Business interruption coverage is an insurance product intended to financially compensate the insured for the stream of net income it would have received, but for a covered loss or event. Income and Expense flows are rarely fixed in any enterprise. The presentation of a business interruption claim can be a highly taxing and document intensive endeavor that often requires the assistance of several claim professionals like accountants and lawyers. It is a good preventative practice to conduct a yearly pre-loss review of the insurance coverages available to a business as well as a systematic review, organization and categorization of the enterprise’s financial data. If all adequate coverages are in place and historical financial data is easily accessible, the claims process will feel more like a walk in the park than a journey through hell.
An online article in ClaimsJournal.com, “Adjusting Tips for Business Interruption Insurance,” highlights the importance documents that support a business’ income, revenue and expense history.
The business history can be broken down to include a description of how the business was impacted by the incident, the business fiscal year end, physical location address, goods produced and or services provided, number of employees, main suppliers and customers, and normal operating hours and days.
Revenue support should include an annual or monthly income statements, tax returns, bank statements, sales tax returns, accounting books and software, sales records or receipts on a daily or monthly basis and sales forecasts or business plans.
Expense support should include production data for period before, during and after loss, payroll and payroll tax records for all employees, lease agreements to determine rent expense, franchise agreements to determine amount of fees paid, utility bills, loan agreements to determine interest expense, contractor estimates and receipts for repair work.
The article emphasizes the importance of distinguishing between “spent” and “incurred” continuing expenses.
Just because some expenses have not been paid yet does not mean they are not owed. They provided an example involving the April tornado in Tuscaloosa, Ala. Tenants came in to sign leases for summer occupancy on apartments, leaving a deposit. Those tenants who couldn’t move in due to the destroyed homes and buildings wanted their deposits back.
Adjusters need to consider several elements of business income loss, including rent, utility costs, payroll and payroll taxes, transportation expenses incurred to relocate to a temporary location, additional advertising when a business resumes operations and additional payroll costs incurred as a result of a disaster, like overtime and added personnel.
This is the type financial data should be reviewed and organized regularly on a pre-loss basis to avoid unnecessary and costly claim delays that could force a business to shut down. Such a review should also and help with an adequate adjustment and payment of a claim.