Insurance coverage that replaces lost business income following a disaster is known as business interruption insurance. A fire, an earthquake, a hurricane, or other natural disasters are covered under business interruption insurance. Generally speaking, business interruption insurance is added to your property/casualty policy or is included in a comprehensive insurance package policy as a rider or “add-on.” If you have this type of coverage, you could be looking at a business interruption claim following the recent Hurricane Ida.
If your insurance company is giving you the runaround, refusing to pay your business interruption insurance claim, or offering you much less than the claim is worth, it could be time to contact the legal team at New Orleans Legal, LLC. We know that insurance companies are always focused on their financial bottom line and that the amount offered simply might not cover your actual expenses. Having a knowledgeable insurance claims attorney as the advocate in your corner can make all the difference in the outcome of your business insurance claim.
What is New Orleans, LA Business Interruption Insurance, and What Does It Cover?
Business interruption insurance can cover many things, including:
- A replacement for lost income while your business is halted due to direct physical loss or damage
- Operating expenses for your business
- Funds to move to a temporary location when necessary
- Payroll payments, tax payments, and loan payments
- Closures due to a pandemic are generally not covered, and some plans will detail specific exclusions for losses due to viruses or bacteria
The premiums for business interruption insurance can be deducted from your taxes as a business expense. Business interruption insurance only pays if the cause of your business income loss is covered in the underlying policy. Your past financial records will be crucial when filing a business interruption claim since the amount paid is based on those records. While “standard” business interruption insurance coverage is generally about 30 days, an endorsement can extend that period as long as 360 days.
Business interruption insurance may not cover the following:
- Broken items and broken glass resulting from a covered event. This means even if an event like a hurricane is covered, business interruption insurance is unlikely to pay for damaged items or broken glass (windows).
- Flood damage and earthquake damage must be covered in a separate policy (like a flood insurance policy), or they will not be covered under business interruption insurance. Since flooding is rarely covered under hurricane insurance, you may have a flood insurance policy in which flood damage would be covered as a part of your business interruption costs.
- The cost of utilities is not covered under business interruption insurance.
- Pandemics, viruses, or other communicable diseases are not covered under business interruption insurance.
Business Interruption Insurance Claim Calculation
Calculating a business interruption claim can be complex, but it can be summarized as follows:
BI = T x Q x V
BI stands for Business Interruption, T equals the number of time units, such as hours or days your business is shut down, Q equals the quantity of goods typically produced or sold per unit of time used in T, and V equals the value of each unit of production (profit).
Time, when used in the business interruption formula, means the length of the loss period. There can be significant variability between the amount of time you believe physical repairs will take and the amount of time the insurance adjuster thinks the physical repairs will take. Time can also be a complex issue when losses vary from month to month due to product and production seasonality, when some production can be outsourced to another plant, or when production may come on slowly in a new plant.
Planned, budgeted, or anticipated production is analyzed against historical output and trends. It is your obligation to prove your loss, with documentation to back you up. A business that is largely a service industry, like a bookkeeping business, will not have the same formula as the one above (for a company that sells a product or products). In this case, business profits—based on prior months’ performance—fixed operating expenses, the cost for a temporary location, employee wages, taxes, and any reasonable extra expenses will be paid until your business is back on solid footing.
Business Interruption Claim Example
Let’s assume Hurricane Ida hit Suzie’s Baby and Toddler Clothing store. Suzie has hurricane insurance, flood insurance, and business interruption insurance in addition to her regular business insurance. After the hurricane, Suzie expects her business to be closed for approximately two months while repairs are being made. The projected lost revenues for two months is estimated to be $15,000 per month, or $30,000 total.
The cost of goods sold represents a non-continuing expense and is projected to be 55 percent of the amount of the lost revenue, or $16,500. Payroll, credit card fees, lease payments, and taxes for the two months are estimated to be approximately $18,000. Extra expenses will include renting a temporary facility for two months to mitigate losses. This includes rental of furniture and fixtures, additional shipping, employee overtime, etc., estimated to be approximately $14,000. In this example, Suzy would file her business interruption claim for $78,500.
New Orleans Legal, LLC Can Help You with Your Claim
Like any hurricane or other natural disaster claim, your insurance company may attempt to pay you less than your claim is worth or may deny your claim altogether. If you have carefully read your insurance policy and want to receive the coverage you paid for, it could be time to contact New Orleans Legal. Attorney Peter Diiorio helps people in need. Following hurricane damages to your business—therefore, your livelihood—you may be feeling anxious and concerned about your future. You may be dealing with a recalcitrant insurance company while you need to be dealing with other issues. Let New Orleans Legal, LLC handle all the legal aspects of your business interruption claim. We will work hard on your behalf to ensure you are paid what your claim is worth. Contact New Orleans Legal, LLC today.