Christopher A. Welde Director – [email protected] 972-2364
Preparing, Supporting, and Settling a Business Interruption Claim
March 21, 2013
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Types of Insurance Claims
• Fidelity Bond• Surety• Professional Malpractice (Errors & Omission)• Directors & Officers• Property & Casualty (*Today’s Focus*)
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Our Example - Claim Categories
• Property (Buildings)• Furniture, Fixtures & Equipment• Inventory• Business Interruption (*Today’s Focus*)
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Preparing a ClaimBusiness Interruption Claim Categories
• Lost Profits• Ordinary Payroll• Extra Expenses
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Preparing a ClaimBusiness 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 ClaimBusiness 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 ClaimBusiness 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 ClaimBusiness 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 ClaimActual Results – Existing Facility
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Should Have Been Results v. Actual Results – Existing Facility
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Supporting a ClaimActual Results – New Facility
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Should Have Been Results v. Actual Results – New Facility
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Supporting a ClaimSaved 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 ClaimBusiness 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 ClaimOrdinary 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 ClaimExtra Expenses
• In excess of normal expenses:– Security Costs– Clean-up Costs– Temporary Offices– Rental of Equipment
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Supporting a ClaimBusiness Interruption Claim
• Lost Revenue• Less Saved Expenses = Lost Profits• Plus Ordinary Payroll (continuing expense)• Plus Extra Expenses
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Settling a ClaimInteraction 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 ClaimInteraction 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
• 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
Christopher A. Welde Director – [email protected] 972-2364
Preparing, Supporting, and Settling a Business Interruption Claim
March 21, 2013