As we touched on in a previous blog post, “What is Business Interruption? And What is Business Interruption Insurance?,” in order for business interruption insurance to kick-in, a loss claim must tick three boxes:
- there must be an actual loss of income
- a necessary suspension of operations to some degree must have occurred
- the cause of loss must be a covered event under the policy
Actual loss is as it sounds – what would the company have actually experienced but for the damaging event. Not what they could have experienced, which is a more common framework for business valuations since risk assessment associated with projections can also be factored into the analysis and forecast, but what would they have experienced. This can get tricky when trying to isolate the effect of the damaging event from other influencing factors, so it is important for the expert calculating the claim to keep in mind that the goal is to calculate the actual loss of income sustained from the covered cause of loss only with as much accuracy and reasonableness as possible. The overarching objective is to restore the insured to a place as if the damaging event had not occurred, to make the insured whole, not to give them a leg-up or a step-down.
The second item, suspension of operations, relates to the closing of the business and the rebuilding process after, if applicable. There must have been a suspension of the business’s operations, (which does not have to be a complete suspension, it can be partial), and that suspension must have been necessary as a direct result of the covered event. The recent government mandates requiring restaurants to close or drop to 25% or 50% capacity is an example of this.
And the third box to tick, covered cause of loss, is as it sounds – the damaging event for which the business income loss is calculated and to which the loss is fully attributed, must be a covered cause of loss per the insurance policy.
A claim must satisfy all three items to qualify as a Business Interruption loss per an insurance policy. Here at Ahuja & Clark, our seasoned financial experts are equipped with the knowledge and experience needed to assist with business interruption loss claim calculations. If you are interested in a consultation or retaining us and our services, give us a call at (469) 467-4660.