While only 30 to 40% of companies have business interruption insurance, most have gone through significant disruption and experienced losses since the COVID-19 pandemic.
If you have filed a business interruption claim, you might be familiar with the challenges that come with navigating the policy jargon, dealing with agents, and the endless paperwork — all while trying to get your business back on its feet.
This type of insurance seems straightforward, but things can get complicated quickly once you file a claim.
Whether your business experienced closures, losses, or interruptions due to physical damage or something intangible like the global pandemic, you need to know how to file a claim so you can receive the amount that your policy says you're entitled to.
The bottom line: your rights are important. So when it comes to dealing with insurance companies, you also need to know how having an experienced insurance litigation attorney by your side can make a positive difference.
Understanding Business Interruption Claims
A business interruption is any event that causes lost income for a business. Most business interruption policies stipulate that the event must be caused by natural or unforeseen circumstances, like fires, floods, thefts, falling objects, and strong winds.
Generally, business owners purchase business interruption insurance as a part of their property or casualty policy. If the unexpected occurs, they can receive reimbursement for lost income caused by disruptions to business operations.
More specifically, there are three types of business interruption claims that owners can file depending on the kind of damage:
- Standard business interruption compensates the insured for any income lost during the disrupted period and any repairs or restorations required to restore the physical property.
- Extended business interruption provides coverage for a limited period after the lost property has been repaired, but it may cease before income returns to the business's pre-loss level.
- Contingent business interruption gives financial assistance to the insured if the loss of their supplier, partner, or customers affects their income and ability to do business.
Extended and contingent business interruption claims stem from the standard claim, which means that you'll have to be insured and file a basic interruption claim first before becoming eligible for the subtypes.
However, you also have to ensure that your insurance policy covers what triggered your case.
What Triggers a Business Interruption Claim?
Since business interruption claims deal with a variety of scenarios, there are usually a lot of nuances in the policy. When you read through the details, you'll find that there is a lot written between the lines of your business interruption insurance policy in terms of eligibility.
For example, to even file a claim, you'll need to prove that your case has these three elements first:
- The business interruption has to be caused by a covered peril in your policy.
- The business has to have suffered an actual loss of business income that you can prove.
- A suspension of business operations during the period of restoration must occur.
What Is Business Interruption Coverage?
The purpose of insurance is to provide coverage or reimbursement during financially traumatic events.
The reality is you can't count on running your business with zero disruptions. And when floods, fires, break-ins, or other unexpected events occur, you can lose everything. This is precisely why business owners need to purchase a business interruption policy in the first place.
In fact, 40% of all businesses that experience a significant disaster never return to the marketplace — and 90% of those that do fail within two years.
One of the best ways to ensure that your business stays above water is with insurance.
If you have to file a claim, you might wonder how you'll get reimbursed. Generally, many insurance companies will refund you in one of two ways:
- For lost income from the destroyed merchandise, which is based on your pre-loss earnings
- For extra expenses if you must temporarily relocate your business
But what exactly does business interruption insurance cover? While every policy is different, most of the following expenses are covered by major insurance companies in Louisiana.
Lost revenue is any revenue you would have made if you were open for business.
If you have to shut down due to a major disaster, you can't sell products, serve customers, or provide services, which translates to zero income. Meanwhile, you're still paying for rent, utilities, and loan payments, all while everything is going unused.
If you can prove that you don't have the means to keep up with your business expenses, insurance helps compensate for your losses.
Just because your business is closed, it doesn't mean you can stop paying your employees.
Without payment, your employees will move on to another opportunity. Then, when you're ready to reopen, you'll have to hire again. Hiring new employees can cost $4,000 in hiring and training costs every time, so this is something any business owner wants to avoid while reopening.
If you want to keep your employees, you'll have to keep paying their salaries, too. Your insurance should help cover payroll payments until you're ready for reopening.
Mortgage, Rent, or Lease Payments
Whether you own or rent your business space, chances are you'll still have to make payments on it. Even with a mortgage, you may have to discuss or negotiate with your lender to pause payments.
For those who rent, you have to answer to a landlord who might not be able to afford paused payments. Whatever you pay for your space, business interruption insurance covers the cost of these expenses if your income is unable to.
You have certain quarterly or annual tax obligations to meet, which are based on your pre-loss income. Unfortunately, this can get costly without any income, which is why business interruption insurance covers the cost of what you owe. This benefit allows you to focus on getting your operations going again.
Whether it's fire, flood, or some unforeseen accident, a business might have to close down and renovate when it experiences a damaging disaster. But in the meantime, it's essential to maintain an income — which is why it's not uncommon to temporarily relocate to another space while fixing the original space.
Many business interruption insurance policies will cover relocation costs if you move to a temporary location.
Do Business Interruption Claims Cover COVID-19 Disruption?
Nearly 42% of small businesses reported closures solely due to the pandemic. The government ordered lockdowns, mask mandates, and social distancing, making it difficult for business owners to provide services and challenging for customers to shop.
With contingency business interruption plans in mind, it's normal to wonder whether a global pandemic is covered under this type of insurance. As you can see in the chart below, since the outbreak began, the number of business interruption lawsuits in federal courts skyrocketed.
Even though COVID-19 caused business interruptions for millions of companies nationwide, the pandemic is not covered by most policies in Louisiana. Some policies even have a section that excludes pandemics and outbreaks explicitly:
“Loss or damage caused by any virus, bacterium, or other microorganism that is capable of inducing physical distress, illness, or disease are excluded from coverage.”
Many policies emphasize that businesses need to have suffered a direct physical loss of or damage to their properties that interrupted their long-term operations. Insurers don't view viruses as a covered peril, so these claims are often immediately dismissed.
The National Association of Insurance Commissioners (NAIC) explains why:
“While the U.S. insurance sector remains strong, if insurance companies are required to cover such claims, such an action would create substantial solvency risks for the sector, significantly undermine the ability of insurers to pay other types of claims, and potentially exacerbate the negative financial and economic impacts the country is currently experiencing.”
However, there is hope: Your policy may have something called “civil authority coverage.” This coverage is uniquely designed to cover lost business income when your operations are closed by order of a government entity, which is exactly what businesses faced all throughout 2020 and 2021 due to the pandemic.
Regardless of what your policy states, you always have a fighting chance when you work with a seasoned insurance attorney who knows the ins and outs of these types of guidelines.
How to Prepare for a Business Interruption Claim
Whether your business has suffered physical damage, or you want to see if you can claim reimbursement from COVID-19, you need to know the ins and outs of the claim filing process. Here's what you can expect when it's time to file.
Step #1: Report Your Claim
The most important thing is for you to report your claim immediately. While you'll also need to survey the damage and estimate your total losses, the date of damage should be accurate for record purposes.
Some insurers allow you to report a claim over the phone, but, as with anything, this process is best done in writing. If possible, go to your insurer's website and file a claim electronically, or print the necessary paperwork and mail it to the provided address.
If you have an insurance agent that obtained the policy for you, contact them immediately so that you can get started on the process together. Some agents also have a relationship with the insurance company, which may strengthen your chances of getting your claim filed and completed quicker.
Step #2: Know Your Policy
Become familiar with your policy and understand whether it covers your damages. For example, if your place of business was involved in an auto accident, you'd need to know if that type of damage is covered under your policy.
The best way to maximize your policy is to know what it will accept. Then, if you want to include additional expenses, relocation costs, or other relevant business interruption expenses in your documentation, you'll know what your insurance provider is likely to cover.
Keep in mind that while your agent can guide you through the process, your attorney can negotiate any potential issues.
Step #3: Examine, Calculate, and Document Losses
The business income loss calculation needs to be accurate and objective. Examine, calculate, and document your losses by comparing your revenue versus losses.
Be sure to collect all relevant pre-event information, such as:
- General ledgers
- Financial statements
- Customer orders
- Tax returns
- Income and expense reports
- Travel logs and mileage statements
You need to have reliable proof that everything you have is a business loss. Insurance companies will challenge you to ensure that they're not being taken advantage of. This is called the “burden of proof,” and it's on your shoulders.
Some challenges that business owners face while dealing with insurers are:
- Proving that the event caused the loss of business
- Determining how the losses are lower than the pre-event results
- What efforts you may require to rebuild your lost income
Luckily, attorneys specializing in business insurance are familiar with the documentation that insurers require and how to get through the burden of proof.
Step #4: Hire an Insurance Litigation Attorney
Even after you've filed a business interruption claim, an experienced insurance attorney can help you understand your rights going forward. They will make it easier to navigate the process of filing and receiving reimbursement. Your lawyer will also fight on your behalf if your claim has been wrongfully denied or not fulfilled.
Additionally, policy language can be complicated to understand unless you're an insurance expert.
Business lawyers know where to find loopholes and how to decipher certain wording. They can find a way to make your policy work in your favor, even if it says damages must be a “direct physical loss of or damage to property,” and you're filing for damages due to the pandemic.
Find a Business Interruption Claim Attorney Today
Even though you have insurance to protect yourself, the fact is that insurers want to withhold as much money as possible. They'll do this by scrutinizing and challenging your business interruption claim.
That's why it's crucial that you know your rights as a policyholder — but the good news is that nobody knows them better than an expert insurance lawyer.
If you need to file a claim in Louisiana due to your business's closure, then look no further than Schwartz Law Firm. With over 20 years of experience, Schwartz Law Firm recovers $1 million annually in client damages by providing personal, dedicated, and timely service.
Get started with a 100% free case consultation today.