Unplanned interruptions of business operations can produce devastating results to the corporate bottom line. As part of the business insurance package, many companies have purchased business interruption coverage to indemnify such losses. Related forms of business insurance may include "extra expense" coverage for expenses incurred to maintain operations when a loss occurs, or special coverage for certain off-site occurrences.
Business interruption losses can be recovered when damage to business assets from a "covered cause of loss" causes partial or total suspension of business operations and resulting losses. Three options concerning the breadth of "covered cause of loss" are available under the standard insurance form. The "basic form" includes events such as fires, explosions, windstorms and burglary. A more encompassing "broad form" includes damage from several additional causes. The broadest "special form" covers all causes of loss, subject only to certain enumerated exclusions.
Pursuing business interruption claims involves certain complexities not typically found in insurance recovery actions. The indemnity for "actual loss sustained" is generally defined as the difference between the actual net profit received and the profit that would have been received had the loss not occurred. Depending on the policy terms, the value of the loss may be fixed in advance or determined after the loss occurs. In the latter case, losses may even include lost profits from business activities that did not exist when the policy was written, facilities that would have been built during the suspension period, or other assets that were not described in the policy. Under some policies, certain expenses and/or "soft costs" may also be covered. Recovering business interruption losses thus requires careful evaluation of the policy language involved, accurate claim quantification, and resolution of any disputes about the measure of damages sustained.
Many policyholders are unfamiliar with pursuing business interruption and other business insurance claims. There is little case law on these types of claims to guide the process, and the majority of these claims are resolved through settlement processes. DRM offers a unique combination of practical knowledge and professional expertise to help its clients evaluate and resolve business interruption and related time-value business insurance claims.
For more information, see our published article.