Understanding Business Interruption Claims

 

 

Business Interruption insurance coverage is often viewed as the most difficult coverage to adjust. It is for the most part tied to a loss at a physical insured location (a building or buildings) and involves determining a dollar amount of earnings of a business including continuing expenses that did not occur because of the loss. In order to determine what the business would have earned had the loss not happened, it is necessary to look to the past as well as consider how future plans and trends would have affected the business operations. Business interruption coverage comes in many forms and should be structured by the agent/broker for the particular client's operations and needs.

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One of the common misconceptions about business interruption coverage we have seen is that the coverage will pay for the full loss the insured sustained following a covered loss. Most basic forms for B.I. coverage will only pay for the loss the insured incurred during the period of time it takes to repair or replace the physical damage at the insured location. For example: a restaurant sustains a fire loss. Using due diligence and dispatch as well as the market conditions for labor and material it is estimated it will take six months to make repairs.  The insured if covered for B.I. may be offered an amount for this six months. Unfortunately, businesses like this will often lose customers who may never come back or, if they do, it will take more than the required time to physically rebuild the business to restore sales to their previous levels. This loss of market is not going to be covered unless the insured buys extra coverage.

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