Businesses that have to close, or that lose revenues, due to the current wildfires should of course seek all available coverage for those losses under their commercial property insurance policies. Those coverages typically include Business Income protection against lost revenues caused by damage to the company’s property that requires suspension of some or all of the company’s operations. Commercial policies also typically include coverage for loss caused by evacuation orders and other “orders of civil authority” that prevent access to the company’s facilities. There may also be coverage for loss of “ingress/egress” that doesn’t require a government order to become available. Some commercial policies also provide “Contingent” or “Dependent Properties” business interruption coverage, which pays loss of income the company suffers due to damage to a supplier’s or customer’s property.
Challenges unique to 2020
This year, business policyholders may face unusual challenges in getting full insurance coverage for their business interruption claims due to the COVID-19 pandemic. Most standard form commercial property policies state that the policyholder’s loss of income is calculated by projecting what the company would have earned had the damage not happened, and subtracting from that the actual revenue earned during a specified “period of restoration” when policy benefits are payable. The projection is typically based on the company’s average pre-loss revenues during a specified look-back period, though policy wordings vary, and many standard form policies are silent, as to how exactly how the projection is to be calculated.
With many businesses either shut down or scaling back operations due to COVID-19, companies should be prepared for their insurers to try to reduce or eliminate their coverage for loss of income from the fire damage by reducing their calculations of what the policyholder would have earned had the fire not happened. Insurers may argue that COVID has reduced what those revenues would have been but for the fires, and assert that they may, therefore, disregard pre-loss averages in calculating those projections. Or they may offset the projected revenues the pre-loss averages would otherwise support by amounts they will claim are COVID-related revenue losses, which they will argue are not covered and should not be considered in their calculations.
Policy language or applicable law may prohibit this tactic
However, because few policies contain detailed provisions stating how business interruption losses are to be calculated, loss payments are frequently resolved through negotiations between the carrier and the company over the appropriate data to consider and the calculation methods to use. Typically these negotiations are based on accounting principles, the company’s particular operations, policy language, legal precedent and insurance claim handling laws and regulations.
In these negotiations the company should be represented by professionals with experience and expertise in business interruption claims. The carrier will be represented by a forensic accountant or specialized adjuster, highly experienced in these types of claims, who will assert positions minimizing the company’s loss which the company may have difficulty opposing, negotiating or even understanding, without expert assistance. Accountants, experienced insurance coverage attorneys and public adjusters specializing in business interruption claims can provide the advice and representation the company needs to ensure it recovers everything to which it is entitled under its policies.
Protect your interests
Our firm has represented both policyholders and insurers in business interruption claims for many years and has an intimate understanding of the issues related to these coverages. Don Lesser, who works from our Sacramento and San Rafael offices, can be contacted at [email protected] or 415.453.7600.