Disasters, real or man-made, can threaten a business’s income, or even its very existence. The purpose of business interruption insurance is to protect a business from losses in revenue and the extra expense that results from an interruption in business operations.
The following is a checklist of steps that a policyholder should take to help ensure that it is able to maximize its business interruption and contingent business interruption coverage. Be aware that, in the case of a contingent business interruption, the documentation concerning damage to a supplier’s facility may be more difficult to obtain. Nevertheless, the policyholder should carefully document the effects of any supply disruption on the policyholder’s operations. |
CLAIM CHECKLIST
- Visit the location of the property damage, if possible, and make notes of the extent of damage. Photographs may be useful visual documentation.
- Document the facts of the loss, including, but not limited to, the following:
- Time of the loss
- Date of the loss
- Property damaged
- Obtain a copy of all insurance policies.
- Notify all insurance companies of loss and maintain record of all communication with insurance companies.
- Document whether the insurance adjuster has given specific instructions regarding alternative business operations or incurrence of mitigating expenses.
- Engage an independent adjuster, if appropriate.
- Implement work orders or establish specific general ledger accounts to accumulate loss-related charges. Business interruption accounts should be established for:
- Expediting costs on repairs, such as:
- Temporary repairs
- Incremental repair costs for fast track
- Incremental freight for faster than normal delivery of repair items
- Incremental costs for alternative production, such as:
- Temporary facilities
- Higher costs of production using alternative methods or facilities
- Extra freight
- Premium paid for higher cost of material on subcontracted work
- Expediting costs on repairs, such as:
- Obtain copies of company accounting records and documents related to the business interruption, including, but not limited to:
- Production records for the base period, the period during the loss and the period after the loss
- Sales records for the base period, the period during the loss and the period after the loss
- Inventory records for the base period, the period during the loss and the period after the loss
- Tax returns
- Sales tax returns
- Financial statements
- Cost accounting records
- Other statistical or internal records
- Bank statements
- Payroll records for the base period, the period during the loss and the period after the loss
- Maintain thorough records of costs incurred to avert or reduce the loss.
- Expediting expenses—expenses that are necessarily incurred for the purpose of reducing the loss. They may shorten the indemnity period or be necessary to continue the business, but generally at a higher costs, such as:
- Premium portion of overtime (that is, the additional cost incurred for overtime worked to make up for lost production)
- Price premiums and extra shipping charges to expedite delivery of replacement machinery
- Extra shipping charges for inventory (such as the difference between air freight and land freight to meet contract deadlines)
- Difference between the cost of buying the end product from a competitor and the insured’s normal variable cost to manufacture
- Extra expenses—expenses needed to continue business operation so that the business will not lose customers during a shutdown, such as:
- Relocation costs
- Overtime pay
- Added freight charges for quicker delivery of emergency supplies
- Advertising costs in notifying customers of the relocation
Business interruption insurance is a key protection in most companies’ first-party property insurance policies. Such policies typically include provisions that put time limits on submitting a required “proof of loss” and on suing to enforce coverage. Careful review of the policy and claims submission can be critical to ensuring that this crucial insurance protection applies.
- Business Interruption
- Cyber Attacks and Data Breaches
- Directors’ and Officers’ Liability
- D&O Checklist
- Energy Practice
- Environmental Liabilities
- Fracking
- International Arbitration
- Litigation Defense Costs
- Marine Insurance
- Natural and Man-Made Disasters
- Policy Audits
- Product Liability
- Real Estate Transactions