The recent fires in Los Angeles have left many businesses grappling with significant disruptions. For business owners, navigating the aftermath of such a catastrophe often includes understanding how their insurance policies, particularly business interruption (BI) coverage, can provide financial relief. This article will highlight key considerations for those impacted by the fires, share lessons learned from claims experience, and offer guidance on how to maximize recovery under BI policies with your outside legal counsel.

What Is Business Interruption Insurance?

Business interruption insurance is included in many commercial property policies, and is designed to compensate businesses for lost income and ongoing expenses when operations are disrupted due to covered perils, such as fire. This coverage often includes:

• Lost Profits: Based on historical revenue data and projections.
• Fixed Expenses: Such as rent, utilities, and payroll.
• Extra Expenses: Costs incurred to mitigate the interruption, such as relocating operations or renting temporary equipment.

Key Considerations for Businesses Affected by the LA Fires

1. Policy Review and Triggering Coverage: BI coverage is typically triggered when a direct physical loss or damage occurs to insured property, rendering the premises unusable or significantly impairing operations. Business owners should review their policies to ensure the fires qualify as a covered peril. Pay particular attention to definitions, exclusions, and endorsements that might impact coverage. Be sure to understand what types of expenditures may require pre-approval by the insurer to be reimbursed.
2. Documenting Losses: Accurate documentation is critical to a successful BI claim. Businesses should:
   • Compile financial records showing pre-loss income and expenses. You will need last year’s records to compare to the current year.
   • Keep records of canceled contracts or lost sales opportunities.
   • Document any extra expenses, including any additional payroll expenses, incurred to resume operations.
3. Coverage: Many BI policies include coverage for losses resulting from actions by civil authorities, such as evacuation orders or road closures, even if the business itself was not directly damaged. This is particularly relevant for businesses in areas near the fires that were forced to close temporarily.
4. Contingent Business Interruption (CBI): Some policies offer contingent business interruption coverage, which applies if a business suffers losses due to disruptions at a supplier’s or customer’s location. If your operations rely heavily on third-party suppliers or customers in fire-affected areas, CBI coverage may be a critical component of recovery.
5. Time Limits and Waiting Periods: BI policies often include waiting periods before coverage begins, typically 48 to 72 hours. They may also have limits on the duration of coverage, such as 12 to 24 months. Understanding these provisions is essential for managing cash flow and expectations.
6. Navigating Exclusions: Common exclusions in BI policies may complicate claims. For example, policies might exclude coverage for smoke damage unless explicitly stated. Due to recent changes to the California insurance market, some policies may also exclude losses related to wildfires in high-risk areas. Business owners should consult an insurance coverage attorney to interpret these exclusions and determine whether they apply.
7. Coordination with Property Damage Claims: BI claims are often tied to property damage claims. For example, BI coverage may be available during the repair or reconstruction process. Don’t delay in moving forward with repairs or reconstruction, or your BI coverage could run short. In addition, insuring your property damage claim is well-documented and comprehensive can strengthen your BI claim. The two are interconnected, and inconsistencies between them can lead to delays or denials.

Common Challenges and How to Address Them

Insurance companies often scrutinize BI claims, looking for reasons to reduce payouts. Some common challenges include:

• Disputes Over Calculations: Insurers may challenge your revenue loss projections or claim mitigation efforts. Engaging financial experts can bolster your claim.
• Delayed Payments: Insurance companies may delay claims processing. Working with experienced counsel can help expedite the process.
• Coverage Denials: If your claim is denied based on exclusions or policy interpretations, legal representation can be crucial in negotiating with your insurer or pursuing litigation.

Take Action Quickly

Time is of the essence when dealing with BI claims. Many policies include strict deadlines for notifying insurers of potential claims and submitting required documentation. Promptly reporting your claim and consulting an experienced attorney can help preserve your rights and maximize recovery.

Conclusion

The fires in Los Angeles have underscored the importance of business interruption insurance for mitigating financial losses. While these policies can provide a lifeline for affected businesses, navigating the claims process is often complex and fraught with challenges. By understanding your policy, documenting your losses meticulously, and seeking legal counsel when needed, you can position your business for the best possible recovery.

If your business has been impacted by the LA fires and you have questions about your insurance coverage, drop me a line, I’m here to help.