Magazine article Risk Management

Negotiating Your Recovery: Business Interruption Claims

Magazine article Risk Management

Negotiating Your Recovery: Business Interruption Claims

Article excerpt

As technology and sophisticated production methods change the way companies operate, increased efficiency often means that companies have less margin for error. In an environment characterized by dramatic changes, companies may find increased difficulty in getting insurance carriers to respond to business interruption claims.

"The insurance industry, which is no stranger to business interruption losses, has not anticipated the magnitude of business interruption exposures faced by modern businesses and is now scrambling to find ways to avoid paying claims," says Finley Harckham, a partner in the New York law firm Anderson Kill & Olick, P.C. Tactics used by insurance companies can include denying coverage based on technical contractual violations by the policyholder, such as failure to provide timely notice of loss. Some may also seek to limit payments by disputing the amount of the loss reported by the policyholder.

Although the likelihood of coverage disputes may seem to rise in proportion to the size of a reported loss, policyholders should take a number of precautions when submitting a business interruption claim. Following are suggestions policyholders can follow to help ensure they get the insurance coverage they paid for.

Cover All Bases

It is important to notify your insurer of a business interruption loss as soon as a loss commences--not when the situation is resolved. Insurance policies typically require prompt notice, varying from within a couple of days to a month, and some courts interpret this requirement as a basis for the insurer's coverage obligation, according to Mr. Harckham. If a claim dispute goes to court, untimely notice could result in a forfeiture of coverage. Similarly, notice should be given to all insurance policies that might respond to a loss. When more than one policy provides business interruption coverage, it is often difficult to determine which provides primary coverage and which provides excess coverage. Keeping in mind the timely reporting restrictions, Mr. Harckham recommends giving notice on all policies.

In addition to notice requirements, most business interruption insurance requires a "proof of loss" within 30 days, 60 days or 90 days. "These deadlines are often unrealistic for policyholders who suffer lengthy interruptions," says Mr. Harckham. "It is hard to quantify loss within that period of time, especially without restoring operations. …

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