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Businesses Could Have Interruption Claims Due to Flooding and Natural Disasters

06.13.2019

Many businesses in Missouri, Illinois and elsewhere will see increased costs and lower profits because of the damage caused by flooding, lost power and other ramifications from heavy rains and thunderstorms. The increasing incidence of natural disasters and other catastrophic events makes the need for appropriate insurance coverage even more important. But how much coverage do you need? The amount of coverage needed can depend on several factors, including your business income value, the number of owned locations to insure and whether it is possible to mitigate potential losses via other insured locations.

Insurance policies may provide businesses with loss of profits coverage or business interruption. Business interruption coverage (also sometimes referred to as business income coverage) helps replace lost income and helps pay for additional expenses if a business is affected by a covered natural disaster, such as flooding.

Business interruption insurance claims

A business can experience contingent business interruption even without a physical location in an area affected by flooding. Reasons for contingent business interruption include not being able to travel to the impacted area, not being able to ship goods from the area, not being able to receive materials from the area to make goods, as well as many others that cause lost profits.

If a business has a physical location in the damaged area but no physical damage to the property, it could still have a contingent business interruption claim if profits are lower because of the widespread damages in the flooded area. If a business experiences actual physical harm to a property, the business will likely also experience business interruption and profit loss aside from the actual damage.

Here are a few scenarios:

  • A company experienced damage to one-quarter of its building from a natural disaster in the Midwest but did not file a business interruption claim because the company was able to get right back into business. The staff worked overtime and extra people were scheduled, but the sales did not meet expectations for a month after the disaster. An independent insurance consultant pointed out that this was a business interruption loss and suggested filing a claim. By going through the claim presentation, the company collected $175,000.
  • A business suffered significant damage to its building that forced it to shut down for several months. It filed a business interruption insurance claim for $250,000, which the insurance company was stalling to pay out. Through working with an attorney and a valuation specialist, the company discovered additional lost profits the company’s executives had not initially calculated. This included how the business would have continued to grow “but for” the damage to its building. By taking this into account, the calculated loss increased significantly. The business ultimately realized a $2.5 million claim.

Insurance policy coverage of floods and physical property damage

Businesses in flood zones that experience physical damage to their property might have a property policy that covers floods, but not all policies are created equal. Additionally, compiling the required information needed to value an insurance claim is time-consuming — during a time that’s already stressful.

Most insurance policies have a provision that the insurance company will pay for some or all of the fees for an independent firm to help organize and value a physical damage claim.

If your business was impacted by the recent flood activity or you’ve experienced a business interruption due to another natural disaster, please contact Bill Goddard, Insurance Advisory Principal, at bgoddard@bswllc.com or Jason Buhlinger, Transaction Advisory and Litigation Support Principal, at jbuhlinger@bswllc.com.

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