Preparing, Supporting, and
Settling a Business
Interruption Claim
March 21, 2013
Christopher A. Welde
Director – ParenteBeard
Chris.Welde@ParenteBeard.com
215 972-2364
Types of Insurance Claims
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Fidelity Bond
Surety
Professional Malpractice (Errors & Omission)
Directors & Officers
Property & Casualty (*Today’s Focus*)
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Our Example - Claim Categories
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Property (Buildings)
Furniture, Fixtures & Equipment
Inventory
Business Interruption (*Today’s Focus*)
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Preparing a Claim
Business Interruption Claim Categories
• Lost Profits
• Ordinary Payroll
• Extra Expenses
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Preparing a Claim
Business Interruption - Covered Loss
• Five Basic Elements - BI:
– Covered Event Occurs (e.g., fire)
– Results in loss/damage to covered property (e.g.,
manuf. / storage facility)
– Results in interruption of business operations
– Results in a covered loss (i.e., covered by policy)
– During the Period of Restoration (i.e., damage
period)
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Preparing a Claim
Business Interruption – Covered Loss
• When Insured’s Property is not Damaged
(extension of coverage):
– Service Interruption
– Contingent Business Interruption
– Ingress/Egress
– Civil Authority
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Preparing a Claim
Business Interruption - Coverage Issues
• Covered Loss
• Covered Property
• Damage Period
– Period of Restoration
– Extended Period of Restoration
• Deductibles / Waiting Period
• Coverage Limits
• Professional Fees
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Supporting a Claim
Business Interruption – Loss Formulas
• Compare what “Should Have Happened” to
what “Actually Happened”
• Lost Revenues – Saved Expenses = Lost
Profits (Top Down Approach)
• Lost Income + Continuing Expenses = Lost
Profits (Bottom Up Approach)
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Supporting a Claim
Actual Results – Existing Facility
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Should Have Been Results v. Actual
Results – Existing Facility
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Supporting a Claim
Actual Results – New Facility
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Should Have Been Results v. Actual
Results – New Facility
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Supporting a Claim
Saved Expenses v. Continuing Expenses
• Saved Expenses (i.e., Variable):
– COS (materials, labor, shipping, storage)
– Operations (commissions, payroll taxes, utilities)
• Continuing Expenses (i.e., Fixed):
– Operations (advertising, insurance, accounting
fees, legal fees)
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Supporting a Claim
Business Interruption – Loss Formulas
• Compare what “Should Have Happened” to
what “Actually Happened”
• Lost Revenues – Saved Expenses = Lost
Profits (Top Down Approach)
• Lost Income + Continuing Expenses = Lost
Profits (Bottom Up Approach)
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Supporting a Claim
Ordinary Payroll
• Non-Officers, Executives, Managers, etc.
• Covered Period (60 days)
• To extent payroll would have been
paid/earned had no Covered Event occurred
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Supporting a Claim
Extra Expenses
• In excess of normal expenses:
– Security Costs
– Clean-up Costs
– Temporary Offices
– Rental of Equipment
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Supporting a Claim
Business Interruption Claim
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Lost Revenue
Less Saved Expenses = Lost Profits
Plus Ordinary Payroll (continuing expense)
Plus Extra Expenses
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Settling a Claim
Interaction with Insurance Carrier
• Submit Proof of Loss (Claim)
– Present Claim to Insurer
– Provide Support
• Insurer’s Analysis of Claim
– Insurer’s Accountant
• Interaction with Insurer’s Accountant
– Respond to Document Requests
– Answer Questions
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Settling a Claim
Interaction with Insurance Carrier
• Review and Respond to Rebuttal Report
• Meet with Insurer
– Discuss Claim and Rebuttal
– Settlement Discussions/Negotiations
• Settle Claim; or proceed to Litigation
• Subrogation
– Insurer v. Culpable Party
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Business Interruption – Preparing
• Planning and Preparing
– Insurance Policy – Coverage / Notice
– Insurance Broker / Accountant / Attorney
– Plan the Recovery of your Business / Changes?
– Proof of Loss (Claim)
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Business Interruption - Supporting
• Loss Categories - Supporting
– Replace / Remediate Damaged Property
– Support Losses
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Historic Trends, Budgets
Saved v. Continuing Expenses
Ordinary Payroll
Extra Expenses
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Business Interruption - Settling
• Submit and Present Proof of Loss
• Assist Insurer in its Analysis Process
– Supporting Documents
– Questions
• Meetings and Settlement Negotiations
• Subrogation
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Preparing, Supporting, and
Settling a Business
Interruption Claim
March 21, 2013
Christopher A. Welde
Director – ParenteBeard
Chris.Welde@ParenteBeard.com
215 972-2364