Business interruption claims mistakes are a common source of tension and conflict between insurers and policyholders during the adjustment process. These disputes are largely rooted in the application of accounting concepts, analyses and insurance policy valuation clauses that can be subject to interpretation.

Properly preparing the value of a business interruption claim requires an understanding of the coverage afforded by the policy, consistency in accounting across multiple sites or businesses, mitigation capabilities and likely loss scenarios (MFL or PMLs). Moreover, consideration should also be given to the intended use of reported values – for example, whether they are used to establish deductibles, policy limits or annual premiums, and whether they reflect non-continuing expenses or saved expenses.

Business Interruption Claims Mistakes: What Could Hurt Your Case

A common mistake in calculating a business interruption loss is failing to treat finished goods insured at selling price rather than cost. This can lead to a significant understatement of the loss.

Another common mistake is failing to properly distinguish between a direct and indirect loss. It is important to recognize that the indirect damage caused by the property damage may have a more significant impact on the insured’s business than the direct damage.

By documenting the business losses using financial statements, general ledger, tax returns, customer orders, vendor correspondence, and information regarding the physical restoration of the property, the insured can help prove their BI loss. Lastly, by including the adjuster in the recovery decision process and providing requested documentation on time, the insured can minimize disagreements with the insurer and accelerate the adjustment, settlement, and payment of their BI claim.…