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Loss reimbursement from business interruption insurance may be an important source of continuing funds for many during this time of Covid 19 depending on the terms of the policy, state mandates and court rulings. Does your client have business interruption insurance? Has your client incurred a covered peril in which you are advising them?
Intended to protect a business against the loss of income related to disasters and other emergencies, business interruption coverage is typically included as part of a company’s commercial property insurance policy, and is most commonly triggered when “direct physical loss of or damage to” insured property occurs during natural disasters, such as hurricanes or earthquakes. Similarly, contingent business interruption coverage can apply to losses associated with other events, such as disruptions to the business’s customers or suppliers, while a policy’s civil authority coverage can be triggered when a government limits access to a specific geographic area, impairing access to the policyholder’s premises.
In addition to determining whether any coverage applies, businesses must also understand the methods employed to calculate the recoverable financial loss. Policies include standard terms which are used throughout the industry, and although language contained with the clauses may differ slightly, business interruption policies all require the application of methodologies intended to put policyholders back in the same position they would have been “but for” the triggering event.
A Loss Calculation is prepared to determine the extent of the lost profits during the Period of Restoration utilizing one of two method based on the type and extent of interruption. The Top Down Method starts by determining lost revenues, then subtracts variable costs avoided, and adds extra expenses incurred. The Bottom Up method begins by determining the lost pre-tax income, then adding continuing expenses, and adding extra expenses incurred.
Coverage is generally also provided for extra expenses the business incurs due to the loss and for temporary operations. These amounts should be separated from loss of business income and non-continuing expenses. Extra expenses are based upon the amount actually paid or incurred and the insurance company generally requests the invoice, proof of payment and brief explanation why the extra expense was incurred.
Greene Forensic Accounting Solutions is positioned to assist insurers, adjusters and legal counsel in assisting their clients/insureds in the Business Interruption and Lost Profits claims process. We function as a consultant to the Adjuster or Attorney to assist in claim calculation process. We understand that time matters and getting the insured’s business operating is the utmost importance. We will have constant communication between all parties involved to ensure a smooth flow of information and updates throughout the process, and to move the process forward, quickly and efficiently.
As an independent party in the process, GFAS is in a position to ascertain extent of the damage by working with the adjuster, insurance company, and insured to understand their business, their loss, and their specific needs to determine the most complete, accurate, and non-biased calculation. We understand insurance policies and declarations. Our team can provide independent feedback on what’s covered, and what’s not, to help you work with your insurance company for the most accurate results This includes an understanding of their business environment, historical performance, seasonality, projections, and if necessary, site visit to the business location.
We work with the Adjuster or Attorney to analyze the insured’s books and records to determine whether the insured has sustained a loss due to the event and calculate the business income loss using the generally accepted methodologies.
We can assist the insured in tracking the Extra Expenses incurred during the Period of Restoration that are outside the insured’s normal course of business. Accurate segregation of documentation will help ensure they are covered when the insurance companies pays the claim. Extra Expense may include: certain payroll, rent at a temporary location, replacement inventory, certain materials, and other expenses to reduce the Period of Restoration or minimize the impact of the insured’s business shutdown.
Our forensic accountants are experienced in court proceedings and possess the skills necessary to assist in providing expert testimony and reports in support of our calculations and methods to get the insured a fair and accurate analysis of their lost profits. We have the experience in serving as an expert or consulting witness We can assist the adjuster, insured, or legal counsel with our knowledge and experience in damage matter, such as; the technical aspects of accounting rules and procedures and other related data and, the ability to translate accounting data to conform to insurance policy coverage language.