A business interruption claim does not always end up in litigation. There are basic techniques that an insured may consider expediting and presenting a claim that may result in a fair resolution of a business interruption claim. The Business Interruption Book: Coverage, Claims, and Recovery,1 is a great source for information on business interruption issues and it provides a non-exclusive checklist to facilitate claims handling.
1. Review the policy
A policyholder should obtain a complete copy of the policy from the agent and/or the insurance company. The best practice is to review the policy along with any attached endorsements to determine the many types of losses and expenses that may be covered. The insured then should review the post-loss conditions in the event of a covered loss and take appropriate actions.
One of the insureds’ most important duties under the policy is to provide notice to the insurance company of a potentially covered loss. Depending on the policy’s language, the notice provision may require that notice be provided “as soon as practicable,” “immediately,” “within a reasonable time,” or within some other time specified by the policy. Often, all that is required is sending a description of the covered loss to the broker with directions to forward the information to the insurance company.
Failure to timely comply may result in claim denial. In most states, failure to provide timely notice will not bar coverage unless the insurance company was “prejudiced” by the late notice. In some jurisdictions, the insurance company may avoid affording coverage by showing that the timing of the notice was unreasonable under the circumstances.
In Florida, a denial for failure to give timely notice creates a rebuttable presumption that the insurance company has been prejudiced as a result thereof.2 Therefore, the policyholder has the burden of presenting sufficient factual evidence to overcome this presumption and the court must determine if the time between the loss and the notice was reasonable under the facts and circumstances.3
3. Proof of Loss
Most property policies require the insured to submit a proof of loss within a certain amount of time that outlines the categories of covered losses. The submission of a proof of loss often will trigger the time within which the insurance company must pay or deny the claim. In the business interruption claim context, it is common practice to submit a proof of loss to document the agreement between the insured and the insurance company on the amount of an advance payment requested by the insured.
The duty to cooperate often extends to making facilities, witnesses, and relevant, nonprivileged documents available to the insurance company and may require the insured to submit to an examination under oath. It may further require that the insured provide proprietary or sensitive information to the insurance company if that information is relevant to the adjustment of the loss.
If the insured has privilege and confidentiality concerns, it is important to involve an attorney regarding the substantive issues and to execute confidentiality agreements to protect such communications from compelled disclosure later.
Failure to cooperate with this policy provision may result in claim denial.
With respect to business interruption coverage, a policyholder is often required to exercise due diligence to repair covered property damage and resume operations. Therefore, after a loss, an insured should quickly evaluate whether there are reasonable steps he/she can take to avoid additional business or property losses. A policyholder may also want to consider informing his/her insurance company of the mitigation efforts to provide an opportunity for input and to avoid dilemmas after the fact.
6. Cost Tracking
In general, the insured bears the burden of measuring, documenting, and establishing the claim. To facilitate claims “handling”, the insured should systematically track all potential covered losses and establish internal accounting procedures. Having an inventory before a loss can save the insured from the daunting task of reconstructing pre-loss costs and post-loss projections from scratch.
Insurance industry experts recommend documenting and supplementing your claim for insurance benefits. The lack of documentation may result in further delays and potential non-recovery even though the policy may have covered some or all of the damage.
1 Torpey, Daniel T., et al. The Business Interruption Book: Coverage, Claims, and Recovery, 2nd edition. National Underwriters, 2011.
2 Tiedke v. Fidelity & Cas. Co. of New York, 222 So.2d 206 (Fla. 1969).
3 See, Employers Cas. Co. v. Vargas, 159 So. 2d 875, 877 (Fla. 2d DCA 1964).