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A look at business interruption insurance claims in the aftermath of hurricane Harvey.

Business Interruption Claims in the Aftermath of Hurricane Harvey

The EisnerAmper team hopes that you and your loved ones are safe and doing well.

Hurricane Harvey will wreak havoc on the Gulf Coast long after the storm departs.  The damage to the region is catastrophic and costly.  JPMorgan Chase estimates that the storm will be a “Top 10 Most Costly Hurricane” and insurance experts are estimating that damages could exceed $100 billion.  As the extensive clean-up and recovery efforts ensue, business owners must understand their applicable insurance coverage and begin the process of filing claims.

A property insurance policy covers the physical damage to the business.  A business income insurance (BI) policy covers the loss of income that would have been earned while its facility is either closed because of a disaster such as Hurricane Harvey or during the resulting recovery and rebuilding processes.  BI coverage is typically added onto the business’s property/liability insurance policy or comprehensive policy. 

A typical BI policy covers the following elements:

  • Profits
  • Temporary location
  • Extra expenses (e.g., reasonable expenses beyond normal continuing costs to allow a business to continue operations)
  • Civil authority ingress/egress (e.g., government-mandated closures)

It is also critical to understand when the BI coverage begins and ends.  With disasters such as hurricanes, most insurance policies define the coverage period as starting on the date in which the storm made landfall and ending on the date the damaged property is physically repaired and returned to operations under the same conditions that existed prior to the disruptions of the storm. If you are planning to file insurance claims for your business, here are a few steps and items to begin to consider:

  • Be aware of and comply with any and all filing deadlines for your claims.
  • Collect and review all the policies directly issued to your business.
  • Identify other policies issued to other businesses in your supply chain that may also name or reference your business as an additional insured.
  • Create an outline of your potential claim(s). 
  • Be sure to understand the intricacies of pertinent exclusions (e.g., hurricane deductibles) of your coverage.
  • Understand what you will need to document to prepare a well-presented claim.  It is hard to overstate the importance of this last point.  While the amount of documentation required to build and support a BI claim can depend on various factors, it is generally recommended that it include, without limitation, the following types of evidence:
    • Detailed description of business operations including products and/or services provided
    • Any detailed business plans prepared prior to  the Hurricane 
    • Any detailed budgets/forecasts for future periods
    • Historical tax returns (generally 3 to 5 years)
    • Audited, reviewed, or compiled financial statements (generally 3 to 5 years)
    • Payroll records (last 2 years)
    • Monthly profit/loss statements (generally 3 to 5 years)
    • Customer-specific detailed sales data (generally 3 to 5 years)
    • General ledgers and/or accounting software data file
    • Detailed listing and support for any “extra expenses” allowed by  your BI policy
    • Any industry/geographic trade data to support claim
    • Any other information/data deemed necessary

These claims can be substantial projects. In fact, many times, claimants choose to enlist the services of an accounting firm – one that is experienced in this type of undertaking – as they can be quite time-consuming and detailed.  As early as possible, set-up lines of communications with your insurance broker, insurance carrier, legal counsel, accountant and/or other professionals that you may need to assist you.  Regardless of who is working with you on compiling your claims, it is important to ensure you do not mistakenly release an insurance carrier from any owed coverage.

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1 While the filing of the extended tax return for 2016 is extended, the payment of taxes was due on April 17, 2018, and is therefore not extended.

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Mr. Agar is a Managing Director in the Forensic, Litigation and Valuation Services Group. He specializes in fraud and forensic accounting, shareholder and partnership disputes, securities and antitrust litigation consulting, among others.

Hubert Klein is a Partner in the Forensic, Litigation and Valuation Services Group with technical resources in various litigation actions. He has consulted in complex damages, business valuations and due diligence analysis.

Mr. O'Grady is a Senior Manager in EisnerAmper's Forensic, Litigation and Valuation Services Group. He specializes in fraud and forensic accounting, business valuations, commercial damages assessments, and family and civil court matters.