May 2023

Filing a Business Interruption Claim

Key steps a company should take to file a successful business interruption claim.

Review All Potentially Applicable Policy Provisions

  • Be aware that business interruption insurance:
    • is included in most commercial property insurance policies and a component of first-party commercial property insurance policies; and
    • provides coverage for lost profits and related costs when a covered peril prevents a company from conducting its normal business. Covered perils typically include theft, fire, wind, and extreme weather conditions. Some policies also define unforeseen catastrophic events, such as the COVID-19 pandemic, as covered perils.
  • Before submitting a claim for business interruption losses, review all applicable policy provisions to gain:
    • an understanding of the full extent of coverage for the company’s business interruption losses and expenses; and
    • an appreciation for all of the tasks required to submit a successful claim.
  • Recognize that the language in the specific insurance policy at issue will govern whether there is coverage for business interruption losses.
  • Avoid:
    • relying on an accepted market definition of what a business interruption provision usually provides; and
    • concluding that only the business interruption provision can provide coverage for business interruption losses.
  • Determine how the relevant policy provisions define each of the elements of a typical business interruption claim, which generally are:
    • physical loss or damage;
    • to an insured property;
    • caused by a covered peril;
    • resulting in a business interruption; and
    • lasting for a defined restoration period.
  • Review the policy for requirements that the company must meet before the insurer is obligated to pay on the business interruption loss, including provisions requiring the company to:
    • provide notice of the loss (see Provide Timely Notice below);
    • submit a signed and sworn proof of loss (see Provide Timely Proof of Loss below); and
    • mitigate losses (see Quantify the Amount of the Loss below).
  • Confirm whether the policy provides benefits beyond covering the cost of the company’s lost income, including coverage extensions, which may provide coverage for:
    • extra expenses (expenses beyond loss of income) incurred because of the business interruption;
    • the cost of mitigation;
    • business interruptions caused by orders of civil authority;
    • business interruptions caused because the insured cannot access its premises (ingress and egress extensions); or
    • lost profits and related costs caused by business interruptions at the locations of the insured’s supply chain partners (contingent business interruption extensions).
  • Determine whether the policy contains any provision that may limit the company’s recovery, including any:
    • sublimits; or
    • exclusions.
  • Review the policy for dispute resolution provisions governing:
    • Arbitration. Determine whether the policy requires the parties to arbitrate any legal disputes under the policy.
    • Appraisal. Determine whether the policy requires the parties to follow an appraisal procedure where the parties agree that the company has suffered a covered business interruption loss (as opposed to disagreeing about whether the claim or portions of the claim are covered) but disagree over the amount of the loss.
    • Choice of law. Determine whether the policy contains a provision stating which state’s law governs interpretation of the contract.
    • Choice of forum. Determine whether the policy mandates the venue for resolving disputes.

(For more on business interruption coverage, see First-Party Property Insurance Policies on Practical Law; for information on insurance coverage issues related to catastrophic events, see Insurance Coverage for Losses Due to Catastrophic Events Chart on Practical Law.)

Identify Policy Deadlines

  • Identify all deadlines that impact the company’s business interruption claim. The company may inadvertently forfeit coverage if it fails to meet policy deadlines, regardless of the merits of its claim.
  • Create a timeline to avoid missing crucial deadlines.

Notice Requirement

  • Review the notice requirement. The insurer may deny the company’s claim if the company fails to provide timely notice.
  • Document the company’s compliance with the policy’s notice requirement (see Provide Timely Notice below).

Proof of Loss Requirements

  • Review the policy for proof of loss requirements. Most policies require the policyholder to submit a signed and sworn proof of loss shortly after the triggering event (sometimes as soon as 60 days after the event).
  • Contact the insurer to negotiate a reasonable extension of the deadline if it is unreasonable or impossible (see Provide Timely Proof of Loss below).

Suit-Limitation Provisions

  • Review the policy to see if it includes a provision that shortens the time period the company would otherwise have to file a lawsuit against the insurer (for example, if the insurer denies the company’s claim or refuses to pay the full amount of the claim). These provisions are often called suit-limitations provisions or suit-limitations clauses.
  • Consider requesting that the insurer:

Restoration Period and Any Repair or Replace Time Limits

  • Understand any limits that the policy puts on the amount of time a company has to:
    • restore its business; and
    • repair or replace its damaged (or contaminated) property.
  • Consider negotiating an extension of this deadline if the company cannot meet it.

(For more on restoration periods and repair or replace time limits, see First-Party Property Insurance Policies on Practical Law.)

Document the Circumstances That Resulted in the Business Interruption

  • Preserve evidence proving that physical property damage caused the business interruption, including:
    • photographs of any physical property damage;
    • an inventory of damaged property; and
    • witness statements and written descriptions regarding the events and extent of the damage (including the time and date the property damage took place).
  • Because contamination (potentially including disease infection) can qualify as property damage, preserve any evidence proving that the company’s premises were contaminated or are at high risk of contamination.
  • When a company cannot access its normal market, this loss can trigger business interruption coverage. Therefore, preserve evidence to prove that the company lost access to:
    • its production sources (for example, it cannot get necessary products from suppliers); or
    • the market for distribution of its products or services (for example, either it cannot open to its usual customers or it can only open on a limited basis).
  • When a company cannot access the physical property where it conducts business, this loss can trigger business interruption coverage. Therefore, preserve evidence related to how access was denied or restricted, such as by:
    • a private entity (for example, if a landlord prohibits access);
    • an order issued by a government official or department, such as a health department; or
    • a riot or civil unrest.
  • Include the specific dates (or date ranges) on which any of the above-listed circumstances occurred.
  • Include any other information required by the policy’s proof of loss provision.

Quantify the Amount of the Loss

  • Understand that documenting the company’s business income loss is key to maximizing insurance recovery.
  • Consider hiring a forensic accountant.
  • Document losses and expenses at each location, if the company has more than one insured location.
  • Create a timeline that ties the losses and extra expenses incurred to the circumstances that caused the business interruption.
  • Preserve evidence demonstrating the company’s business income loss, including lost sales and revenue.
  • Identify and accurately record any extra expenses that the company incurred during the business interruption loss, including the cost of:
    • removing debris from damaged property;
    • cleaning up damaged property, including decontamination costs;
    • payroll costs (if the company hired additional employees or asked employees to work extra hours to complete tasks associated with the business interruption);
    • a forensic accountant to help the company calculate its losses;
    • a public relations firm to help the company communicate pertinent information to the public;
    • claim preparation expenses (including attorneys’ fees, which may be recoverable); and
    • loss adjustment expenses (expenses related to investigating and settling the company’s business interruption claim).
  • Record all loss mitigation activities and expenses because a policyholder generally must take reasonable steps to reduce or mitigate its business interruption loss. Therefore, document the company’s efforts to:
    • keep the business operating;
    • minimize the suspension of its business operations; and
    • protect the covered property from further damage including, if applicable, steps to protect the property from contamination and steps to protect the company’s reputation.

Provide Timely Notice

  • Provide notice of a potentially covered loss as quickly as possible. Many policies require “prompt” notice of a business interruption claim, while some policies provide a more specific notification period.
  • Send notice to the designated party at the address provided by the insurer.
  • Consider informing the company’s insurance broker of the potential business interruption claim. The broker can help the company by providing:
    • notice on the company’s behalf;
    • guidance on what information to provide in the notice; and
    • consulting services related to the claim investigation and adjustment process.
  • Take steps to protect sensitive information because communication between the company and its insurer regarding a business interruption claim may not be legally privileged. For example:
    • do not include any information in the notice (or in any communication with the company’s insurer during the claims process) that the company is not comfortable disclosing if litigation arises; and
    • alert personnel involved with the claim that communications related to the claim may not be privileged, including information that is communicated internally (unless the communication is with in-house counsel), to the company’s insurance broker, to forensic accountants, and to other third parties (including, in limited instances, communications with outside counsel). (For more on the attorney-client privilege and the work product doctrine in litigation, see Attorney-Client Privilege and Work Product Doctrine Toolkit on Practical Law.)

Provide Timely Proof of Loss

  • Be aware that most policies require a proof of loss to facilitate the investigation of the policyholder’s claim. The proof of loss is critical to the claims process because it:
    • goes beyond mere notice to provide the insurer with specific information regarding the claim; and
    • allows the insurer to proceed quickly and efficiently with its investigation.
  • Review the policy’s proof of loss requirements, including requirements governing:
    • format;
    • timing; and
    • content.
  • Comply with any formatting requirements. Most policies require that a proof of loss be:
    • a formal statement of the claim;
    • signed by the policyholder; and
    • notarized.
  • Observe any timing requirements. Note that:
    • most policies require a policyholder to submit its proof of loss shortly after the triggering event; and
    • some policies provide a more specific time frame.
  • Follow any content requirements. Many policies require policyholders to include:
    • the amount of loss;
    • the documents that support the amount of loss;
    • the parties claiming the loss;
    • the date and cause of the loss; and
    • the identity of all parties that have an interest in the claim.
  • Be aware that after the policyholder submits its proof of loss, the insurer must review it and reply. If the insurer rejects the proof, remember that the insurer:
    • can only reject the proof for technical reasons (for example, if it is not notarized), and not for substantive reasons (such as by disputing the amount of damages); and
    • will identify the specific deficiencies in its response letter.
  • Address any deficiencies in the proof of loss as soon as possible to facilitate the claims-handling process.

Communicate and Cooperate with the Insurance Adjusters

  • Respond to all reasonable requests for documents and other information from the insurer and its adjusters (employees working for insurers to investigate and assess claims), because policyholders have a duty to cooperate with their insurers throughout the claims process.
  • Communicate with the adjusters to ensure:
    • the insurer has all the information necessary to adjust the claim (the process of investigating the claim and determining coverage under the policy);
    • the insurer is aware of and has an opportunity to provide input regarding mitigation efforts; and
    • the claim is processed efficiently.
  • Consider entering into a confidentiality agreement with the insurer and the adjusters to protect confidential documents and information that the company provides during the claims-handling process (for a model confidentiality agreement, with explanatory notes and drafting tips, see Confidentiality Agreement: General (Unilateral, Pro-Discloser) on Practical Law).
  • Consider requesting:
    • an advance of the claim payment, particularly if it can assist the company in repairing or replacing damaged property and allowing the business to resume normal operations; and
    • a partial payment of all amounts not in dispute. Many policies provide for these partial payments. The company typically must submit a partial proof of loss with documents supporting the undisputed amount of loss to be paid.

Notify Excess Carriers

  • Review the notice provisions in the excess policy, if any, to determine whether to provide notice to the excess carrier.
  • Be aware that excess policy notification provisions may vary significantly. For example, an excess policy may require notice:
    • when the loss is substantial and therefore reasonably likely to involve the excess policy; or
    • regardless of the loss amount.

Hire Insurance Coverage Counsel

  • Consider hiring experienced insurance coverage counsel, especially if the business interruption claim is related to a novel circumstance, such as the COVID-19 pandemic. Insurance coverage counsel can assist the company in:
    • evaluating its business interruption claim;
    • considering the impact of potentially applicable law;
    • maximizing its recovery, including by presenting the claim in a manner most likely to result in a positive coverage determination and pursuing the claim persistently despite pushback from the insurer;
    • determining whether to pursue a claim in coverage litigation; and
    • determining whether to notify excess carriers.