Why Was My COVID-19 Business Interruption Insurance Claim Denied?

Insurers are denying business interruption claims related to COVID-19 for a number of reasons, citing policy language that excludes coverage for “natural disasters” and “acts of God”. In some instances, insurance companies might provide no explanation at all for denying coverage. While some business interruption claims related to COVID-19 may not be covered under business insurance policies, many are.

The attorneys at Biesterveld & Crook, LLC have years of experience fighting with insurance companies that deny coverage for valid claims. We review insurance policies, gather facts surrounding the loss, and use the courts to force the insurance company to pay every penny that is owed to their customers. Here, we explain the basic process for business interruption claims, starting with an overview of this type of business insurance coverage.

What Is Business Interruption Insurance?

Business interruption insurance is meant to replace lost income and pay for extra expenses when a business is affected by a covered risk. The specific risks covered are outlined in the business insurance policy, which will be very narrowly construed by the insurance company.

There is also contingent business interruption insurance, which provides compensation for the loss of income resulting from the interruptions suffered by a business’s vendors, suppliers, and/or consumers.

What Is Covered by Business Interruption Insurance?

Business interruption insurance replaces income lost in the event that business is halted for some reason, such as a government ordered lockdown. This type of insurance may also cover operating expenses, taxes, payroll and loan payments.

Business interruption insurance may cover losses for businesses forced to shut down due to “stay at home” or “shelter in place” orders related to COVID-19. Some businesses may also recover lost revenue due to the unexpected decline in customers.

In the context of COVID-19, many businesses suffered substantial losses as a result of government stay-at-home orders and a rapid change in customer behavior. Restaurants, beauty salons, and bars are some of the most negatively impacted businesses.

How Do You Handle a Business Interruption Claim?

Experienced insurance attorneys will help your company determine the total impact of a loss to your operations by comparing revenue before and after COVID-19 stay-at-home orders were issued by the government.

Your losses must be calculated and presented to your insurance company with a demand for payment. Calculating your business interruption losses involves looking at lost revenue, lost profits, and extra expenses. 

How Is Business Interruption Calculated?

Lost revenue must be calculated first.  This is to determine the “but-for revenue” amount, which is an estimate of earnings the business would have had if they could have remained open.  Various factors and variables go into calculating this amount such as seasons and trends.  The actual revenue is then calculated next.  This actual revenue amount is subtracted from the “but-for revenue” amount to give you a lost revenue total.

Lost profits are calculated next.  The business must determine their avoided costs.  These are the expenses that would have been incurred with the generation of its projected lost revenues.  Avoided costs can include both direct costs and variable costs.  The avoided costs amount is then subtracted from the lost revenue amount.

Finally, extra expenses are calculated.  Anything incurred during the period of restoration is considered an extra expense.  Businesses needing to adapt to COVID-19 guidelines should include those costs, such as installing plexiglass barriers.  The extra expenses amount is added to the previously mentioned figure from the lost revenue – avoided costs calculation.  This gives you your business interruption calculation.

Here is the formula:  But-For Revenue – Actual Revenue = Lost Revenue

Lost Revenue – Avoided Costs = Lost Profits

Lost Profits + Extra Expenses = Business Interruption Loss

How Can an Attorney Help with A Business Interruption Claim?

The insurance attorneys at Biesterveld & Crook, LLC help with business interruption claims by gathering the information necessary to prove the losses, dealing directly with the insurance company, and, if necessary, filing a lawsuit to preserve your rights.

If you or someone you know is dealing with a difficult insurance company, contact our office to let us take the stress off your shoulders.  Our attorneys are experienced at combatting problematic insurance companies.  Call our office or click here to set up your free initial consultation.


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