One of the greatest things about working at Merlin Law Group is the unwavering desire to BE BETTER. The desire to learn more, achieve more, and be more. One of the principles that our law firm instills in us is to continue to learn as much as you can and challenge yourself to obtain more knowledge through various outlets.
Every week, Chip Merlin hosts meetings for the firm’s newer attorneys, which I am thankful to be a part of. Recently, he has revealed to us a new avenue of learning. During one of our meetings, he discussed the importance of continuing to pursue knowledge about property insurance law. Chip then signed us up for the Academy of Insurance. This is an online knowledge bank consisting of a mixture between on-demand and live courses. The courses cover anything and everything insurance related. Rene Sigman, Alyssa Salinas, and I have decided to utilize this tool and explore all of the valuable information that the Academy of Insurance has to offer. If you are an Insurance agent, property insurance adjuster, public insurance adjuster, or property insurance attorney, it is highly beneficial to have such a wealth of knowledge at your fingertips.
Over the past several of weeks, we have been evaluating potential Business Interruption claims. One of the first things that I did was to look on the Academy of Insurance website and see if there was anything that could help me get a “30,000-foot view” understanding of what we were about to tackle. I took an hour-long course on the “4 Most Important Business Income Concepts.” Christopher Boggs, who is one of nearly 50 great instructors the Academy has to offer, taught the course and did an exceptional job, as he always does, explaining the concepts in a palatable way. This specific course helped me get a better understanding of the types of things that we needed to look for in order to give an effective case evaluation. The more effective we are at this as attorneys, the better equipped we are to help people in need.
The “4 Most Important Business Income Concepts” are:
- Business Income
- Period of Restoration
- Operational Capability
- The Time Doctrine
Business Income – Is the Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred. This number also includes continuing normal operating expenses incurred, which would include payroll.
Period of Restoration – Is the time period beginning after the direct physical loss or damage and ending on the earlier of (1) the date the property should be repaired, rebuilt or replaced with reasonable speed and similar quality, or (2) the date when business is resumed at a new permanent location. In these types of policies there is generally a “deductible” which normally is 72 hours, unless altered by endorsement. Policy expiration does not alter the period of restoration. Some of the biggest issues that are fought over between the insurer and insured are:
- If there is direct physical loss/damage to the insured property,
- Did the loss cause a suspension of operations, and
- Was the damage caused by a “Covered Cause of Loss.”
These are just a few of the ways insurers are finding around liability.
Operational Capability -This term is not found in the business income policy, but it defines the end of the period of restoration. This is more generally stated as a business’s ability to operate at, or as nearly as possible at, pre-loss sales or production levels. There are a couple of ways to define this depending on what type of business you are dealing with.
- Manufacturing operations: when the business is able to return to pre-loss production and inventory levels. (excluding the time necessary to produce finished stock)
- Non-manufacturing operations: the point where the business can operate with the same level of inventory, equipment, and efficiency as before the business-closing loss.
Operational Capability can be accomplished by repairing or rebuilding the current location at the time of loss or by finding a new permanent location to conduct the business from.
Time Doctrine – All business income losses are settled based on the coverage limit purchased. An accurate business income coverage limit calculation depends on the legitimate estimation of the worst-case period of restoration. Estimating the worst-case period of restoration necessitates an understanding of the time required to accomplish the following: Time to adjust the direct property loss, building plans drawn and approved, contractor found and hired, insured must apply for and wait for building permits to be issued, Site preparation must be scheduled and completed – including clearing the site of damaged or destroyed property, time required to rebuild, time required to restock, rehiring and hiring new employees, replacement machinery and equipment must be found, purchased, installed and made operational, and Federal, state or local government may involve themselves following a loss. The key to business income is the correct estimation of time.1
1 Christopher J. Boggs, CPCU, ARM, ALCM, LPCS, AAI, APA, CWCA, CRIS, AINS Vice President of Education Academy of Insurance. (c) 2015 Wells Media Group, Inc.