Filing Business Interruption Claims for Natural Disasters

As we enter hurricane season, now is a good time for businesses to consider their risk plans, specifically their plans for natural disasters. It is imperative for businesses to create and implement plans to minimize any type of natural disaster from interrupting their business operations. 

Hurricanes, earthquakes and other natural disasters wreak havoc long after the event subsides. The damage to a region can be catastrophic and costly. As clean-up and recovery efforts ensue, business owners must understand their applicable insurance coverage and begin the process of filing claims. 

While a property insurance policy covers physical damage, a business income (“BI”) insurance policy covers the loss of income that would have been earned while its facility is either closed because of a disaster and/or during the resulting recovery and rebuilding processes. BI coverage is typically added onto the business’s property/liability insurance policy or comprehensive policy.  

What Does a Typical BI Policy Cover? 

A typical BI policy usually covers the loss of net income that the company experiences while under repairs and maintenance from the disaster. The policies tend to cover reasonable expenses beyond normal continuing costs to allow a business to continue operations. Examples of these expenses could be salaries and wages, rental payments and taxes.  

With hurricane season upon us, it is integral to think about past disasters and the issues they caused. Last year, 2022, became the third-highest number of billon-dollar natural disasters lagging only 2017 and 2005, with damages totaling more than $160 billion. One storm that significantly affected the U.S. was Hurricane Ian. Classified as a Category 4 hurricane, it made landfall in Florida in September 2022. The storm’s impact exceeded more than $100 billion dollars in both insured and uninsured losses in Florida alone. Due to these types of storms, it is important to have BI coverage.  

As important as it is to have BI coverage, it is just as important to understand your coverage and know your policy’s duration. Most insurance policies define the coverage period as starting on the date in which the disaster event occurred and ending on the date the damaged property was physically repaired and returned to operations under the same conditions that existed prior to the storm’s disruptions.  

Read and understand your policy coverages and be aware of specific coverage exclusions. If you are planning to file insurance claims for your business, here are a few steps and items to consider. 

Preparing for Your Claims/Proof-of-Loss Process 

To prepare for filing an insurance claim, be aware of the coverages available to your business for the specific event. First, collect and review all the policies directly issued to your business, and identify other policies issued to other businesses that may also name or reference your business as an additional insured. After becoming aware of the coverages available to your business, create an outline of your potential claim(s). When preparing to file a claim, be aware of all filing deadlines for your claims to ensure compliance. Also, make sure you understand what you will need to document to prepare a well-presented claim. Lastly, understand the intricacies of your coverage such as deductibles and co-insurance clauses and pertinent coverage exclusions. 

Once you are ready to file a BI claim, here are a few steps and practices we recommend businesses follow:  

1. Notify your carrier ASAP.
2. Maintain a file and timeline for all communications with your insurance carrier.
3. Document your claim for physical damage as well as business interruption—work with your insurance adjuster but be pro-active as your own advocate for your claim.
4. Read your BI policy carefully. Gather and secure legal and financial records, including electronic data, that supports those records.
5. Create a proof-of-loss analysis, and use a support team, such as lawyers and accountants, who specializes in BI claims analysis to help support your proof of loss.
6. Your business is your only financial resource most of the time. Seek help to protect and/or recover your assets. 

Evidence Required for a BI Claim 

When filing a claim, know which documentation is required to prepare and support the claim. While the amount of documentation required to build and support a BI claim can depend on numerous factors, it is recommended that it includes the following types of evidence:  

• Detailed descriptions of business operations including products and/or services provided.
• Detailed business plans prepared prior to the natural disaster.
• Detailed budgets/forecasts for future periods.
• Historical tax returns (three to five years).
• Audited, reviewed or compiled financial statements (three to five years).
• Payroll records (two years).
• Monthly profit/loss statements (three to five years).  
• Customer-specific detailed sales data (three to five years).  
• General ledgers and/or accounting software data file.  
• Detailed listing and support for any extra expenses allowed by your BI policy.  
• Industry/geographic trade data.  
• Other information/data deemed necessary. 

Feeling Overwhelmed? 

A BI claim can be a substantial project. Therefore, it is recommended to set up lines of communication as early as possible with your insurance broker, insurance carrier, legal counsel, accountant and/or other professionals whose assistance you may need. Regardless of who is working with you on compiling your claims, it is important to ensure you do not mistakenly release an insurance carrier from any owed coverage.