Prepare for Business Interruption Claims

Unravel the complexities

In today’s dynamic business environment, unexpected events can materialize, such as a severe storm that floods your office or cyberattack that impacts your digital infrastructure—disrupting your normal operations. These incidents present not only challenges but also opportunities for learning and growth.

Understanding the importance of Business Interruption (BI) claims, including how they arise and the coverage options available, is a key factor in managing risk and preparing for a potential loss.

Focusing on a variety of factors can help minimize areas of dispute. These factors and decisions will often vary by industry or by a specific company and it should be noted that all policies are not the same. The individual policies will each have specific limitations, enhancements, exclusions, etc. that need to be considered.

This article aims to highlight these complexities and provide guidance to assist with preparing for a BI loss.

Review and understand your policy

Review your policy to understand coverages, limits, deductibles, etc. that may apply. Here are some key areas to focus on:

• Coverage period: Length of time your policy will cover the loss of income after a covered loss. Typically, this begins from the date of loss to when normal operations are restored, or specified limits.
• Waiting/exclusion period: Some policies have a specific duration of time after the date of loss when coverage does not apply (i.e., first 48 hours, etc.)
• Policy limits: Understand the maximum coverage limit and/or sublimit for all applicable coverages.
• Named perils: Some policies only cover BI for specific perils named in the policy.
• Extra expense coverage: Covers additional costs incurred to avoid or minimize the shutdown of your operations after a covered loss.
• Civil authority coverage: Extends coverage for BI caused by a forced closure due to actions by a governmental or civil authority.
• Claim preparation costs/professional fees: Some policies provide a sublimit or add-on coverage for costs of professionals (i.e., accountants, consultants, attorneys, etc.).
• Extensions/endorsements: Understand any additional coverages added to your policy. These could refer to coverage for utilities, ingress or egress, virus or bacteria, etc.
• Exclusions: Similar to the above, be aware of these to avoid or limit any surprises.
• Proof of loss: Each policy often has a specified duration to present your proof of loss. Be sure to communicate any request for additional time prior to it expiring. Insurance company partners often approve additional time when requested timely.
• Mitigation clause: Understand your responsibility to help mitigate the losses after the incident.

Notify your insurance company in a timely manner

Notify your insurance company immediately when you are aware of the loss and/or potential loss. You should be fully aware of the policy’s language and responsibilities around timely notice to the insurance company partner. There are some standard timelines or language regarding notice which are defined within the policy. Missing those could potentially jeopardize your ability to maximize coverage opportunities.

Here are some potential benefits from timely notice:

• Compliance: Report within timelines to help prevent violating the policy conditions, which can potentially lead to a denial of the claim or weakening your position to dispute coverage.
• Faster processing: Get a faster approval of services and solutions to restore your operations and bring your company a swifter resolution.
• Accurate documentation: Completing documentation while details are fresh can help lead to more accurate documentation, helping to save time by having it right the first time.
• Evidence preservation: Investigations can be conducted faster, thus helping reduce the risk of lost, damaged, or deteriorating evidence.
• Mitigation opportunities: Can provide an opportunity for early guidance and consultation about mitigation actions your company can take to help reduce the loss.

Assess your loss and build a timeline

Determine the period of restoration. The restoration period is the time that it takes for the damage to the property or system to be repaired, replaced, and/or reinstated so your business can be restored to pre-loss operations.

Create a detailed incident report describing the loss that led to the business interruption. This can be a natural disaster, a cyberattack, or some other event. Include key dates, times, and a comprehensive account of what happened.

Document the impacted areas of the business

Document all the income losses and expenses while helping mitigate additional losses. Information to consider will vary by industry but here are some common details to gather or document.

• Operating expenses: Have detailed records of fixed and variable expenses that continue to be incurred even when business operations are interrupted ready.
• Financial records: Prepare profit and loss statements, tax returns, sales forecasts, balance sheets and other financial documents that can help quantify the loss. They should also show data and business experience trends before, during, and after the loss. Production schedules: Include inventory reports and manufacturing cost statements, etc.
• Recovery costs: Document the cost of any remedial or recovery actions, such as repair and cleanup costs, rental of temporary facilities, relocation expenses, use of outside vendors, etc.
  • For some clients it makes sense to create an internal cost code to track and identify costs/expenses related to the loss.
• Correspondence: Keep a record of all correspondence related to the incident, including any communication with other insurance providers, suppliers, customers, employees, and/or other third parties—especially any demand letters, allegations of wrongful acts, or damages related to the incident.
• Lost business (implicitly related to the incident): Document any cancellations or lost business that can be clearly attributed to the incident at hand.
• Leases and contracts: Identify if any leases/contracts allow for rental abatement, early termination clause, etc. under any current specific circumstances.
• Inventory records: Provide proof of any stock or goods damaged, lost, or sold during the interruption period. Invoices and receipts: Record all invoices and receipts related to additional costs incurred because of the interruption.
• Mitigation efforts: Document any efforts taken to mitigate the losses and resume operations, including additional costs for those efforts.

Designate a specific company representative

There are many benefits to designate a specific company representative to be the main contact and/or point person to coordinate the communication and loss with your insurance partner, Baldwin Group representative, or other parties. This can be extremely helpful due to the potential of several different areas of the company that could be impacted by the loss. Here are a few potential benefits:

• Streamlined communication: Ensures a direct and efficient communication line between the company and the insurance provider to help limit any miscommunications.
• Consistency: Consistent information and messaging from a single point of contact to prevent any confusion or misrepresentation of information.
• Expert representation: This person could be chosen for their understanding of all the aspects of the business operations.
• Coordination: This person can coordinate with all internal departments, such as finance, operations, legal, etc. Faster processing: This person can facilitate faster decision making and better organization of required documents to help drive a timelier claim process.
• Proof of loss deadline awareness: This person can closely monitor the information being gathered as it relates to the “proof of loss” deadline and make any needed requests for additional time.