Hurricane Michael has impacted the future of thousands of Florida businesses. Most businesses with be overwhelmed not only by the disaster but by the flood of paperwork and the complexity of an insurance claim. Understanding your policy and what is and is not covered can seem overwhelming. Fortunately, at the Hurricane Law Group, we specialize in helping business recover from hurricanes and understand your needs and how to help you focus on your business, not your insurance claim. Below is an overview of Business Interruption insurance, but we would welcome the opportunity to meet and see if we can help your business recover.
Business interruption insurance is designed to help your business financially recover from the storm and quickly regain operations with minimal financial impact. This includes the loss of income that your business suffers after Hurricane Michael and allows your business to recover profits that it would have earned. The goal is to place the business in the same financial position it would have been if the hurricane had not occurred.
Business interruption insurance differs from property insurance that covers the physical damage sustained to the property, building, personal property, contents and inventory. Most commercial property insurance policies have coverage for business income loss after a catastrophic disaster such as Hurricane Michael. The policy usually contains an endorsement that is an addition and extra layer of protection to the business above the owner’s underlying policy. Generally, business interruptions insurance usually covers:
- Profits your business would have earned
- Rent or lease payments owed to your landlord
- Fixed Costs includes operating costs still being incurred by the business
- Employee wages payroll while you’re unable to operate
- Taxes owed by the business
- Loan Payments
- Relocation to Temporary Location expenses incurred to move to and from and potentially rental reimbursement
- Additional Reasonable Expenses to continue operations while the property is being repaired from the covered peril that the business would not have been subjected to but for the loss
- Government Closure Expense caused to your business due to forced closure from government based on curfews and street closure
A policy often reads:
We will pay for the actual loss of business income you sustain due to the necessary suspension of your “operations” during the period of “restoration.” The suspension must be caused by the direct physical loss, damage, or destruction to property. The loss or damage must be caused by or result from a covered cause of loss.
Every policy will contain a definition of the terms in bold above. Typical definitions of the terms are explained below:
Actual loss. The income loss must be caused by a direct physical loss or damage to the insured’s property by a covered peril such as Hurricane Michael. Direct physical loss means the actual loss sustained after your interruption in business.
Business income: This income is the net income that results from a complete or partial suspension of operations.at the business premises.
Period of restoration: Insurers are liable for the loss of business income only during the period of restoration, which is often defined as the length of time required to rebuild, repair, or replace the damaged or destroyed property. The period of restoration begins when the physical loss or damage occurs; it ends when the property should, with reasonable speed, be repaired or replaced.
The time period your insurance coverage will provide depends on the applicable policy limit contained with the actual policy. This coverage typically extends from 72 hours or a similar waiting period after a covered loss such as Hurricane Michael until (1) the date when the premises should be repaired, rebuilt; or replaced with reasonable speed and similar quality; or (2) the date when business is resumed at a new permanent location.
How to Prove and Calculate your Loss
The payout amount from your carrier for a business interruption loss involves establishing what the business would have earned had the loss not occurred. Insurance companies consider past tax returns, profit and loss statements, projected sales and non-continuing expenses. Accurate records help your business file a successful claim and prove your projected loss to your carrier for the time it takes to restore your physical operations.
Each insurance policy dictates how to calculate your loss. Normally, your loss will be based on:
(1) Proof of your net income of the business before the direct physical loss or damage occurred;
(2) Proof of the business operating expenses
To recover lost profits, there must be an ongoing business with an established sales record and proven ability to realize profits at the established rate…. Proof of actual profits for a reasonable time prior to the loss is required to establish lost profits. A business needs to establish its claim with credible and reliable documentation.
Forensic accountants are often retained to help prove your projected revenue losses using:
- budgets & adjusted budgets
- business applications for a loan (with start-up business)
- 10K filings forecasts
- run rates or pre-loss averages, including for the prior year
- percentage of market share
- other independent variables
- financial data for comparable businesses not affected by the loss
- application for policy of insurance
Your Responsibility after a Loss
After a covered loss, the business has a contractual obligation under the policy to mitigate damages. This means a business must take reasonable measures to try and minimize or avert losses to avoid unnecessary losses. Mitigation efforts include but are not limited to: keeping business records in a safe and dry place; and attempting to dry out and remediate the property to avoid delayed closure, Failure of a business to mitigate a loss may affect payment from the carrier of business interruption loss.
Business Interruption Exclusions
Every policy has exclusions and limits that affect your coverage. If a non-covered event such as a flood keeps your business from operating, the carrier is not obligated to pay, unless you have a flood insurance endorsement as part of your policy.
Your Business Income Insurance policy usually won’t provide coverage for:
- Utilities service such as electric and water
- Undocumented Income you must have documents to show past revenue, so the insurance company can compensate you adequately.
- Partial closure. If access to your business is limited from property damage, but you are still able to operate and remain open for customers.
- Uncovered loss causes your closure. ie. flood or you voluntarily close when you would be able to operate.
- Closures from downed power lines. If a storm or accident results in downed power lines, most closures are not covered.
To protect your rights and navigate the terms of your insurance policy and obligations after Hurricane Michael it is important that you hire a team that looks out for your interests and are capable to maximize your claim recovery. The attorneys at HLG are experienced and knowledgeable to fight for your rights against the insurance industry and we will do our best to help put your business back on track after Hurricane Michael.Read More
The majority of hurricane damage cases at our firm concern repair versus replacement of tile roofs. In many cases insurance carriers attempt to force homeowners to use mismatching roof tiles in an effort to avoid paying for a complete roof replacement and instead attempt to pay for a minor repair. Fortunately for Floridians the law is on the side of the policyholder and policyholders do not need to settle for mismatching repairs.
As background, it helps to understand a little about roof tiles. All roof tiles are not made alike. In fact, every roof tile has a unique shape and locking mechanism. The best way to think of roof tiles is like children’s blocks, where only the same brand and same size will fit together.
Over time, manufactures modify the design of roof tiles and stop making old models. For older homes, this means that tiles that are the same shape and size are not available for a repair. Thus, there is no way to fix a roof and the only option is replacement. In fact, making repairs with tiles that are not a proper mechanical fit is a safety issue and these improper repairs can quickly fail in a wind event. Due to this widespread problem, the Tile Roofing Institute published a list of obsolete roof tiles (click here for TRI letter). If your tile is on this list you may have been entitled to a complete roof replacement by your insurance carrier.
Thus the $64,000 question is why did my insurance carrier not pay for a complete roof replacement and only pay for a repair? The short answer is money. We believe that after Hurricane Irma insurance carriers underpaid roof claims in Florida by between $500 million and $1.5 billion. It is easy to see that insurance carriers have significant financial incentive to underpay your claim.
The good news is that the law in Florida is on your side. Florida Statute Section 626.9744 provides in pertinent part:
When a loss requires replacement of items and the replaced items do not match in quality, color, or size, the insurer shall make reasonable repairs or replacement of items in adjoining areas. In determining the extent of the repairs or replacement of items in adjoining areas, the insurer may consider the cost of repairing or replacing the undamaged portions of the property, the degree of uniformity that can be achieved without such cost, the remaining useful life of the undamaged portion, and other relevant factors.
This is often referred to as the Florida Matching Statute and it protects homeowners in Florida. Floridians do not need to settle for mismatching roof repairs. Not only can it be a construction hazard, it also diminishes the value of a home.Read More
One of the questions that I am asked the most is how long will it take to resolve my hurricane claim? Unfortunately, there is no easy answer to this question. A new claim typically takes 60 days from the date of submission. A supplemental claim typically takes 90-120 days from the date we are hired. Mediation and appraisal claims usually take 4-6 months and litigation claims average 18 months. Thus the process can be lengthy. Now I assume that you are totally lost, so let me explain.
The initial claim is just as it sounds. It is when you first notify your insurance carrier that you would like to make a hurricane claim. Typically a carrier will take 60 to 90 days in settling your claim (fingers crossed).
Historically claim supplements were designed for additional items that were not or could not have been noticed at the time of inspection. A good example of this is that you notice that you need to replace wood sheathing after you tear off your tile roof. There was no way to visually inspect the sheathing until the tiles were removed.
After a hurricane, supplemental claims mean something else. In most cases, a supplement is correcting mistakes that were made by an inexperienced insurance adjuster. For example, an inexperienced carrier adjuster paid to make a small repair to a tile roof, without looking to see if that repair could be made. At the Hurricane Law Group, we often file claim supplements in order to correct these mistakes and in an attempt to resolve claim disputes quickly and easily.
Mediation is an informal way to resolve a claims dispute with your insurance carrier. Mediation is administered by the State of Florida and paid for by your insurance company. In mediation, you get the opportunity to try to settle your dispute with the carrier by sitting across the table from them and explaining your differences.
Mediation is non-binding. Neither you nor your insurance company has to reach an agreement at mediation. However, if you do it is a binding agreement.
Appraisal is very different than mediation. It is a form of binding arbitration and is designed to resolve valuation disputes between you and your carrier. In short, the policyholder names an appraiser and the carrier names and appraiser. If they can agree on an amount of loss, then the claim is settled and the amount will be paid. This closes the claim.
If the appraisers can’t agree on an amount then a neutral third party named an “umpire” will listen to both appraisers and make a determination as to the loss. This amount will be binding.
It is important to note that not all insurance policies require an insurance carrier to go to appraisal. After Hurricane Wilma, many insurance companies found that policyholders (and their public adjusters) were using the appraisal to dramatically increase the amount of money that their claim was paid. In order to avoid this process and having to pay out claims, many carriers removed appraisal from their policy or at a minimum gave them the option to decide if they want to appraise a claim.
At the Hurricane Law Group, our goal is to try to resolve claims without litigation. Unfortunately, carriers do not always want to pay the full and fair value of a claim and policyholders have no option but to file suit. The litigation process can be can be time-consuming, but the good news is that in Florida for almost all of our clients, the insurance carrier will pay your legal fees if we are successful. This means that in most cases, the policyholder does not pay anything in legal fees.
I hope that this helps. Please feel free to email me email@example.com or call me at 1-833-348-7742 should you have any questions or wish to discuss your claim.
Paul Berger, Managing AttorneyRead More