Christopher A. Welde Director – ParenteBeard [email protected] 215 972-2364 [email protected] Preparing, Supporting, and Settling.

Christopher A. Welde Director – [email protected] 972-2364

Preparing, Supporting, and Settling a Business Interruption Claim

March 21, 2013

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Types of Insurance Claims

• Fidelity Bond• Surety• Professional Malpractice (Errors & Omission)• Directors & Officers• Property & Casualty (*Today’s Focus*)

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Our Example - Claim Categories

• Property (Buildings)• Furniture, Fixtures & Equipment• Inventory• Business Interruption (*Today’s Focus*)

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Preparing a ClaimBusiness Interruption Claim Categories

• Lost Profits• Ordinary Payroll• Extra Expenses

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Preparing a ClaimBusiness Interruption - Covered Loss

• Five Basic Elements - BI:– Covered Event Occurs (e.g., fire)– Results in loss/damage to covered property (e.g.,

manuf. / storage facility)– Results in interruption of business operations– Results in a covered loss (i.e., covered by policy)– During the Period of Restoration (i.e., damage

period)

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Preparing a ClaimBusiness Interruption – Covered Loss

• When Insured’s Property is not Damaged (extension of coverage):– Service Interruption– Contingent Business Interruption– Ingress/Egress– Civil Authority

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Preparing a ClaimBusiness Interruption - Coverage Issues

• Covered Loss• Covered Property• Damage Period

– Period of Restoration– Extended Period of Restoration

• Deductibles / Waiting Period• Coverage Limits• Professional Fees

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Supporting a ClaimBusiness Interruption – Loss Formulas

• Compare what “Should Have Happened” to what “Actually Happened”

• Lost Revenues – Saved Expenses = Lost Profits (Top Down Approach)

• Lost Income + Continuing Expenses = Lost Profits (Bottom Up Approach)

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Supporting a ClaimActual Results – Existing Facility

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Should Have Been Results v. Actual Results – Existing Facility

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Supporting a ClaimActual Results – New Facility

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Should Have Been Results v. Actual Results – New Facility

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Supporting a ClaimSaved Expenses v. Continuing Expenses

• Saved Expenses (i.e., Variable):– COS (materials, labor, shipping, storage)– Operations (commissions, payroll taxes, utilities)

• Continuing Expenses (i.e., Fixed):– Operations (advertising, insurance, accounting

fees, legal fees)

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Supporting a ClaimBusiness Interruption – Loss Formulas

• Compare what “Should Have Happened” to what “Actually Happened”

• Lost Revenues – Saved Expenses = Lost Profits (Top Down Approach)

• Lost Income + Continuing Expenses = Lost Profits (Bottom Up Approach)

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Supporting a ClaimOrdinary Payroll

• Non-Officers, Executives, Managers, etc. • Covered Period (60 days)• To extent payroll would have been

paid/earned had no Covered Event occurred

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Supporting a ClaimExtra Expenses

• In excess of normal expenses:– Security Costs– Clean-up Costs– Temporary Offices– Rental of Equipment

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Supporting a ClaimBusiness Interruption Claim

• Lost Revenue• Less Saved Expenses = Lost Profits• Plus Ordinary Payroll (continuing expense)• Plus Extra Expenses

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Settling a ClaimInteraction with Insurance Carrier

• Submit Proof of Loss (Claim)– Present Claim to Insurer– Provide Support

• Insurer’s Analysis of Claim– Insurer’s Accountant

• Interaction with Insurer’s Accountant– Respond to Document Requests– Answer Questions

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Settling a ClaimInteraction with Insurance Carrier

• Review and Respond to Rebuttal Report• Meet with Insurer

– Discuss Claim and Rebuttal– Settlement Discussions/Negotiations

• Settle Claim; or proceed to Litigation• Subrogation

– Insurer v. Culpable Party

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Business Interruption – Preparing

• Planning and Preparing– Insurance Policy – Coverage / Notice– Insurance Broker / Accountant / Attorney– Plan the Recovery of your Business / Changes?– Proof of Loss (Claim)

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Business Interruption - Supporting

• Loss Categories - Supporting– Replace / Remediate Damaged Property– Support Losses

• Historic Trends, Budgets• Saved v. Continuing Expenses• Ordinary Payroll• Extra Expenses

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Business Interruption - Settling

• Submit and Present Proof of Loss• Assist Insurer in its Analysis Process

– Supporting Documents– Questions

• Meetings and Settlement Negotiations• Subrogation

Christopher A. Welde Director – [email protected] 972-2364

Preparing, Supporting, and Settling a Business Interruption Claim

March 21, 2013