Who's Handling Your Claim? The Professionals Involved in a Business Interruption
Claim
June 2000
Gain a better understanding of the team the
insurer will use to handle your company’s business interruption claim and get
suggestions for who should be on your team.
by Daniel
T. Torpey
Ernst & Young LLP
In April 2000, a twister ripped through downtown Fort Worth, one of Texas’
proudest cities. Many risk managers were then faced with challenge of handling
their first major business interruption claim. Most had arranged adequate insurance
coverage, and now it was time to make sure they got their money’s worth. Those
who understood the claim process and the roles of the individuals handling their
claims also appreciated their insurers’ need for a well-documented claim submission,
which, in turn, helped them manage and ensure a smooth settlement process. This
article is intended to help you develop this level of understanding so that
you will be ready should a disaster like a twister ever spin through one of
your plants or buildings.
Immediately after a loss, your company will be introduced to the complexity
of restoring your business and the added complexity of documenting an insurance
claim. Claim documentation is imperative to obtaining a quick and fair settlement.
The business interruption claim often is not resolved immediately after the
incident, but rather after many months and sometimes years of analysis, document
gathering, meetings, and negotiations. The smooth process of using insurance
as a simple form of risk transfer is often burdened by discovery of supporting
documentation by a host of professionals.
After a disaster such as the Fort Worth tornado, you will be involved in
several areas of your company’s business, including attending meetings, dealing
with government officials and civil authority managers, meeting with government
building inspectors, environmental issues from asbestos, personal injury claims,
safety and health regulatory boards, and internal management meetings concerning
questions on what is covered and what is not. To help your organization form
a strong corporate team to deal with the claim, you must first understand the
team of people that the insurer will have at its disposal. This will prepare
you for “The Arrival” of the insurance adjuster’s team.
Professionals in the Business Interruption Claims Field
Years ago after a fire hit a furniture factory in Virginia, an insured remarked,
“Well, I know who the adjuster is and what he does, but I am not so sure about
those other seven people that he brought with him. Who are they? Who do they
work for and what are they doing here?” Here is a quick rundown of who may show
up at your doorstep with the insurance adjuster.
Insurance Agent or Broker. Brokers are independent
insurance professionals who assist in determining what coverage a client needs
and then “shopping” that coverage in the marketplace. Brokers tend to be large
international outfits providing a wide variety of services, sometimes including
claims settlement assistance. Some brokers tend to be independent in the claim
process; others advocate the policyholder’s position.
Insurance agents are legal agents of certain insurance companies whose policies
the agents sell. Similar to a real estate agent, they will often seem, even
to themselves, to be acting as a neutral party or for the insured, but in fact
are legally obliged to represent the insurer. In some states brokers are considered
agents.
Claims Adjuster. Typically this is an insurance
company employee, but sometimes it is an independent adjuster from an adjusting
firm. Although they use the term “independent,” the majority of their work comes
from the insurance company. Essentially, they work on behalf of the insurer
to investigate and settle claims.
Claims Manager/Examiner. This is a person at
the insurance company to whom adjusters report.
Loss Accountants/Auditors. For large physical
damage and especially for business interruption or fraud claims, adjusters usually
will retain outside accountants to assist in evaluating claims. For the most
part, these are normally smaller CPA firms that have no audit or other traditional
accounting practices. Traditionally they represent only insurers.
Engineers. On large or complex claims, adjusters
often will engage independent engineers to evaluate cause of damage, monitor
the costs of reconstruction, or estimate time or cost to rebuild. Like loss
accountants, they tend to work only for insurers and never for claimants. You
should look to match this effort with your own engineering expertise.
Salvers. Usually brought in by the insurance
company after a physical damage loss to salvage the destroyed property and sell
it for the insurer holding a percentage of the sales as a fee. A good way to
get a quick advance on a large claim is to have the salver make the check directly
to the insured and adjust the final claim settlement by the check amount.
Subrogation Attorneys. Attorneys that specialize
in the legal assignment of pursuing the “wrongdoer” that caused the loss. For
instance, if your factory burns down as a result of faulty work performed by
a contractor, the subrogation attorney will lead the effort to gather evidence
and identify the legal course of action to take, if any, against the contractor.
Never forget your company’s legal rights to recover potentially uninsured items
such as the deductible and other policy exclusions.
Cleanup Companies. To restore operations as
quickly as possible, insurers will hire or recommend that you hire a cleanup
specialist that will clean up the fire- or water-damaged area quickly and efficiently.
Other Specialists. Depending on the nature
of your business and loss, the insurance company may hire any number of technical
experts to help evaluate the cause and origin of the loss, the scope of loss,
preexisting conditions, and other items that may impact the claim valuation.
Insurance companies hire biologists, metallurgists, refinery experts, electricians,
industry experts, and all sorts of professionals to ensure the payable loss
is within the policy.
Assembling Your Claims Team
Now that you have met the adjuster’s team, you will want to make sure that
you have the needed expertise to address the questions and concerns that this
group of experts will raise. Many companies are now developing their own professional
loss team before an insured loss occurs. In the last few years, many U.S. insurers
have amended their policies to follow the approach—followed for quite some time
by U.K. forms—of paying for the policyholder to hire its own experts to help
prepare the claim. Check the wording on this endorsement with your broker. In
any event, here are the prospective members on your team.
Risk Manager. Employee responsible for managing
the insurance program. Duties are typically within the treasury, CFO, or legal
function. This role also can be one of defining all risk to a company, such
as financial and economic risks. Some call this holistic or enterprise risk
management.
Claim Accountants/Claims Consultant. Augments
the capabilities of policyholders’ in-house staff. These are generally Big 5
accounting firms with individuals that have claims experience. They work on
an hourly or fixed-fee basis and only represent policyholders.
In-House Counsel. An attorney who is an employee
of the company and oversees many of the legal transactions and lawsuits filed
against the company or suits filed by third parties.
Outside Counsel. Outside law firms that will
specialize in insurance coverage or litigation.
Coverage Attorneys. Attorneys that specialize
in this area of law. Also called “wording specialists,” as many attorneys now
help clients with the exactness of policy wording before coverage is finalized.
Financial Management. Be sure to include your
controller, treasurer, or CFO as a key resource within your company to be aware
of the financial aspects of the claim. Many items will need to be reviewed with
your financial management, such as cash flow of advanced payments, claim estimates,
accounting and tax ramifications of reporting the loss, uninsured items, long
term business recovery, and continued growth of the business.
Operational Management. For large companies,
site or plant managers may be duly included in the claim process as they are
the most knowledgeable about operations and how the business would have performed
had it not been for the loss.
Marketing. To mitigate your loss, you may need
to come up with some unique marketing concepts to maintain your customer base.
This should be a well thought-out plan that does not have negative long-term
impacts on your business. It is best to include the adjuster in your plans on
these items before marching forward on these decisions.
Government Regulators. Occupational Safety
& Health Administration (OSHA), the Food and Drug Administration (FDA), and
others.
Engineers. On large or complex claims where
rebuilding of a facility is needed, your company’s plant manager or engineer
may recommend a contractor to perform repairs or replace the facility. Be sure
to also address the ever-critical question of the estimated rebuild time based
on your insurance contract, which probably will insure you for replacement coverage
to rebuild the facility to a condition of like kind and quality before the loss.
Insurance Agent or Broker. Some brokers and
agents tend to be independent in the claim process; others advocate the policyholder’s
position.
If you need to hire outside experts, be sure to get references and find out
if they have worked on other similar complex claims. Call their references and
make sure you meet the actual people that will be doing the work and not the
“salesperson.”
Now that your team is formed, you should meet to determine what level of
activity is expected from each group. You should also establish points of contact
with the insurance adjuster so that information flow is controlled by one or
two contacts on your team. In other words, the insurance adjuster should use
the risk manager or broker as a direct contact, while the insurance companies’
accountants can contact your claim accountants or controller directly. You should
obtain an agenda or objectives from the adjuster and their expectations before
any meeting so that your company is properly prepared with the proper expertise
at the meeting. Minutes to meetings are often prepared for many large, complex
losses that are expected to go on for several years. This is a helpful tool
when new players come on board or agreements need to be revisited.
Common Goals
Believe it or not, the insurer has many goals in common with you. You both
want to mitigate your loss, return normal operations as quickly as possible,
and resolve the claim in a reasonable period of time. All this should be done
while maintaining positive professional relationships with all who are involved.
An insurance company’s best salesperson is a happy customer.
Now that you have assembled your claims team and met with the insurance company
and its representatives to agree on your common goals, you should look to develop
a timetable to identify the key tasks in the claim process over the next few
months. One of the first items you will work on is an initial loss estimate.
This will be an analysis that is important both for your insurer and your management.
This topic will be discussed in the next article of our Business Interruption
series.
Understanding everyone’s role in a business interruption claim is a good
starting point to begin managing expectations of those involved and the people
to whom you report within your company. Like any large business transaction,
it is important to have a well thought-out plan with industry experts by your
side. Knowing who is going to be involved is a good place to start your plan.
Now you should be able to answer the question, “Who’s handling your claim?”
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.