Business Interruption Insurance: What You Need to Know

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Many businesses in the United States and throughout the world are still dealing with the aftermath of the coronavirus (COVID-19). This brought to the forefront the need for businesses to think about potential loss of business income due to closings as well as how to deal with other business interruptions such as a fire or a cyberattack that could affect an organization’s business income.

Many organizations often look to their insurance policies for coverage of business income loss during challenging times. Will insurance cover lost amounts? What documentation is necessary?

What is Business Interruption Insurance?

The general purpose of business interruption insurance is to make the insured party whole from the damaging event. Business interruption and extra expense loss must be supportable. In other words, you need to document it to ensure it’s not speculative.

What Do I Need to Know in Order to Use Business Interruption Insurance?

Here are a few tips to help you navigate business interruption insurance:

  1. Obtain a copy of the insurance policy and declaration page
    You, and/or your legal counsel, should review the policy for potential coverage. Business interruption insurance is typically included as part of a commercial property insurance policy.

    Policy wording is vital as this type of insurance is typically triggered when there is a “direct physical loss of or damage to” an insured’s property. Additional contingent coverage may exist depending upon the policy. Certain industries such as healthcare, hospitality and travel may have specific coverage for diseases. Pay attention to covered peril, causes of loss, exclusions and limitations.
  2. Time matters
    You may have a deadline to report your claim. Common windows include 60-, 90- or 180-day periods. The clock starts running as of the date of damage. A phone call to your business interruption insurance provider, along with a follow up email to memorialize the call is recommended.
  3. Documenting your loss
    How has your business been affected by the damage? Documentation is needed to substantiate loss of sales, customers, extra expenses (e.g., payroll, material, rent and replacement inventory to shorten period of restoration) and hard costs (e.g., legal and accounting). Documenting sales trends and business cycles before and after the damaging event is important to show the related losses.
  4. Documenting saved expenses
    What expenses were not incurred as a result of the loss? Saved expenses include, but are not limited to, payroll inventory and utilities.
  5. Identify preliminary estimated period of restoration
    The period of restoration starts at the date and time of loss. It ends when the business’ income is back to “normal” (e.g., inventory or production levels return to normal). This may be calculated in days, weeks, months or years.
  6. Mitigation of losses
    The business should attempt to mitigate losses to the extent it can. Mitigation examples include continuing to operate if possible, limiting the period of restoration or mitigating certain costs.
  7. Frequent communication
    Ongoing communication with the insurance policy adjuster is important to address expected timelines for all parties and cover extra expenses. You’ll need to communicate how potential extra expenses may be handled by the insurance provider.
  8. Get your documentation ready
    Insured parties often need help by forensic accounting experts to document their loss of business income for insurance coverage. Tax returns, financial statements, sales forecasts, invoices, receipts, contracts and exports/reports from accounting systems are a good start for independent third parties to document or verify the loss of business income.

What Documentation Do I Need to Submit My Claim?

Each business insurance claim is unique. However, key documents include:

  • Tax returns
  • Financial statements
  • Sales forecasts
  • Invoices
  • Receipts
  • Contracts
  • Exports/reports from accounting systems

Download our list of documentation needed for your business interruption insurance claim.

Why You Need to Consider Business Interruption Insurance

As you seek remedies under your business interruption insurance coverage, you should anticipate that the insurance companies may be more oriented towards denial. However, the likelihood of a successful result will be increased when you’re armed with an understanding of your policy and submit a claim on a timely basis. The sooner you start the process, the better.

Business interruption insurance claims can be confusing.

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