Lezlee Liljenberg

Insurance Expert Witness

Business Interruption

All industries are exposed to Business Interruption – Business Income – (“BI”) losses. In simple terms Business Interruption can be viewed as “disability” coverage when physical damage (fire, windstorm, and flood) to its facilities results in interruption of normal business operations. BI coverage provides funds to replace “Net Income, and Continuing normal operating expenses, including payroll” (e.g. – profits, payroll, loan payments) during the business interruption. Extra Expense (“EE”) coverage is intended to pay for “[extra] expense during the “period of restoration”” The basic idea is to “minimize the suspension of operations” (e.g. – relocation, expedited freight, overtime, additional loan interest). BI/EE is sometimes referred to as Time Element coverage because it covers losses for the period of time required to resume normal operations.

BI/EE insurance policy forms and/or endorsements can be structured to insure claims resulting from:

  • Builders Risk soft costs
  • Off-premises utilities
  • Dependent properties
  • Extended Period of Indemnity
  • Loss of Rents

Customized policy forms may be required for BI/EE loss exposures such as Electronic media (Computers), International operations, Food Borne Illness, Dependent properties, and Seasonal variation.

BI/EE coverage is based on “forward looking” financial assumptions, projections and estimates at policy inception. Partly because of this, claims can be among the most difficult to settle. What would the Profit and Loss statement show had the loss not occurred? What is a reasonable “period of restoration”? How did a given “extra expense” item serve to minimize the business interruption?

BI/EE Coverage Issues

Since Property Insurance policies typically exclude Business Interruption and Extra Expense, coverage is added by endorsement or written separately. Policyholders might consider:

  • How long can we survive on reduced income of 25%? 50%? How long with NO income?
  • Where does the money come from to pay ongoing bills after a fire shuts down the business?
  • What ‘Extra Expenses’ will we have? How will we pay those ‘Extra Expenses’?
  • How do we calculate adequate limits of insurance for BI/EE?
  • Have we completed a Business Income Worksheet?
  • How long can we survive a Business Interruption before we are out of business?
  • Do we need an Extended Period of Indemnity?

BI/EE Claims

A relatively small $25,000 fire loss can result in a catastrophic $500,000 BI/EE claim. Without adequate “BI/EE” insurance, the majority of businesses fail to survive an extended period of Business Interruption.

Successful resolution of BI/EE claims depends on:

  • Properly structured BI/EE coverage forms and adequate limits of insurance.
  • Policyholders are obligated to make efforts to resume operations as soon as practical.
  • Carriers are obligated to investigate and attempt settlement of the claim in reasonable fashion.

Various tools and methods are available to document the claim, calculate amount of loss and expedite claim settlement:

  • Rent rolls pre-loss.
  • Hard-to-value items may be negotiated in good faith between the policyholder and carrier.
  • Segregated accounting for pre-loss and post-loss expenses.
  • Business Income Worksheets.
  • Specialized BI/EE accountants familiar with the nuances of BI/EE may be engaged by policyholder and/or carrier.

Ms. Liljenberg has dealt with BI/EE insurance from initial coverage design through final claim settlement. As an agent her experience includes advising clients with BI/EE coverage structure and claims. As an insurance expert witness she engages in various BI/EE issues. As a consultant, she is able to negotiate BI/EE claims with carriers. 

 

Our Experience with BI/EE Coverage

Ms. Liljenberg offers decades of experience with Business Income and Extra Expense coverage structure; representative client industries included:

  • Manufacturers
  • Property owners
  • Contractors
  • Distributors
  • Retailers / Wholesalers
  • Real Estate Investors

She is frequently engaged as an insurance expert witness to provide analysis and opinions on various BI/EE coverage and claims issues related to:

  • Business Owners policies
  • Loss of Rents
  • Dependent Properties
  • Coinsurance / Agreed Value
  • Agreed Value
  • Off-Premises Utilities
  • Extended Period of Indemnity
  • Business Income Worksheets
  • Ordinance or Law
  • Computers / Electronic Equipment / Media
  • Builder’s Risk “soft costs”
  • Inland Marine