How to Recover Damages in a Business Interruption Claim
Business interruption insurance provides coverage for businesses when their income is severely impacted by a natural disaster, government shutdown, or other qualifying events. With these policies, business owners can cover the costs of having to close their doors or if they have to move locations, allowing them to survive in economically uncertain times. While most business owners hope that they will never have to use these policies, when their profits are suffering due to a disaster, they should be glad to have it. However, the process of getting a payout can be incredibly confusing without legal guidance. Bottlinger Law L.L.C. is here to help Omaha business owners work through the claims process and recover the compensation they need to remain open.
How Are Claims Calculated?
In order to file a business interruption claim, you must first show that your business has suffered a loss due to a natural disaster, like a building fire or flooding, power failures, or a government shutdown, such as if a city government, state department, or federal agency shuts down a building due to property damage. Losses can vary depending on your industry and what type of business you operate, but typically, business interruption insurance covers:
- Lost profits and revenue
- Operating expenses
- Moving costs and temporary location rentals
- Replacing damaged equipment and training staff
- Loan payments
It can be hard to predict how much money you have lost due to a shutdown or closure, but there are several methods to estimate what your losses are. To do that, you can look at previous months’ earnings (or year over year earnings) and calculate what you would have earned if you were not forced to close, often referred to as your “but-for revenue.” Then, you need to determine what your “actual revenue” should be during the shutdown and how much you should earn as business ramps up again after you reopen. Once you have these two numbers, you will subtract the “actual revenue” from your “but-for revenue” to calculate your “lost revenue.”
Your lost revenue is essentially what your business should have earned under normal circumstances. With this number in hand, you now need to calculate what your expenses would have been, otherwise known as “avoided costs.” Avoided costs are standard costs of operation that you would normally subtract from your revenue to determine each month’s profits. This can include the costs of supplies, temporary labor or contractor fees, overtime, utility bills, or any other operational expenses. You will then subtract your “avoided costs” from your “lost revenue” to determine your “lost profits.”
Then you have the final step, which is to add up the “extra expenses” you have to deal with due to the shutdown. This can include rent (either for your business’s current or new location), payroll, new supplies and equipment for a reopening, and any other additional expenses that come up due to the shutdown. By adding your “extra expenses” to your “lost profits” you will have an estimate of your business’s losses and the general value of your business interruption claim.
This is the number that you will seek to recover in a claim and what will allow you to pay your employees, cover your bills, and eventually reopen. In order to calculate this number, you will need to review your financial records thoroughly with an attorney to make sure everything is included.
What Documents Do I Need Collect?
There are several documents that can support your claim, ranging from payroll records to receipts to tax returns. Altogether, you will want to collect:
- Any financial statements from prior to the shutdown
- Any financial statements from after the shutdown
- Tax returns
- Payroll records
- Records of operating expenses, including utility bills, benefits packages, and costs of supplies
- Invoices or receipts for repairs to a building or replacement equipment
- Contractor invoices
- Moving costs and rental payments
- Loan payments
With these documents in hand, you can begin calculating the overall costs of your business’s closure and determine the value of your claim. Unfortunately, having this number in hand is not enough, as your insurance company may try to fight you on certain expenses and repayments. To ensure you secure the full value of your business interruption claim, you will need to contact an Omaha commercial litigation attorney. At Bottlinger Law L.L.C., our legal team has over a decade of experience representing Nebraska businesses in complex legal matters, including insurance claims. If you contact our office, we can diligently advocate for you and your business’s right to compensation. To discuss your case in a free consultation, call our office at (402) 505-8234.
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