Business Interruption Expenses
Business interruption is a form of commercial damage coverage that includes but is not limited to various torts and contract issues.
Business interruption occurs when the event affects revenue and/or cost. Profit is lost by the business due to factors such as:
- Natural disasters
- Movement from temporary sites to a permanent site, and/or
- Government actions causing it to cease operations.
In all of the events mentioned above, one thing is common. That is, while business is being interrupted or halted, expenses are mounting. In this scenario, the company bears the initial burden of the expenses. But insurance or litigation can help them get through this and also help in staying profitable. If the interruption to the business was caused by a third party, litigation would be carried out through subrogation to recover the losses. This could mean the insurer pays the claim initially then goes after the utility or other party who caused the loss.
Whether it is insurance, litigation, arbitration or settlement, covering your business interruption expenses can be challenging. We have handled the expert/calculation side of these type of engagements in valuing the losses/lost profits.
Many losses fall into three areas:
- Business interruption expenses were a result of a service interruption. This could be direct damage, physical loss, destruction to utilities, services, telephone, transmission lines, substations, equipment of suppliers of such services as well as related plants.
- Business interruption expenses were as a result of contingent business interruption. Here, the property damage to the receivers or suppliers is typically covered by the insurance policy.
- Business interruption expenses were as a result of restoration periods. This is based on the expenses incurred during the length of time that is required to replace, repair, or rebuild the damaged property, starting from the point the damage occurred.
In addition to the matter of recovering costs, extraordinary events/acts of god can affect the valuation of a business, either temporarily or permanently.