Hurricanes have recently caused destruction in coastal areas, but a number of causes are able to inflict damage to your business and its finances. It’s important to know what your options are and how to respond in order to facilitate the fastest and fullest recovery possible. Business interruptions claims are just one way that your business may be able to receive financial relief after a disaster.
If your business has suffered from loss of income or damage to real or personal property resulting from a disaster, you can submit a business interruption claim to compensate for the loss and allow your business to return to normal operations. Below are five steps to make a business interruption claim.
Most business interruption policies are add-ons to property damage insurance, and these policies typically only cover damage from insured risks, which vary with the type of policy. Some policies individually and specifically name each risk insured against (named perils policy), whereas other policies might assume that all risks not specifically excluded are covered (all-risk policy). It is important that you look for a business interruption endorsement that defines your coverage and/or the period of coverage. Your Commercial Package Policy (CPP) may not cover the specific risk or may limit the period of loss.
Step 2: Assess if lost income could potentially be offset in future earnings.
Lost income from business interruption can be tricky. The purpose of a business interruption policy is to protect you against lost earnings caused by the suspension or partial suspension of business operations due to a covered event, such as a disaster. Lost income that is not offset by future earnings is subject to business interruption coverage. If it is not offset by future earnings, the business interruption must be calculated.
Step 3: Determine the period of restoration.
The restoration period is the time that it takes for the damage to the real and personal property to be repaired, replaced or reinstated so that your business can be restored. Business interruption policies generally provide benefits during the period of restoration. The period usually begins on the date of the incident; however, some cases may require a waiting period of 72 hours before the period of restoration starts. The period of restoration usually ends when the business is restored to its previous position or when it could have been restored with the exercise of due diligence. The period of restoration is a critical component of a business interruption loss calculation and, at times, a contentious area of the claim. Your policy should define the restoration period.
Step 4: Calculate the amount or impact of lost revenue.
Your insurance policy generally defines how to calculate your actual loss sustained, as well as all that the term encompasses. Considerations of lost sales, earnings, projected sales and other costs must be carefully evaluated. Is your loss supported by production records or inventory records, or do they include extra expenses that may or may not be recoverable? The policy should define what is recoverable.
Step 5: Apply deductible in either a dollar or time period amount to finalize your business interruption loss.
The deductible percentage is important to finalize the business interruption claim and should be included in the declaration page of your policy.
Warren Averett has the depth of knowledge and expertise to assist with business interruption claims, and our experts have assisted many clients through recovering their businesses from disasters. We can review a smaller claim before it’s submitted or, for more involved claims, calculate the business interruption loss for your claim. Our experts understand that each case and policy is unique, and we can help with the option that’s best for your business. If you have questions about business interruption claims, please contact your Warren Averett advisor