Filing a Business Interruption Claim Checklist

This checklist identifies steps a company should take to file a successful business interruption claim with its insurer. Business interruption coverage is included in most commercial property insurance policies. It replaces lost income when a covered peril prevents a company from conducting its normal business. Covered perils typically include theft, fire, wind, and extreme weather conditions. Some policies also define unforeseen catastrophic events, such as the ongoing COVID-19 pandemic, as covered perils. 

Review All Potentially Applicable Policy Provisions

• Recall that business interruption insurance:
  • provides coverage for lost profits and related costs when a company cannot continue its business operations; and
  • is a component of first-party commercial property insurance policies.
• Because the language in the specific insurance policy at issue governs whether there is coverage for business interruption losses, policyholders should not:
  • rely on an accepted market definition of what a business interruption provision “usually” provides; or
  • conclude that only the business interruption provision can provide coverage for business interruption losses.
• Before submitting a claim for business interruption losses, review all applicable policy provisions to:
  • gain an understanding of the full extent of coverage for the company’s business interruption losses and expenses; and
  • gain an appreciation for all the tasks required to submit a successful claim.
• Determine how the relevant provisions define each of the elements of a typical business interruption claim, which generally requires:
  • “physical loss or damage;”
  • to an “insured property;”
  • caused by a “covered peril;”
  • resulting in a “business interruption;” and
  • lasting for a defined “restoration period.”
• Review the policy for requirements that the company must meet before the insurer has to pay on the business interruption loss, including provisions requiring the company to:
  • provide notice of the loss (see Provide Timely Notice, below);
  • submit a signed and sworn proof of loss (see Provide Timely Proof of Loss, below); and
  • mitigate losses (see Record All Loss Mitigation Activities and Expenses, below).
• Check if the policy provides benefits beyond covering the cost of the company’s lost income, including coverage extensions that provide coverage for:
  • extra expenses (expenses beyond loss of income) incurred because of the business interruption;
  • the cost of mitigation;
  • business interruptions caused by orders of civil authority;
  • business interruptions caused because a company cannot access its premises (ingress and egress extensions); or
  • lost profits and related costs caused by business interruptions at the locations of the insured’s supply chain partners (contingent business interruption extensions).
• Determine whether the policy contains any provision that may limit the company’s recovery, including any:
  • sublimits; or
  • exclusions.

Document the Circumstances that Resulted in the Business Interruption

• Preserve any evidence proving that physical property damage caused the business interruption, including:
  • photographs of any physical property damage;
  • an inventory of damaged property; and
  • witness statements and written descriptions regarding the events and extent of the damage (including the time and date the property damage took place).
• Because contamination (potentially including disease infection) can qualify as property damage, preserve any evidence proving the company’s premises were contaminated or are at high risk of contamination.
• If a company cannot access its normal market, that qualifies as a “loss” that can trigger business interruption coverage, so preserve evidence to prove the company lost access to:
  • its production sources (for example, it cannot get necessary products from suppliers); or
  • the market for its goods or products (for example, it either cannot open to its usual customers or it can only open on a limited basis).
• If a company cannot access its physical premises, that qualifies as a loss that can trigger business interruption coverage, so preserve evidence proving the company cannot access its property because:
  • a private entity restricts access (for example, if a landlord prohibits access);
  • an order issued by a government official or department, such as a health department, restricts access; or
  • a riot or civil commotion restricts access.
• Include the specific dates (or date ranges) on which any of the above-listed circumstances occurred.
• Include any other information required by the policy’s proof of loss provision.

Provide Timely Notice

• Review the policy’s notice requirements. Recall that:
  • many policies require “prompt” notice of a business interruption claim; and
  • some policies provide a more specific notification period.
• Give notice of a potentially covered loss as quickly as possible.
• Provide notice to the insurer in writing to document that the company complied with the notice obligation (even if the policy does not require the company to notify its insurer in writing).
• If the policy provides a party and address to which notice should be sent, comply with those requirements.
• Consider informing the company’s insurance broker of the potential business interruption claim. The broker can help the company by providing:
  • notice on the company’s behalf;
  • guidance on what information to provide in the notice; and
  • other consulting services related to the claim investigation and adjustment process.
• Because communication between the company and its insurer regarding a business interruption claim may not be legally privileged, take steps to protect sensitive information, including:
  • do not include any information in the notice (or in any communication with the company’s insurer during the claims process) that the company is not comfortable disclosing if litigation arises; and
  • alert personnel involved with the claim that communications related to the claim may not be privileged, including information that is communicated internally (unless the communication is with counsel), to the company’s insurance broker, to forensic accountants, and to other third parties.

Provide Timely Proof of Loss

• Remember that most policies require a proof of loss to facilitate the investigation of the policyholder’s claim. The proof of loss is critical to the claims process because it:
  • goes beyond mere notice to provide the insurer with specific information regarding the claim; and
  • allows the insurer to proceed quickly and efficiently with its investigation.
• Review the policy’s proof of loss requirements, including requirements governing:
  • format;
  • timing; and
  • content.
• Comply with any formatting requirements. Most policies require that a proof of loss be:
  • a formal statement of the claim;
  • signed by the policyholder; and
  • notarized.
• Comply with any timing requirements. Recall that:
  • most policies require a policyholder to submit its proof of loss shortly after the triggering event; and
  • some policies provide a more specific time frame.
• Comply with any content requirements. Many policies require policyholders to include:
  • the amount of loss;
  • the documents that support the amount of loss;
  • the parties claiming the loss;
  • the date and cause of the loss; and
  • the identity of all parties that have an interest in the claim.
• Recall that after the policyholder submits its proof of loss, the insurer must review it and reply. The insurer may accept or reject the proof of loss. If the insurer rejects the proof, remember that the insurer:
  • can only reject the proof for technical reasons (for example, if it is not notarized), and not for substantive reasons (such by disputing the amount of damages); and
  • will identify the specific deficiencies in its response letter.
• Address any deficiencies in the proof of loss as soon as possible to facilitate the claims-handling process.

Quantify the Amount of the Loss

• Remember that documenting the company’s business income loss is key to maximizing insurance recovery.
• If the company has more than one insured location, document losses and expenses at each location.
• Create a timeline that ties the losses and extra expenses incurred to the circumstances that caused the business interruption (see Document the Circumstances that Resulted in the Business Interruption, above).

Preserve Any Evidence Providing the Amount of Lost Business Income Due to the Suspension of Business Operations

• Consider hiring a forensic accountant.
• Identify and keep complete and accurate records relating to business income loss, including:
  • lost sales; and
  • lost revenue.

Document Any Additional Expenses the Company is Incurring Because of a Business Interruption

• Identify and keep complete and accurate records related to any extra expenses the company incurred during the business interruption loss, including the cost of:
  • removal of debris from damaged property;
  • cleaning up damaged property, including decontamination costs;
  • payroll costs (if the company hired additional employees or asked employees to work extra hours to complete tasks associated with the business interruption);
  • a forensic accountant to help the company calculate its losses; and
  • a public relations firm to help the company communicate pertinent information to the public.
• Include claim preparation expenses (including attorneys’ fees because these may be recoverable); and
• Include loss adjustment expenses (expenses related to the investigating and settling the company’s business interruption claim).

Record All Loss Mitigation Activities and Expenses

• Recall that a policyholder generally must take reasonable steps to reduce or mitigate its business interruption loss. Therefore, the company should document its efforts to:
  • keep the business operating;
  • minimize the suspension of its business operations; and
  • take steps to protect the covered property from further damage including, if applicable, steps to protect the property from contamination and steps to protect the company’s reputation.
• Document all mitigation expenses.

Communicate and Cooperate with the Insurance Adjusters

• Recall that policyholders have a duty to cooperate with their insurers throughout the claims process.
• Respond to all reasonable requests for documents and other information from the insurance company and its adjusters (people working for insurers to investigate and assess the claim).
• Communicate with the adjusters to ensure:
  • the insurance company has all the information necessary to adjust the claim (the process of investigating the claim and determining coverage under the insurance policy);
  • the insurance company is aware of and has an opportunity to provide input regarding mitigation efforts; and
  • the claim is processed efficiently.
• Consider entering into a confidentiality agreement with the insurance company and the adjusters to protect confidential documents and information the company provides during the claims-handling process.

Request Interim Payments

• Consider requesting an advance of the claim payment, particularly if it can help the company repair or replace damaged property and allow the business to resume normal operations.
• Consider requesting a partial payment of all amounts not in dispute. Many policies provide for these partial payments. The company typically must submit a partial proof of loss with documents supporting the undisputed amount of loss to be paid.

Be Aware of Policy Deadlines

• Because the company may forfeit coverage if it fails to meet policy deadlines regardless of the merits of its claim, the company should:
  • review the policy and note all deadlines that impact the company’s business interruption claim; and
  • create a timeline to avoid missing crucial deadlines.

Review Notice Requirements

• Because the insurer may deny the company’s claim if the company fails to provide timely notice, the company should:
  • review the notice requirements; and
  • document the company’s compliance with them.

(See Provide Timely Notice, above.)

Review Proof of Loss Requirements

• Recall that most policies require the policyholder to submit a signed and sworn proof of loss shortly after the triggering event (sometimes as soon as 60 days after the event).
• Contact the insurance company to negotiate a reasonable extension of the deadline if it is unreasonable or impossible.

(See Provide Timely Proof of Loss, above.)

Consider any Suit Limitations

• Review the policy to see if it shortens the time period the company has to file a lawsuit against the insurer (for example, if the insurer denies the company’s claim or refuses to pay the full amount of the claim).
• If the deadline is close and the company’s claim is not fully paid, consider requesting that the insurance company:
  • extend the limitations period; or
  • agree to toll the deadline.

Understand the Restoration Period and any Repair or Replace Time Limits

• Understand any limits the policy puts on the amount of time a company has to:
  • restore its business; and
  • repair or replace its damaged (or contaminated) property.
• Consider negotiating an extension of this deadline if the company cannot meet it.

Notify Excess Insurance Carriers

• Notify excess insurance carriers if necessary.
• Review the notice provisions in the excess policy to determine whether to provide notice to the excess carrier.
• Recall that excess policy notification provisions may vary significantly; for example, an excess policy may require notice:
  • when a loss is reasonably likely to involve the excess policy; or
  • regardless of loss amount.

Review Any Dispute Resolution Provisions in the Policy

Check the policy for dispute resolution provisions including:

• Arbitration. Determine whether the policy requires the parties to arbitrate any legal disputes under the policy.
• Appraisal. Determine whether the policy requires the parties to follow an appraisal procedure if the parties:
  • agree that the company has suffered a covered business interruption loss (as opposed to disagreeing about whether the claim or portions of the claim are covered); and
  • disagree over the amount of the loss.
• Choice of law. Determine whether the policy contains a provision stating which state’s law governs interpretation of the contract.
• Choice of forum. Determine whether the policy mandates the venue for resolving disputes.

Consider Hiring Insurance Coverage Counsel

• Consider hiring experienced insurance recovery counsel, especially if the business interruption claim is related to a novel circumstance, such as the COVID-19 pandemic.
• Coverage counsel can help the company:
  • evaluate its business interruption claim;
  • consider the impact of potentially applicable law;
  • maximize the company’s recovery, including by presenting the claim in the manner most likely to result in a positive coverage determination and pursuing the claim persistently despite pushback from the insurer;
  • determine whether to pursue a claim in coverage litigation; and
  • determine whether to notify excess carriers.