Christopher A. Welde Director – ParenteBeardChris.Welde@ParenteBeard.com215 972-2364

Preparing, Supporting, and Settling a Business Interruption Claim

March 21, 2013

2

Types of Insurance Claims

• Fidelity Bond• Surety• Professional Malpractice (Errors & Omission)• Directors & Officers• Property & Casualty (*Today’s Focus*)

3

Our Example - Claim Categories

• Property (Buildings)• Furniture, Fixtures & Equipment• Inventory• Business Interruption (*Today’s Focus*)

4

Preparing a ClaimBusiness Interruption Claim Categories• Lost Profits• Ordinary Payroll• Extra Expenses

5

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)

6

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

7

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

8

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)

9

Supporting a ClaimActual Results – Existing Facility

10

Should Have Been Results v. Actual Results – Existing Facility

11

Supporting a ClaimActual Results – New Facility

12

Should Have Been Results v. Actual Results – New Facility

13

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)

14

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)

15

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

16

Supporting a ClaimExtra Expenses• In excess of normal expenses:

– Security Costs– Clean-up Costs– Temporary Offices– Rental of Equipment

17

Supporting a ClaimBusiness Interruption Claim• Lost Revenue• Less Saved Expenses = Lost Profits• Plus Ordinary Payroll (continuing expense)• Plus Extra Expenses

18

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

19

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

20

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)

21

Business Interruption - Supporting

• Loss Categories - Supporting– Replace / Remediate Damaged Property– Support Losses

• Historic Trends, Budgets• Saved v. Continuing Expenses• Ordinary Payroll• Extra Expenses

22

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 – ParenteBeardChris.Welde@ParenteBeard.com215 972-2364

Preparing, Supporting, and Settling a Business Interruption Claim

March 21, 2013