There are several steps involved in working through a business interruption (BI) claim. Once presented, coverage on a BI claim will be evaluated based on the circumstances of the loss (fire, flood, civil authority directives, etc.) by the insurance carrier. it is possible that the carrier may issue a “Reservation of Rights” letter to protect their interests and give them time to investigate the loss and determine coverage. The period of investigation is generally not limited, if progress is being made, and the insured should cooperate by providing any requested information. The claim will either be declined in writing or accepted, and the adjustment phase will begin.
Three of the biggest barriers to BI claim resolution are failure to respond to carrier requests, inability/unwillingness to provide documentation, and lack of clarity on the details of the business in question.
The amount of each BI claim will be determined based on the circumstances of the loss, the nature of the business involved, and the documentation which can be provided. Availability and production of documentation requested by the insurance carrier is key. Again, because each business is different, documentation requirements will vary, but some basic pieces of financial information are to be expected in every BI claim. These include:
- Income statements
- Expense statements
- Balance sheets
- Production reports
- Inventory reports (if applicable)
- Invoices and purchase orders
- Additional expense documentation (example: rental equipment)
- Costs of claim preparation
- Payroll reports
Note that it is not uncommon for carriers to request three years or more of financial information to establish trends and reduce the effects of unusual events (both positive and negative) for the business in question.
It should be anticipated that the carrier will request access to the business’s accountant to answer questions regarding any of the above items, as well as human resources to document employment records during the BI.
It is also not unusual for the carrier to hire a forensic accountant for more complex BI claims, especially if a business cannot provide adequate documentation of their loss.
Information that is advisable to prepare, in addition to the financial materials, includes:
- A statement regarding the cause of the BI, with as much details as possible
- A timeline of the BI, from inception to re-opening, including a summary of all relevant events that ocurred during that period
- An overview of the business in question, and what makes it unique (example: a seasonal business that is not consistent throughout the year)
- Any external factors that contributed to the loss and documentation of those factors (examples: civil authority actions, condemnation of building notices, etc.)
Some best practices for the insured to follow include:
- Maintaining a record of all communications (written, phone, or electronic) with the carrier, their accountant, and any other parties involved
- Documenting all requests from the carrier, as well as the production of documents (what, when, how transmitted)
- A schedule of regular meetings or conversations between the insured and the BI adjuster so that the expectations of both are known. This may be frequent in the beginning, and less frequent after documentation has been submitted and is being reviewed
Finally, it is important to note that if the insured hires an attorney or accountant to assist in filing or completing a BI claim, the related expenses may not be reimbursable under the insurance policy.
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