- By Daniel M. Kerrigan, CFA, ASA
- October 10, 2017
- Has your business been recently affected by Hurricane Harvey, Irma, Maria, or Nate…
- Do you understand the coverage under your insurance policy?
- Do you disagree with the insurance company on your coverage (or lack thereof) or your deductible?
- Do you need help assessing, documenting and filing your claim?
The 2017 hurricane season is sending insurance claims to unprecedented levels. Business entities have faced catastrophic losses, including significant property damage, lost income and other insurable losses. Business owners that have been impacted should review their policies to understand what is covered and the proper notice with any potential recovery of their losses. The following guidelines provide assistance to affected business owners when documenting and filing a business interruption claim (“BIC”).
A business interruption policy serves to provide coverage for any loss of income that would have been earned while the business was closed due to catastrophic events such as Hurricane Harvey or Hurricane Irma. It is important to have a firm understanding of the documentation and policy (or policies) related to your business interruption coverage in order to ensure all bases are covered throughout the process of filing a claim. Business owners may retain legal counsel, forensic accountants, insurance brokers, and specialized business insurance personnel for assistance with the interpretation of their business interruption policy language and claims filing.
Before preparing and filing a claim, business owners should consider the following:
- Filing deadlines for claims
- Coverage period in event of BIC
- When did your business interruption coverage begin and when does it end?
- What is the business required to pay in the event of a BIC?
- Are temporary operations allowed (or even required)?
- If so, what are the requirements under your policy?
- What are the allowable expenses associated with temporary operations?
- Does the business have restrictions on temporary location options? If so, how will this affect temporary operations in comparison to the location where the catastrophic event occurred?
- Communicate the potential of your BIC as early as possible
- Does the business utilize an insurance broker’s services?
- Do you have legal counsel?
In addition, business owners should understand the documentation requirements for a well-substantiated claim. While these can vary from policy to policy, business owners need to be mindful of documentation requirements in the case of a catastrophic event. A credible BIC is often required to be accompanied by detailed historical financial documents as stipulated by an insurance company. In order to be sure your BIC is substantiated and credible, the business owner should maintain the following information, including but not limited to, the following:
- Historical internal (and external, if applicable) financial statements for the most recent 3-5 years;
- General ledgers reflecting the most recent 3-5 years of activity;
- Electronic download copy of accounting software file, i.e. Quickbooks;
- Historical tax returns filed for the most recent 3-5 years;
- Historical customer data for the most recent 3-5 years;
- Historical sales data by customer for the most recent 3-5 years;
- All budgets/projections/forecasts prepared within the past 3-5 years prior to the catastrophic event;
- Any and all business plans prepared within the past 3 years prior to the catastrophic event;
- List of anticipated additional expenses to be incurred for relocation of temporary operations, if applicable;
- List of anticipated changes in operations during temporary operations as a result of catastrophic event, i.e., reduced sales; and
- Any other information deemed helpful and/or necessary.
Once business owners have experienced a catastrophic loss that involve a BIC, MPI’s professionals are retained for assistance with document reviews, as well as the preparation of detailed analyses and conclusions required to be provided to an insurance provider.
MPI, a prestigious national consulting firm founded in 1939, specializes in business valuation, forensic accounting, litigation support and corporate advisory work. MPI provides fairness opinions, sell-side and buy-side advisory services through its investment banking affiliate MPI Securities, Inc. MPI conducts every project as if it is going to face the highest level of scrutiny, and its senior professionals have extensive experience presenting and defending work product in front of financial statement auditors, management teams, corporate boards and fiduciaries, the IRS, other government agencies, and in various courts.