Canada

How to support clients with business interruption insurance claims

ARTICLE  | 

This article was originally published by The Lawyer’s Daily, part of LexisNexis Canada Inc.

The Maritimes are still recovering from the damages caused by Hurricane Dorian, which approached the region as a category 2 hurricane in September. Over 450,000 residential and commercial properties incurred property damage and lost power in Nova Scotia, New Brunswick and Prince Edward Island.

Many of the affected business owners likely accessed their insurance policies to see if they had business interruption coverage that could help them recover any losses during the period of interruption.

Given the complexity of insurance policy wording and the range of coverages available, it may not be easy for a business owner to know the extent of coverage available or even if it makes sense to submit a claim. In some cases, losses for a short duration can be significant to the overall profitability of a company and investigating whether to make an insurance claim is a worthwhile endeavour.

As climate-related business interruptions — such as the ones described above, as well as fires and floods — may become more prevalent, this article aims to help showcase what lawyers need to know to help their clients navigate the world of business interruption insurance, with the support of a forensic accountant.

Outside assistance

Clients may have concerns around the costs associated with bringing in outside legal or accounting expertise to help support the claim. Many business interruption policies include coverage for professional fees, which allows a policyholder to engage their own expert to assist with measurement of their claim for business interruption, stock loss, extra expense and other covered losses.

When choosing a forensic accountant, clients should look for a professional who has experience in quantifying business interruption losses and has a track record of preparing defensible reports for the industry in which your client’s business operates.

In general, engaging a forensic accountant early in the claim is ideal so they can assist with gathering and organizing information to file a claim, and can act as a supporting liaison with the insurance carrier’s forensic accountant.

Profits, losses calculated

The insurance policy will dictate the appropriate measurement of the loss. The steps typically involve:

  1. Determining the loss period;
  2. Projecting sales during the loss period that would have occurred but for the incident;
  3. Deducting the actual sales in the loss period, if any, to determine the sales shortfall;
  4. Determining the rate of gross profit earned on the sales shortfall;
  5. Adding any increase in the cost of working (costs incurred to reduce/mitigate the loss); and
  6. Deducting any saved expenses.

Business interruption case law

Several cases have shed light on various issues that may arise in the business interruption claims process. A few highlights are listed below for further reference:

  • Boyce v. Co-operators Insurance 2013 ONCA 298: Limitation period for business interruption claims.
  • J.I.L.M. Enterprises & Investments Limited v. Intact Insurance 2017 ONSC 357: Insurance carrier’s delay in paying out a building loss claim.
  • Pereira v. Hamilton Township Farmers Mutual Fire Insurance Company 2006 12284 (ON CA): Arson allegation by insurer with various allegations of denial including material misrepresentation as to status of business activities.
  • Le Treport Wedding & Convention Centre Ltd. v. Co-operators General Insurance Co. [2019]
  • O.J. No. 2595: Claim denial due to interpretation of Trial Judge; decision is under appeal. Fletcher v. Manitoba Public Insurance Co. [1990] S.C.J. No. 121: Insurance broker’s negligence.
  • Walsh v. Nicholls (2004), 273 N.B.R.(2d) 203 (CA): Potential personal liability of adjuster as a consequence of breach.

Experiencing a business interruption, with a consequent loss of income and unexpected expenses, can be a stressful time for any business owner or manager. Having to deal with business interruption insurance can add to that stress — so it helps to have a qualified professional, who is experienced in this area, to help clients get back to normal.

AUTHORS


Subscribe to our newsletters

Subscribe


HOW CAN WE HELP YOU?

Contact us by phone +1.855.420.8473 or submit your questions, comments or proposal requests


Related Resources


Events

IN-PERSON EVENT

In-Person Events

We proudly sponsor and participate in events that provide innovative ideas and opportunities for you to improve and grow your business.

LIVE WEBCAST

RSM US presents: 2019 year-end close best practices in NetSuite

Hosted by RSM US, this annual NetSuite year-end webcast focuses on year-end processing and includes a Q&A session happening on December 10.

  • December 10, 2019

IN-PERSON EVENT

Fall Education Series: Tax Talk 2019

Please join our Calgary office for two interesting breakfast seminars in December highlighting tax updates and financial reporting updates. 

  • December 10, 2019

IN-PERSON EVENT

CPA's Not-for-profit forum 2020

Ryan Duquette, partner, will be speaking at CPA Canada’s 2020 not-for-profit forum from February 10 – 11, 2020.

  • February 10, 2020