That’s because there are more types of damage that businesses can suffer from a fire. Of course, there’s the physical damage to buildings and property. But then there are also business-specific valuations, which can include:
- Interruption to your supply chain;
- Loss of inventory;
- Closure due to government action;
- Inability of customers to reach your business; and
- Loss of expected profits.
For example, many vineyards in Napa and Sonoma Counties suffered significant fire damage. While insurance coverage for destroyed buildings such as homes and tasting rooms are fairly straightforward, insurance coverage for variables like damaged grapes or spoilt wine, aging in barrels, is more complicated.
Understand Your Insurance Company’s Reporting Requirements.
Your business insurance policy most likely has specific—and strict—"reporting requirements,” or what you are required to document and submit to your insurer in support of your claim for damage. If you fail to meet these reporting requirements, including all of the related deadlines, it could constitute your forfeiture of coverage and your insurance company could deny your claim.
The reporting requirements applicable to you should be outlined in your property policy. Typically, these requirements mandate the submission of your “Proof of Loss”—your documentation of all damaged and destroyed property, as well as intangible business losses—within a specified period of time. Although the Proof of Loss form must be established by you, the policyholder, you can and should seek help from others with expertise.
Know Your Deadlines.
Deadlines for submission are certainly part of your policy’s reporting requirements. Be sure to document your deadlines clearly, and if you’re uncertain about deadlines, contact your insurance company for confirmation of the deadlines in writing.
You should always meet these deadlines, as a failure to meet a submission deadline could result in your claim being denied. But if you’re struggling to meet the timeline, contact your insurance company before the deadline hits. Many insurance companies routinely grant extensions for deadlines—but you have to request an extension beforehand.
Document Your Physical Property Damage.
When it’s safe to return to your physical business site, be extremely thorough in your documentation of the physical damage. Most claims for business interruption require a direct physical damage or loss to your business property.
You can document this physical damage through a written, detailed Proof of Loss form, in which you should itemize in detail each piece of property that was damaged or destroyed. Include as many specifics as possible, including:
- The make, model and year of equipment and machinery, including computers, factory machinery and vehicles;
- The count, description and status of all inventory that was damaged or destroyed;
- Manufacturer’s information regarding furniture, supplies, and other materials; and
- Detailed reports of damage to your physical structure, including office buildings, warehouses and manufacturing sites.
Be sure to supplement your written description with photographs and videos, which can provide pictorial documentation to support your claims.
Document the Cessation of Your Business Operations.
If you’ve had to stop your business operations because of the fire damage, then you will want to submit a claim for business interruption coverage from your insurance company. Business interruption claims cover the loss to your business when you are forced to cease your operations.
A claim for business interruption coverage from your insurance company almost always requires that you show a “suspension” in your business’ operations. This suspension can be temporary, but it must be a complete stoppage of your business activity. Although some business insurance policies define “suspension” liberally to include slowdowns in business, typical business insurance policies do not allow for recovery of losses for business interruption if your business has only suffered a slowdown in business, a reduction in your workflow, or the cessation of only a particular project or aspect of your business. The cessation of your business operations must be total, and it must be complete.
Identify, Locate and Preserve Important Business Documents.
In support of your claim for insurance coverage, you’ll need certain documents to help prove your claim. These documents include:
- Tax returns;
- Insurance policies;
- Documents showing business revenues and expenses;
- Documents showing the business’ five-year profit and loss;
- Sales, customer and supplier contracts; and
- Requests for proposal.
If these documents were left behind in the building and were damaged or even destroyed by the fire, you may need to recreate these documents by contacting outside sources, like the IRS for your tax returns, your accountant for financial documents, or your insurance company for your policy documents. Collecting and recreating these documents is a vital step to your recovery, but it can take time. Consider requesting an extension of your insurance policy deadlines if you need more time.
Understand your Period of Coverage.
Most business policies will only cover costs during the “period of restoration.” This usually starts at the time of the damage (in this case, the fire), and it extends through to either:
- when the property was actually rebuilt, repaired or replaced;
- a “reasonable time” by which a business, exercising due diligence, would need to recover, repair and rebuild; or
- when the business was able to relocate and resume business at a new, permanent location.
Sometimes, instead of the period of restoration, the policy will calculate time based on a flat, maximum period of time, such as one year from the damage. Consult your policy to determine what window of time applies to you and your recovery.
Identify Possible Areas of Financial Loss—And Recovery.
Next, identify the intangible losses and damage to your business operations, and consult your insurance policy to determine what intangible business losses are covered under your specific policy terms. These losses may include:
- Net Income Loss. Your policy may provide coverage for the loss of net income, or the profit that would have been earned if the fire hadn’t occurred.
- Continuing Operation Expenses. These expenses include the cost of continuing your business in the wake of the fire damage and during the interim recovery period.
- Extra Expenses. You’re probably facing additional expenses to your business that you normally would not incur had the fire not occurred. These can include cleanup costs, replacement costs for materials, machinery and inventory, relocation costs, increased labor costs and other additional operational costs that are a result of the fire.
- Loss Mitigation Costs. Identify the costs that your business incurred by your actions to mitigate your losses. Perhaps you prepared your business facilities for the fire, which included additional labor and materials. You may have acted to minimize your losses in the wake of the fire to try to get your business back up and running faster. Identify these costs and include them in your claim.
- Other Business-Related Expenses. Your policy may also provide coverage for other incidental costs of your recovery process, such as the cost of removing debris, cleaning up pollution and fire damage, protecting your electronic records and media, and additional rental and relocation costs.
- Professional Expertise Cost. Importantly, some business insurance policies consider that you need the consultation of experts when recovering your business from a disaster like these wildfires. Your policy may reimburse you for hiring professional recovery consultants, such as attorneys and accountants, who help you submit your insurance claim.
Pull Together a Trustworthy Claims Team.
One of the most important things to recognize is that you can’t handle everything on your own. Retaining a team of consultants with expertise in business recovery is incredibly important. This team can help you establish the cause of loss and the cost of replacement or repair, help with how to submit your claims to your insurer, help with expediting the recovery process, and maximize the amount you’re able to recover. You should consider engaging both attorneys and accountants with experience in submitting these types of business loss claims.
Surround yourself with experts who can help you consult the terms of your policy, identify and list your damage to report to your insurance company, and show that your business is taking all of the steps required to account for your damage, mitigate your losses, and rebuild your business within a reasonable time.
In many cases, insurance companies will attempt to deny coverage over small missteps or missed deadlines, or based on a disagreement of a subjective requirement in your policy. Unfortunately, this often leads to disputes about coverage and even litigation.
Our team of insurance attorneys is available to advise you through every step of the recovery and the claims process. We work alongside businesses large and small, to help them understand their policy terms, their rights to coverage, and the steps required to obtain coverage. Ultimately, we are here to help you protect your rights and ensure that you receive the maximum compensation that you and your business deserve.