Business interruption claims assessment for property owners


The pandemic has not prevented fires, floods, looting and other property damage, as well as an increase in cyber attacks from impacting businesses that have continued to operate over the past year. (Photo: Ezume Images /

The COVID-19 pandemic has certainly created difficulties and presented obstacles for every man, woman and child. Persistence, determination and innovation are the abilities that have kept us all afloat, especially businesses, over the past 15 months. The pandemic has undoubtedly affected all industries and some niches selected for the best.

Take the real estate market, for example. While some landlords continued to collect their rent through no fault, others had to create ways to hopefully collect all rents owed before the tenant moved out, usually offering additional consideration / discounts for renewals. and by addressing the previous unpayable rent due / lost at the end of the lease.

For restaurants, delivery and area expansion have become an absolute necessity. Many cities have imposed drastic capacity restrictions, leaving the smartest companies to figure out how to occupy sidewalks and parking lots in an effort to increase square footage.

The pandemic, however, did not prevent fires, floods, looting and other physical property damage, as well as an increase in cyber attacks from impacting the businesses that were able to keep it going through the year. elapsed. As such, the post-pandemic operational history is very important to consider when evaluating a business interruption or business income (BI) claim.

Some scenarios with contrasting considerations:

  • Simple and traditional lost rent claims are paid as if COVID-19 did not exist – the lease compensates the landlord. Thus, the contract should be maintained (until the indemnification of the insurance contract, which is generally 12 months plus some allowance for an extended period or “ramp-up”).
    • However, if the insured / landlord granted rent reductions during the pandemic without a definitively documented end date, there may be justifiable reasons to consider reducing the loss of gross rental income by an applicable amount in proportion.
  • Some companies, such as buffets, have switched to “per plate” pricing, which has nearly doubled historical profit margins;
    • Others have turned to and become very dependent on delivery (eg Uber Eats, GrubHub, etc.).
      • Such a move financially resulted in a drop in the internal payroll, but a similar expense for delivery costs.
    • Others have increased their seating positions and their respective capacity by absorbing sidewalks and / or parking lots.
    • While others have only done 50% of what they did before COVID-19, not least due to capacity restrictions.
      • We note that Miami’s restrictions have been much more lenient than those of New York and Los Angeles.
  • Hotels, especially in New York and other tourism dependent places, are in dire straits;
    • While others have managed to maintain themselves by accepting occupants quarantined by COVID_19.
  • Manufacturers will need to document high usage (minimum capacity) at the time of loss, to justify the alleged lack of sales revenue.
    • Key customers and support for purchases through sales orders will be important documentation to have on hand.

When evaluating a BI claim, traditionally, the financial history over a period of 12 to 24 months would be evaluated. However, due to COVID-19, many deviations from historically “normal” operations exist across industries, as previously noted.

Even further:

  • The timing of the loss event is also very important. There is less certainty as to when a loss occurred in March 2020, as opposed to one that occurred in September (six months later). Simply, there is more post-COVID financial information to consider.
    • A detailed analysis of the operational history before and after COVID will indicate the most likely results;
    • Additionally, depending on the industry, there may be third-party market reports that may also provide information and provide a deeper understanding of the impact of the pandemic on a particular business, industry, and geography.

Another key consideration should be the extent of the damage and was the entire location affected by the disaster or only part of it (e.g. hotels, real estate, restaurants)? If only a part, we affirm the need for careful and reasonable consideration of the remaining operation, post-loss and post-COVID.

For example, we suspect that a restaurant that has lost half of its seating capacity would earn roughly double what it would have “if the loss had not occurred”. The next issue that should be considered at this point is capacity or occupancy, both after the loss and after the pandemic. On the other hand, the loss mitigation potential should be assessed, if less than 100% of the capacity is maintained by the remaining part of the business.

Another complication is the delay in repairs. What used to take six to eight weeks to repair can now take months due to high demand for hardware and other logistical challenges introduced by COVID.

What questions should adjusters ask themselves? Here are a few to consider:

  1. How has COVID-19 impacted your economic model and your respective revenues?
  2. Are there possibilities to mitigate the loss by opening an additional location?
  3. Will the shipping costs for repairs be covered by the additional expenses?

Having a clear understanding of how the business has been affected by the ensuing peril will help ensure that an investigator has a complete financial picture of the claim.

Anthony Natole, CPA, ([email protected]) is the Managing Director of Risk Accountants LLC and has over a decade of experience in risk accounting and claims investigations. He has reviewed hundreds of claims for insurance companies and served as an expert witness.



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