Mistakes in Business Interruption Claims

Mistakes in Business Interruption Claims

When business is interrupted, expenses can pile up quickly. Payroll, rent and other financial obligations may not be covered, resulting in financial losses that can put businesses in a precarious position. Business interruption insurance is designed to help companies recover from those losses and get back on their feet. However, navigating the intricacies of this coverage can be tricky.

Mistakes in Business Interruption Claims requires demonstrating that the property suffered damage, that the damage directly caused the loss of income and that the resulting damages are attributable to the damaged property. This can be a complex process that requires a thorough review of documents such as financial statements, general ledgers, tax returns and vendor correspondence.

The complexities of measuring business interruption losses are numerous and involve projections of future results that would have occurred had the loss not happened (i.e., gross earnings). This involves a blend of mathematics and fact gathering and can be challenging, particularly in the case of an insured that has not previously incurred a BI loss, or where limited historical records exist. Claims consultants familiar with assisting policyholders in the preparation of BI valuations can be an asset in this endeavor.

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Another common mistake is underestimating the amount of BI coverage needed. Some business owners assume they won’t be the victim of a natural disaster or other unavoidable crisis, while others don’t realize that even a short interruption can cost them in lost revenue and expenses. This mistake can be corrected by crunching the numbers and making sure the BI policy is adequate for the company’s risk profile.