The 2024 Atlantic hurricane season began on June 1, and TSR (Tropical Storm Risk) forecasts 17 to 25 named storms this year. In weathering these storms, many businesses will face property losses, often accompanied by business income losses. Most commercial property policies incorporate business interruption coverage and extra expense insurance. The complexity of a business interruption claim, however, combined with the disruption of cash flow to pay continuing expenses creates a difficult scenario for business owners in these situations. 

In general, business interruption and extra expense losses may be covered when they are caused by physical loss or damage to covered property, other covered conditions such as damage to a “dependent business,” or an order of the civil authority, such as an evacuation order, as defined in the policy. There may also be limitations on coverage, such as for power loss occurring outside the covered property, among others.

The following “golden rules” are intended to provide some guidance in the preparation of a business interruption insurance claim:

• Thoroughly examine and document all physical damage. Physical damage to covered property is usually the trigger for business interruption coverage. Do not rely on the insurer to document the condition of the property. Conduct a thorough examination and photograph and document all damage in detail before any remedial work is performed. A construction expert can be critical in this situation. The damage may be greater than the untrained eye can detect. If the insurer believes part of the loss resulted from a non-covered risk, the need for a skilled independent expert becomes greater.
• Assemble a team. A business interruption claim is often more complex — and calls for greater forensic work — than a property damage claim. The undertaking is best tackled by a team of people with distinct skill sets — including accounting, legal, insurance, and construction. A single, highly regarded manager should be selected as team lead. This manager should direct, communicate, and coordinate. An accountant who truly understands your business is critical. Your insurance broker, who has an existing relationship with the insurer, is often the best conduit of information as the claim is handled. A contractor experienced in loss assessment who speaks the language of insurers can help convince the insurer’s adjuster about the extent of the damage. And depending on the claim, other experts may be warranted, such as an insurance consultant, a structural engineer, or an architect.
• Know your policy. An insured will maximize recovery only by tailoring the claim to the insurance policy. Attention must be given to the forms of coverage provided, covered locations, covered causes of loss, exclusions, and the methodology for loss calculation. Identify your “business operations,” potential coverage problems, and the strongest arguments for recovery. A thorough preliminary analysis should be conducted prior to any communications with the insurer. An inconsistent stance on coverage will damage not only an insured’s credibility but also the critical relationship between the insured and the insurer.
• Act as though you have no coverage. Make decisions about repairs, restoration, and restarting the business as though you have no coverage. You have a duty to mitigate losses, and this is best satisfied by acting as though the coverage does not exist. Besides, this is your business, and until the insurer commits to covering the loss, you truly do not know what you will recover. Prudent management calls for making decisions independent of the coverage, and this is particularly important in the period soon after the loss. At some point, as the insurer investigates the claim and gives an early indication of the coverage, you can partner with the insurer in committing to expensive repairs, such as whether to replace a damaged roof or tear down and rebuild.
• Teach the insurer about your business. You know your business best and can help maximize your recovery by teaching the insurer about your operations and putting the losses into the proper perspective. An examination by someone who does not understand your business is more likely to be superficial and may result in a lower reimbursement.
• Present your case to the insurer. Do not rely on the insurer to tell you what your losses are, as it may not understand the business the way you do. Do not approach the damage claim by merely responding to the insurer’s questions and filling out its forms. Present your losses as you or your accountant understands them. Be prepared to fully document the losses, including a projection of the amount of business income lost. This will require a comparison with financial figures from prior years as well as adjustments for seasonal differences, growth, pricing, and other trends.
• Communicate frequently with the insurer. Let the insurer or its adjuster know about the day-to-day demands the loss has caused — the need for cash for operations, the need to repair property or equipment, and/or other demands you face. Business interruption coverage generally extends at least until the “period of restoration” concludes, which is typically when the underlying property has been repaired or replaced, or when such repair or replacement can be accomplished with reasonable diligence. Some policies provide “extended business income” coverage, which provides additional coverage for a certain period of time while the business is recovering after the end of the “period of restoration.” It is in the best interests of the insured and the insurer for the recovery to be as rapid as possible. 
• Keep your eye on ancillary coverages. Categorize and submit for reimbursement all covered expenses in addition to business interruption losses; this includes extra expenses, expediting expenses, debris removal, and expenses relevant to other additional coverages, which vary from policy to policy.
• Do not rush the claim. Business interruption claims take time, particularly for the accountants to document the loss. Sometimes, such as when repairs take months or when the claim cannot be estimated with any certainty, many months must pass in order for the amount of the claim to be fully ascertained. During that time, cash advances benefit both parties, because they provide the insured with needed cash and they reduce exposure for the insurer by helping the insured mitigate its losses. But because it is often impossible to determine in the early stages how the claim will play out at the end, settling early can be to the insured’s detriment.
• Be prepared to take a hard line when necessary. If you disagree with the insurer’s handling of the claim, speak up. Know the deadlines imposed by law on the insurer and on you by the policy. If the claim is being mishandled, speak up in terms that are civil but firm, and be prepared to take a more aggressive position if the insurer does not respond as you believe it should.
• Recognize that your goal is a comprehensive claim. Your team’s ultimate output is a claim that can be understood by a complete outsider. The claim submittal must be able to stand up in court, should a dispute go that far.

Preparation of a business interruption claim is a complex task that requires significant time and effort. Following these golden rules can help the owners of commercial enterprises facilitate the preparation of their business interruption claims.

Good luck this hurricane season.