Proving Your Business Interruption Claim

Businesses can shut down after hailstorms, windstorms or hurricanes.  Damage to buildings and inventory can put a company out of business.  Many business owners have insurance to cover these interruptions.  Proving your business interruption claim can be complicated.  Here are some tips.

Your business interruption claim includes the profits lost during the shutdown and the expenses incurred during the closure.  The claim projects what would have occurred in the future based upon actual losses, for example, contracts that couldn’t be filled, and past results.  The most important factor in making a successful business interruption claim is for your calculations to be supported by verifiable evidence.

Supporting a Business Interruption Claim

When you are putting together your claim, your support should be verifiable to a stranger.  The insurance adjuster reviewing your claim will know nothing about your business.  Your request should educate them about your business and give them what they need to approve your claim.

For example, I can say that I lost a contract for $5,000 of t-shirts because a hailstorm destroyed my inventory.  Without any support for this, the insurance adjuster can easily deny the claim.  If I send a copy of the customer order, a copy of the shipping/receipt slip for the inventory of t-shirts, and photos of the destroyed stock, the adjuster will have a more difficult time denying the claim.

The numbers in a well-prepared business interruption claim can be verified by sources including:

• the general ledger
• financial statements
• tax returns
• vendor statements
• customer orders
• letters from customers

What are Adjusters Looking at When Reviewing a Claim?

Preparing a business interruption claim is a complicated task.  You need to be familiar with what adjusters are used to seeing and the questions adjusters are asking when reviewing your claim.  To present a claim in a way that an adjuster is used to, think about the following:

• Methodology – are you using a generally accepted method for preparing the claim?
• Traceable – can your claimed revenue and expenses be traced back to the sources of evidence listed above? For example, general ledgers or tax returns.
• Forecasts - do your claimed future lost revenues and expenses correspond to forecasted revenue and expenses for the company?
• Customer Data – does customer data exist to support your forecasted lost revenue?
• Payroll – can salaries and wages paid during the claim period be traced back to payroll registers?
• Support Expenses – can your expenses be supported by documentation such as contracts, purchase orders, or invoices?

The most common areas where insurance companies and business owners disagree are future projections, including future losses of projected revenues.  Commonly this is because the claim is open to interpretation, instead of supported by evidence.

Take the time necessary to support your claim with documented evidence.  Use a methodology that adjusters are used to seeing.  Send support for your claim that adjusters can’t argue with.  When in doubt, hire an attorney to help you get the full value your business interruption claim.