Pandemic casts a spotlight on business interruption insurance

The coronavirus pandemic has stirred the sudden awareness of a business survival tool to which most small businesses traditionally have paid little attention; business interruption insurance (BI).

According to insurance industry estimates, about 35 percent of businesses with fewer than 300 employees have policies that include BI.

What's more, many businesses that do have some level of BI coverage have learned to their dismay that losses from a pandemic like Covid are not necessarily covered by their policies. As a result, a number of class-action lawsuits have been threatened or initiated against certain carriers.

A deadly pandemic, we can hope, is a once-in-a-century event. But there also has been an increasing incidence of destructive wildfires, floods and violent storms. Here along the Northeast coast, in particular, there are deepening concerns about active hurricane seasons and a potential repeat of the level of devastation caused by Superstorm Sandy.

What does BI insurance do? It covers the policyholder for loss of revenue when a covered peril forces a business to cease operating for a period of time, enabling that business to pay its fixed expenses, including payroll, and to recover the profit that could reasonably have been expected if the business had continued operating. It is an extension of property policy which would cover causes of loss such as fire, hurricane, possibly flood, etc BI is also a coverage that's provided under cyber, product recall and other third-party liability coverages.

Commensurate BI coverage need not be an onerous expense. As an owner, you need to carefully assess the potential risks facing your particular business, based on the type of activity and location, and determine how much coverage you'll need in the event of a catastrophe and likely length of time you anticipate you'd be closed afterward. A discussion with your broker should be able to provide an affordable solution that fits into your company's overall risk management and insurance policies.

Make sure you fully understand what's covered and for how long. Terms differ with respect to deductibles, length of interruption coverage, exclusions and causes of interruption. Notably, ever since the SARS outbreak in 2003, many insurers have routinely excluded pandemic coverage from their policies. Consequently, you may find protection against that peril too expensive to include in your policy.

When a business has a BI claim, the logical first steps are to notify your broker and possibly also retain a licensed public adjuster to help determine, present and advocate for your claim to your insurance carrier. When selecting a public adjuster, make certain that he or she is licensed to practice in your state and has ample experience with commercial claims (many handle more residential claims than commercial) and with your industry in particular.

I cannot overemphasize the following advice: Always be prepared to file a claim by keeping orderly, detailed and easily retrievable business records. If they are in disarray or take a long time to be prepared, it can give your carrier the means to delay processing and respective payments), and possibly even reject part of the claim (e.g. statutes of limitation). Such action could be devastating to a small business.

As a forensic accountant, I have seen firms that still keep handwritten records, which would not be so bad if they were complete and properly organized and preserved. But that's rarely the case.

Here are some of the immediate financial details and records you'll need, at minimum, to support a BI claim;

* Detailed profit and loss statements of monthly revenue and expenses for about two years prior to the loss event and any subsequent months;

* Daily sales records for the preceding three months and subsequent to the loss event;

* Contracts or sales orders canceled as a direct result of the event;

* Your most recent business tax records;

* Payroll records for the most recent and preceding eight pay periods and for periods subsequent to the loss event; and

*Records supporting damaged inventory purchases.

Having all the data readily available to successfully make a claim can be daunting but will undoubtedly expedite your first payment and ultimate settlement to every dollar in which the insured is entitled.