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Calculating Your Business Interruption Loss Claim

A kitchen fire in the restaurant next door sweeps through and damages part of your shop. You learn that you will not be able to reopen for weeks. Even though the restaurant got the bulk of the damage, you will lose tens of thousands worth of revenue. In that case, you can file what is called a business interruption claim. It is really important to take your claim to a Hollywood commercial property insurance attorney to may sure that you get paid and you get the full amount owed to you.

What is a business interruption loss?

A business interruption loss is a loss that occurs because business was interrupted due to some event and the event causes a loss of revenue. The business interruption loss includes the money that was lost but also the cost of repairs to the physical building to get the shop operational again. The idea is that, once a company files a business interruption loss claim, it will be made whole. In other words, they will be in the same position that they would be had the incident not happened.

Business owners should own business insurance. One type of coverage is called business interruption insurance or business income insurance. This will help cover a business in the case of an unforeseen incident that negatively impacts a business’s profitability.

You will need to file a claim. A Hollywood commercial property insurance attorney can help maximize your reimbursement for losses.

Reasons for a Business Interruption Claim

 There are many reasons for a company to file a business interruption claim, but some of the most common are:

  •  Fire
  • Natural disaster
  • Machinery breakdown
  • Global pandemics such as COVID-19
  • Water Damage
  • Cyber Issues 

Calculating Business Interruption Loss in Florida 

There is a formula for calculating a business interruption loss. It is formulated as BI = T x Q x V

Don’t worry—you don’t have to be a math wizard to figure this out. BI stands for “business interruption.” T stands for time, meaning the number of hours or days that a business is shut down. Q stands for quantity, referring to the number of goods produced or sold during each unit of time. V stands for value, meaning the dollars associated with the sale of each good.

Time

Time is usually the easiest part of the element to determine. If your shop is shut down for ten days, then you would be looking at ten days worth of losses. But it may be a bit more complicated than that. Suppose the shop is operational again after ten days but only at 50%. It stays at 50% for a while because customers were confused and thought the shop was totally destroyed in the fire based on a news story. If that confusion lasts for another two weeks, that time element may not be limited to ten days.

Quantity 

Quantity can also be difficult to demonstrate. Most stores have enough business records to determine how much they would have sold or produced during the time the business was interrupted. But in other cases, there is unpredictable demand. Some industries, such as manufacturing, are highly variable and dependent on what is going on in other industries. For instance, if the company manufactures shampoo bottles, how much they would sell would depend on how much shampoo was produced during that time period. Depending on customer demand, that number could be up or down. 

Value  

Value can be fairly straightforward depending on the business. But prices can change depending on the market. For instance, let’s say that the fire hit a toy shop just before Christmas began. The items may have been sold for a higher price depending on higher demand. Or, if there were massive supply chain issues during the time the business became non-operational, the goods would have sold for higher. At the beginning of the pandemic, hand sanitizer sold for a much higher price because there was such high demand for it. Professional economic predictors may have to testify as to what a business could likely have gotten for their goods.  

What Can A Business Interruption Claim Do?

When you file your business interruption claim with a Hollywood commercial property insurance attorney, you can recover more than just revenue. Here are some other things that you may be able to get money for:

Payroll

Depending on how employees are paid, you may have to pay them regardless of whether the business is operational. That can get expensive in a hurry. 

Relocation costs

In some cases, a business will stay at its location before the incident. Sometimes this just is not possible. If a sinkhole opens up and a business goes into it, the business will have to be rebuilt at another site. It will cost money to get any remaining equipment into a new location. 

Loan payments

In order to get new equipment, or to pay for existing equipment, you may have to open lines of credit or pay existing creditors. 

Lease payment

If you are renting commercial real estate, you will need to still pay for the space. Even if a business is not closed for very long, those expenses will add up fast. 

Training costs

If your employees are now working in a new space, they may also be working with new machinery or have new processes. You will need to train your employees, which means that you will need to pay those employees for the training period. 

Problems with Business Interruption Claims

  1. They may say that they will only pay for part of what you are owed and not the full amount.
  2. They may not agree to pay extra expenses that you had to pay to get your business operational again.
  3. They may hire people who will intentionally underestimate the time lost and lowball how much money you would have made during that time.

It can be very difficult to get all the money owed to you, even when the insurance company follows the business interruption loss formula. This is why it is important to speak with a Hollywood commercial property insurance attorney as soon as possible.

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