How businesses should handle storm-related insurance claims
As published in the Baltimore Business Journal by Mark Gottlieb and Michael Conley of Offit Kurman
Date: Tuesday, July 3, 2012, 4:54pm EDT – Last Modified: Tuesday, July 3, 2012, 4:56pm EDT. Republished with permission.
As the mid-Atlantic recovers from the “derecho” — the fast-moving storm that swept through June 29 — businesses need to be mindful that insurance coverage can play an important part not only in recouping the costs of physical damage, but also in providing a valuable source of recovery for the disruptions to your business.
While the physical damage to property is covered by property insurance, Business Interruption insurance (BI) coverage is intended to allow a business to recover lost profits that result from a disruption to the business.
Policy language can differ. However, the typical requirements for BI coverage are: 1) physical damage to property; 2) caused by a covered peril; 3) resulting in an interruption in business; and 4) which causes the business to lose income. BI coverage is often unrecognized or overlooked as an available resource to deal with the economic fallout from a storm. Policyholders need to be mindful of certain considerations in pursuing coverage for BI claims, including:
- It is of critical importance to provide timely notice of a business interruption claim, because failing to do so may lead to potentially disastrous consequences, such as forfeiting coverage.
- Be diligent in keeping accurate records to aid in calculating the value of your business interruption claim.
- Your policy may provide for recovery of a number of “extra expenses” incurred by you as a result of a covered property loss, such as clean-up costs, damage resulting from a loss of power, a move to and from a temporary location, the cost of renting temporary equipment, extra labor costs such as overtime and transportation allowances, as well as temporary heat sources.
- Many BI policies provide for insurance coverage, albeit limited, if access to your business is interrupted by an order of civil authority. In certain circumstances, if customers are prevented from accessing your business, insurance coverage may be available under an “ingress and egress” provision of the BI coverage.
- For manufacturers, if the supply of a critical component/raw material of your product is interrupted because of damage to the supplier’s business, Contingent Business Income coverage may compensate you for lost profits resulting from the interruption to your business. Similarly, if a key customer of yours suffers property damage interrupting its business, the Contingent Business Income coverage may compensate you for lost profits resulting from the related interruption to your business.
- If the flow of customers to your business is dependent upon another business, such as an anchor store in a mall, and the other business suffers property damage interrupting its business, the resulting disruption to your business may be a covered loss under a “loss of attraction” provision of your policy.
In sum, while generally a business interruption claim requires some physical damage to either your property or the property of a business upon which you rely, when your business is interrupted, you should carefully review your insurance coverage in order to maximize a recovery and thereby minimize the financial impact of the storm.
Mark Gottlieb and Michael Conley are principals with law firm Offit Kurman, which is based in Maple Lawn, but has additional Maryland offices in Baltimore, Bethesda and Owings Mills as well as Philadelphia, Pennsylvania and Tysons Corner, Virginia. They have represented policy holders in major hurricane-related claims throughout the U.S.