A claim that is backed by objective, verifiable, evidentiary support can help create greater consensus among all parties and streamline the overall claim process.
Business interruption claims involve a variety of calculations that revolve around the question: What would have happened had the loss not occurred? For instance, "What revenues would have been realized given prevailing market conditions?" "What operating expenses would have been incurred?" The answers to these and other questions typically involve projections of future results (beginning after the date of loss) based on actual results of the past (also incorporating projections of future market conditions and numerous other factors). To the extent possible, all of these projections and calculations need to be supported by objective, verifiable, evidentiary support.
Objective, verifiable, evidentiary support refers to information that a third party, such as the insurer and its representatives, can rely on as solid support for the calculations and projections of lost earnings and extra expenses. The burden of proof for providing this support rests with the policyholder. In light of this, the policyholder and all of its representatives need to use "due diligence" in preparing the claim.
In this context, due diligence involves using all sources available to prepare a claim that is objective and verifiable. A good question to ask is, "Will the information and supporting documentation I'm providing satisfy the scrutiny of discerning third parties, beginning with the insurer and its representatives?" A primary goal in this regard is to transform any potential "forensic skepticism" into confidence and support.
The numbers in a well-prepared and documented business interruption claim can be verified back to their sources, such as the general ledger, financial statements, tax returns, vendor statements, customer orders, letters from customers, market forecasts from external sources, and other verifiable sources. Individuals preparing a claim should ask the following kinds of questions:
Not surprisingly, disputes between insurers and policyholders relating to business interruption claims often surround the more ambiguous issues versus the "black and white" numbers. Some examples include period of loss (period of indemnity), projected revenues had the loss not occurred, and projected expenses had the loss not occurred, to name a few. The common element is that all of these items are typically based on methodology and assumptions that can be subject to interpretation.
The policyholder and its advisers are well advised to put a good deal of effort into documenting and supporting all assumptions and methodologies utilized throughout the claim. For example, a hotel claiming lost revenues might include support from third-party industry forecasts for its specific market to support projected average daily rates and lost room nights.
Other more general examples of objective, authoritative, third-party-type support might include:
It also pays to go the extra mile in writing clear explanations about all events surrounding the loss, claim methodologies, and assumptions. Insurance company claims adjusters and their experts greatly appreciate a well-explained and documented business interruption claim. It provides greater confidence in the claim and paves the way for a more harmonious and timely review and settlement process.
In conclusion, the burden of proof does not have to be a "burden" when seen in a different light. By applying a standard of strong documentation and verification in all aspects of the claim, great efficiencies and effectiveness can be realized. The end result should be a claim that more accurately reflects the loss of earnings and extra expenses as defined by the policy and one that is well supported by all parties involved.
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