Tips for Business Interruption Claims
At the present, there is limited, if any, coverage for business interruption due to the coronavirus. However, we hope that local and state governments will step in to provide business interruption coverage for small business owners. Therefore, Stratus believes it is important for you, as a business owner, to know how to properly document a business interruption claim so that you can submit claims for each month that your business is negatively impacted by the coronavirus.
What is the purpose of business interruption insurance?
Business interruption insurance is meant to indemnify the policyholder should they incur a covered loss due to a disruption to their business that negatively affects revenue, net income, etc. Coverage is based on an actual loss sustained basis and the more information you as a business owner can provide the better your chance of receiving a payout.
Best Practices for Business Interruption Insurance Documentation
1. Create a timeline of important events 6 months prior to the loss as well as important events that took place during and/or after the period of the loss. Important events may include:
- Description of the event(s) that caused the loss
- Narrative of key operational and financial decisions made during the 6 months prior to the loss event
- How the loss event impacted your business and whether it has caused a change in the way you operate
- Records of government regulations, orders, etc. that have impacted your operations (e.g., shelter in place)
- How you are trying to mitigate the loss
2. Keep track of the financial impact of the loss event on your business by documenting the following:
- Loss of income versus prior month and quarter and versus the same period (e.g., month, quarter, etc.) from the prior year
- Increase in expenses to mitigate the loss event (e.g., health equipment, technology needed to work remotely, etc.)
- Effect on your variable and fixed costs as well as payroll logs to show the impact on your workforce
- Specific impact on your operations (e.g., status of customer orders/purchases, cancellation of travel/events, changes to production schedules, etc.)
- Whether you will receive any relief from your leases or other professional contracts based on the current loss event
3. Keep a record of all your planning and operational documents, including forecasts, production/selling plans, changes in order size, use of reserve inventory and use of operational cash reserves.
Managing the Claims Process
We suggest that you appoint someone to be the primary contact between your business and the insurance company so that all information is collected and communicated by one person. This will reduce the potential for confusion and will allow you to run the process as opposed to the insurance company. Remember that it is critical for you to show that you are trying to mitigate the damage from the loss event so the insurance company cannot create a narrative to deny your claim.