June 9, 2020

Businesses throughout the country are dealing with the impact of the coronavirus, and business interruption coverage can help mitigate the damage to your business. In filing a claim, it is essential to document your business loss claim correctly.

  1. Calculating Business Losses

Once the scope of coverage has been determined, businesses must prepare comprehensive “proof of loss” based on their policy coverage. In defining “business income,” the standard ISO form states in pertinent part, that:

The amount of time for which lost profits are covered depends on the “period of restoration” specified in the policy. Even where a business has re-opened, the period of restoration can cover them if the interruption caused them to only operate at, for instance, 60% of their typical or projected output. As such, determining the projected performance is a critical issue in ensuring you get the most out of your claim.

Past Performance

Carriers and courts are looking to see what the company’s revenues would have been absent the interruption. While demonstrating past performance may seem straightforward, but calculating the “likely net income” had there been no interruption can be anything but.

The policyholder may be asked to project income, estimate earnings, and justify soft costs for payroll of employees.  Calculating these losses during a widespread pandemic, such as the one facing most businesses due to COVID-19, further complicates the analysis. Even where claims are not denied, one of the most common places where carriers will challenge an insured is on projected revenues based on past performance.

There are many methods for projecting a company’s profits, and our experts at or through The Cochran Firm can help find the best one for you. Insureds may want to start by looking at the business income and loss documents that were part of their policy application. Beyond that, many businesses rely on budgets, forecasts, run rates or pre-loss averages, alone or in conjunction with other methods to demonstrate a compelling claim. The ability to point to industry trends, market changes, or company-specific developments that support likely net income of the business will be a foundational part of your claim.

Continuing Expenses

Policies typically cover ongoing business costs. It is therefore essential for companies seeking to file a claim to carefully separate out which costs are continuing from those that are not. Moreover, having a firm handle on this will greatly aid in calculating loss.

  1. What Documents will I need?

This list is not exhaustive, and your particular needs may very. However, the following are commonly found in successful claims

  • Complete copy of your insurance policy
  • Detailed Monthly Profit & Loss Statements
  • Monthly Cost Accounting Reports
  • Production Reports, monthly and daily
  • Tax Returns
  • Invoices, Purchase Orders, Sales Reports, Contracts
  • Budgets or Adjusted Budgets
  • Depreciation Schedule/Fixed Asset Registers
  • Payroll Reports
  • Inventory
  • Evidence of Service Interruption (such as Civil Authority Orders)