new place of business or are you looking for new place of business, how long, how much is it costing you etc);
- Impact on trading (i.e. did your business completely shut down or were you able to partially trade);
- A timeline of key events;
b) Your method of calculation for your loss;
c) Supporting documentation for your claim calculation including evidence of a payments for any incurred costs and contracts entered into with the expectation of being incurred.
