Business interruption (BI) insurance is an important asset to ensure business continuity amid unforeseen disruptions from catastrophic events. BI claims play a vital role in helping businesses recover from losses and resume operations. However, managing these claims can lead to disputes if not handled properly. In this article, we share best practices and lessons learned from a forensic accountant’s perspective, focusing on strategies to avoid legal disputes and resolve claims effectively and efficiently.
The Importance of Thorough Documentation. Comprehensive and accurate financial records can be crucial for substantiating BI claims. Key documents include financial statements, sales records, contracts, budgets, and forecasts. By documenting losses and impacts as they occur, businesses can streamline the claims process and reduce the likelihood of disputes.
Basing the Claim on the Policy. Engaging outside coverage counsel can provide valuable insights into policy terms and conditions. It is essential to understand and update the policy as the business evolves, tailoring coverages to align with loss exposures and paying attention to coverage limits, exclusions, and waiting periods. Presenting claims that reference the policy provisions can achieve consistency with coverage, reducing the risk of legal disputes.
Accurate Loss Measurement. Involving forensic accountants early in the process helps enhance the accuracy of loss measurement. Calculating lost income often involves consideration of historical financial performance and future projections best handled by an expert. Additionally, identifying and documenting extra expenses—such as higher production costs per unit or higher labor costs—can be complex in a large claim. Insurers are less likely to contest well-supported claims prepared by professionals.
Effective Communication with Insurers and Their Accountants. Implementing a transparent strategy with open lines of communication with insurers can facilitate smoother claims processing and faster resolution. Regularly scheduled calls with adjusters and accountants with clear agendas about repair and claim status can provide significant benefits to ensure all parties have the same information and are focusing on the claim.
Lessons Learned from Past Disputes. Analyzing case studies of complex BI disputes can offer valuable insights, highlight lessons learned, and help businesses avoid common pitfalls when preparing large claims. Learning from past experiences can guide businesses in preparing more robust claims and resolving them efficiently.
By following these best practices and emphasizing clear communication and thorough documentation, businesses can better navigate the complexities of BI claims, minimize the risk of legal disputes, and achieve successful resolutions.
