COVID-19 Business Interruption Claims

Two different ‘happenings’ must be the cause of a loss of business revenue. (a) A specific and defined event must suffer a loss of business revenue.  (b) An event must occur that either in whole or in part causes a business to shut down.

If you have had a major flood or fire and your business is affected by the consequences of that peril, then during that rebuilding / refurbishment period there is every likelihood that your business will lose both income and goodwill to other competitive businesses and that’s why there is nothing more important than getting your business up and running again…..and fast.

Business Interruption or Consequential Loss insurance will ensure that you are fully compensated for the extra expenses that you are very likely to incur during the rebuilding / refurbishing of your business premises.

That’s precisely what it will do as loss of profits is a direct consequence of your business having to close down.  BI insurance will fully cover you (so long as you are fully insured) for any loss of revenue whilst your business is closed.

Not only will BI insurance cover you for renting a new business premises whilst your main place of work is closed, but you will also be covered for other disaster related consequences, for example, business rates and utility bills that are still payable whilst your business is closed.  In essence, the aim of Business Interruption insurance is to indemnify you or to make every effort to put you and your business back as it were prior to the incident.

We cannot think of a business that does not require Business Interruption insurance as part of the overall commercial insurance package.  Certainly if your business is office based, it will be far easier to find alternative accommodation than if your business is a retail store in a busy shopping street.  Salmon Assessors do not sell insurance so our suggestion that you ensure that Business Interruption insurance is added to your commercial business policy comes from a totally independent stand point.

In a word, ‘disaster’.  We come across so many business owners who thought that they would be saving money if they didn’t have BI insurance added to their main business policy only to find that it was simply the worst business mistake of their lives.  To put your family and staff at risk by having to close your business indefinitely because you cannot afford the associated costs of such a disaster is nothing short of sheer stupidity.  We have seen lives literally ruined all for the sake of trying to save a further insurance premium, which is tax deductible in any event!

Fair question – perhaps the best analogy we can give you is health related.  If you have a toothache then the chances are you will visit your dentist rather than your GP.  They are both medical practitioners, but your doctor is a general practitioner whilst your dentist is hopefully a specialist at ‘affairs of the teeth’.  In much the same way, your accountant is more likely to be a general accountant and not a specialist at working out the loss of profit of your business as required in the complicated wording of your Business Interruption policy wording.  We are not suggesting that a general accountancy practice will not do  a good job working out your loss of profits under what can be the complicated wording of a Business Interruption policy, likewise a general medical practitioner will do what he can to help your toothache with the limited knowledge he is likely to have!  We further suggest that your doctor is unlikely to know how to use a dentist’s drill should you need root canal work!  In short, we are specialists in interpreting what is often particularly precise wording on your Business Interruption policy and thus ensuring that we are able to extract every last penny that you are entitled to claim from your insurers.  May we also add that your company’s accountants will be charging you for the time that they are spending working on your BI claim.  In any event Salmon Assessors do not charge you any extra for including this service when we are representing your interests.  It may also be of interest to learn that some 20/30% of our loss assessing business is passed through to us by accountants themselves.

The Material Damage Proviso is actually at the very heart of a Business Interruption insurance policy and it is vital that you understand the effect it can have when making a Business Interruption claim.  As we have said above, it is important to fully understand the very reason as to what Business Interruption / Consequential Loss means.  BI is there to protect your business against the potential adverse effects of the perils of flood / fire / major burglary.  By way of an example, if a burst water main significantly affects your business premises causing it to be uninhabitable for a few months whilst refurbishment is taking place, then sales are very likely to be drastically reduced because your customers will not be able to gain access to your premises to purchase items.  The Business Interruption policy is in place to ensure that the business owner can eventually continue trading at the same level as they did prior to the incident.  The Material Damage Proviso simply but fundamentally states that this part of your policy will only ‘come into play’ on the proviso that your building is fully and correctly insured.  The reason for this is that should your business premises not be insured then it is very likely that you will not have the financial ability to allow for the rebuilding / refurbishment of the damaged premises.  If that were the case and that there was no ‘Material Damage Proviso’, then that would put your insurers at unacceptable and unnecessary risk of having to pay more compensation to get your building refurbished when this, of course, comes under the building part of your policy.

Here’s an example as to why you should be insured for Business Interruption as well as just building insurance: –

There is a serious fire at a building at one end of a small street where the intensity of the heat has damaged the wiring cables feeding the whole street and it has also damaged the underground water pipes and sewage drains.  The street is closed down temporarily while repairs are being carried out.  However, further down the street and affected by the damaged utility pipes is a hotel which obviously cannot operate and they will have to ask their guests to leave and find alternative accommodation.  Further, so serious was the fire that the whole building needs to be razed to the ground and rebuilt over a period of 6 / 12 months and seriously disrupts access to the street.

In this example, the owner of the hotel is fully insured for buildings and contents, but decided not to insure for Business Interruption to save money.  To cut a long story short, the hotel’s loss of profit during this period has nothing whatsoever to do with flood or fire at his hotel and thus there is no claim to be made for the consequences of a fire at the other end of the street and, in all likelihood, there is every possibility that the hotel may have to stop trading because it has no customers and more importantly has no insurance for this Business Interruption.

Please do not think for a second that this is a worst-case scenario to illustrate an example.  Over 35 years as Loss Assessors we have seen this situation happen on many occasions.  It’s heart-breaking to see, especially when the situation was so avoidable.

If you are burgled and the majority of your stock has been stolen, so long as you have adequate contents insurance your insurers will pay out for that loss.  However, unless you have insured your goods for far more than you paid for the stolen items and unless you have Business Interruption insurance, you will not get compensation for your loss of profits because you have nothing to sell.  Indeed, this is even more important for those businesses that import their inventory from abroad and that the replacement stock will not be available for say 2 / 3 months after the burglary.

In circumstances where a Loss Adjuster either doesn’t have the time to work out the Business Interruption claim themselves, or they suspect that not everything is ‘as it should be’, (that’s a fancy way of saying ‘fraudulent’!) they will instruct a Forensic Accountant who not only just specialises in loss of profits claims but has the investigative in-house expertise to both question the loss or to calculate what, in his opinion, the loss of profit element should be.  As we have said previously, it is vital that your loss of profits schedule is prepared by a company (hopefully Salmon Assessors!) who are fully able to argue that your schedule is correct and that the Loss Adjuster’s computations are wrong.

The following is a list (but not necessarily comprehensive) to get the Business Interruption / Consequential Loss claim underway: –

• Profit & loss figures going back 3 years
• 3 years proof of non-recurring expenses that you have had to pay
• Any other records that the Loss Adjuster needs to see in order that they can fully substantiate and report back to your insurers

There are other important matters to be considered and the following are examples:-

• It is your legal duty to mitigate your expenses so as to help your insurers. For example, you know your business better than your insurers know your business and thus they will be relying upon your expertise to do everything in order to mitigate the claim.
• Make sure that you keep all of your customers advised as to how to contact you during the period that your business is being refurbished.
• Even if you can only partially run your business, do make every effort to do so.

If, as an example, you have a gallery specialising in works of art that has been burnt down, you may stock in your warehouse that can still be sold whilst your gallery is being rebuilt.  You may suggest to your insurers that you can have an exhibition stand at a national show, for example, and on the strict proviso that you believe that the cost of exhibiting at that show will yield a profit then your insurers should give you permission to exhibit accordingly.  If you are unsure whether it will make a profit or not, then your insurers would probably take a more cautious view and not let you exhibit.

The vast majority of claims are settled through negotiation and much of that negotiation is totally reliant upon theoretical calculations and projections based upon the history and trend of your business over the past 3 years or so.  As we mentioned above, you will be testing your known knowledge against the Loss Adjusters Business Interruption experts who are working on Business Interruption / Consequential Loss claims every day of their business lives.  In much the same way that you will not consider going to Court without a lawyer to represent you, you would be making a huge error of judgement not being represented by a Business Interruption specialist to represent your interests.  Abraham Lincoln summed up not being represented by an expert perfectly when he said; “A man who represents himself in Court has a fool for a client”.  In other words, representing yourself in Court is foolish.  Indeed, it surprises us to this day why some businessmen decide not to be represented by someone who is expert in their field when involved in a claim that could run into hundreds of thousands of pounds or more.

Again, as we have previously mentioned, your insurers have instructed a professional firm of expert Business Interruption specialists to represent their interests…not yours.  In short, even your own insurance company recognise that they are not experts in the negotiation of Business Interruption claims and have the good sense to leave it to outside experts so as to mitigate their potential losses.  Insurance companies have a battalion of third party consequential loss experts that do nothing more than this type of work day in and day out.