(*Chip Merlin’s Note–Bruce D. Smith is a certified public accountant and certified fraud examiner, whose firm’s focus since its founding in 1992, has been forensic and investigative accounting for the insurance industry. He has been involved in claims in both catastrophic and non-catastrophic environments and has been engaged by both insurers and policyholder and their respective representatives. I invited Bruce to write a guest blog on this aspect of business income loss.)

What is a Forensic Accounting?

The Association of Certified Fraud Examiners (ACFE) explains that, “Forensic accounting is the use of professional accounting skills in matters involving potential or actual civil litigation. The word “forensic” is defined by Black’s Law Dictionary as “used in or suitable to courts of law or public debate.” More simply put forensic accounting is litigation support involving accounting.

The Value of Forensic Accountants in a Business Interruption Claim

In today’s economic environment, everyone is looking for value. In my experience. I have found that the earlier the forensic accountant is involved in the claim process, the more value he/she typically provides. The value derived from the forensic accountant is his/her technical knowledge of accounting and familiarity with the claims process, which may result in a more expeditious resolution to the Business Income claim.

In simple terms, the purpose of Business Income coverage is to indemnify the insured for its net income or loss plus continuing operating expenses during a period of interruption (period of restoration), resulting from a covered loss. In addition, the insured may be covered for additional expenses (Extra Expense), which it incurred due to the loss incident.

To quantify a Business Income loss, an analysis of pre- and post-loss revenue, costs and operating expenses is required. A competent forensic accountant will provide an adjuster, policyholder, or legal counsel with his/her knowledge and experience in matters, including, but not limited to: technical aspects of accounting rules and procedures and other related data, familiarity with policy terms and conditions, and establishment of accounting and document control procedures to ensure inclusion of all relevant data into the claim calculation.

The above-mentioned services will result in an expeditious compilation of a Business Income claim that properly indemnifies the policyholder for its Business Income loss in accordance with its coverage(s). Some specific examples of how the forensic accountant can assist:

  • Requesting the relevant books and records needed to support a Business Income claim.
  • Using his/her general knowledge of coverage to properly analyze, indentify and segregate revenues, costs and expenses to coincide with coverage and facilitate the expeditious preparation of the claim. Please note, a forensic accountant does not provide coverage interpretation, as this is the responsibility of an adjuster and or legal counsel.
  • Providing an avenue for communication between the “two sides” on technical accounting and related matters that may be beyond the understanding of the adjuster and or legal counsel.
  • Preparing a Business Income analysis, which coincides with the language of the policy coverage and that indemnifies the policyholder for its covered loss in an expeditious manner.


A forensic accountant serves as a resource of technical knowledge in accounting related matters that an adjuster or legal counsel may not feel comfortable with. The early inclusion of a forensic accountant into the team of claim professionals will go a long way in assuring that the policyholder is being properly indemnified for its covered loss under the terms of the policy coverage.

–Bruce Smith