Policy Wording Critical To Assess Businesses Interruption Claims Over Coronavirus

 Wednesday, February 26, 2020

 Insurance Business

The coronavirus outbreak has provided a textbook example of just how complicated insurance can be. Businesses around the world, especially those that deal heavily with China, are desperately trying to work out whether they can file successful business interruption claims for losses in revenue tied to the public health crisis.

But as many insurance brokers and corporate risk managers have quickly discovered, business interruption insurance is far from straightforward.

There are two methodologies commonly used when evaluating business interruption claims.

As explained in an IRMI.com commentary by Paul Haynes, manager of forensic valuation litigation services at ParenteBeard LLC, the gross profit / receipts method is a ‘top-down’ calculation that finds “the difference between lost sales and the expenses saved as a result of not earning the lost sales.”

Meanwhile, the net income method is a ‘bottom up’ calculation that “starts with an insured’s or claimant’s loss period net income and adds back the expenses that continued during the loss period.”
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