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“Business interruption is a big problem in this country,” said Christopher C. Loeber, partner, McCarter & English, LLP at the Innovation Hub at RIMS 2018 Annual Conference and Exhibition in San Antonio during his presentation, ‘Keep a sharp eye on your BI in the wake of a catastrophic loss.’
One in five US companies have sustained business interruption (BI) cost, he said to a packed room in one of the first sessions of the day. The average claim in recent years exceeded US$2m, with collective totals topping US$7bn.
Worried glances exchanged across the room. “That’s a very significant bottom line hit to American companies,” said Loeber. “The problem is that BI damages are less obvious and more complicated than property damage losses.”
Let’s say there’s an explosion and fire. There are no injuries, but there’s significant property damage – and even more significant BI.
In the immediate aftermath, says Loeber, this is what happens:
“All that sounds like it’s a pretty good plan,” said Loeber, “but the problem is, there are five pitfalls that could prevent you from maximising your insurance claim.”
These are the top five common mistakes risk managers can avoid:
You don’t have an insurance coverage lawyer on your crisis management team
“The reality is that most crisis management teams don’t have an insurance cover lawyer,” said Loeber. “That’s a huge issue, and here’s why.”
BI policies are complex, he said as he flipped through 18 pages of insurance jargon to prove his point, and understanding them takes valuable time away from crisis management. He said, “You need someone who in advance of the disaster has read the policy, knows the policy, and can tell you want you need to maximise your claim.”
Your press release directly undercuts the insurance claim
“Everything that you say in a press release is discoverable,” said Loeber. “You want to minimise damage, but whatever you issue in a press release can be used down the line by the insurance company, so you have to carefully vet your press releases and leave yourself a little wiggle room.”
That means using softer language like “It appears that…”
You fail to understand that not all communications are privileged
Cooperate, but don’t capitulate, said Loeber. “You have a duty to communicate with your insurance carrier, but not everything that you say should be communicated to your carrier,” he said. “Communications through a broker are not covered by privilege.”
You aren’t communicating effectively
“You have an obligation to communicate all of the information that the carrier needs, but you need to make sure that you’re not giving them information that can be used against you,” said Loeber.
You don’t have a forensic accountant
In most policies, insurers will pay for forensic accountants in claim preparation. “Forensic accountants are experts at the insurance policy itself,” said Loeber. “You can find niche practitioners who focus on BI losses after catastrophic claims.” Risk managers need to be sure to negotiate up front to bring in a forensic accountant.
