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How is Business Interruption Insurance Calculated?

If your business has been negatively impacted by a major disaster or shutdown in operations, it is important to understand how your business interruption insurance policy works. This type of insurance is meant to restore a business to the same economic condition as it was before the interruption occurred. At Bentley & More LLP, our California business interruption insurance lawyers are here to help you through any situation, including properly calculating how much compensation you should be receiving. As COVID-19 continues to wreak havoc on businesses throughout California and the US, it is important to know how this insurance is calculated.

Proper calculation of business interruption insurance is vital

In the event you need to use business interruption (BI) insurance coverage, there will inevitably be a conflict between you and the insurance carrier. It is important to remember that insurance carriers are “for-profit” entities that do not want to pay out more money than they have to in a claim. While it seems straightforward for a business to ask for compensation for any losses they have incurred due to a halt in business, the reality is that the calculations behind determining a loss can become complicated.

Insurance carriers will closely scrutinize any information given to them by business owners concerning the amount of money they project to lose. The policyholder’s success in these situations is going to depend on understanding the “business interruption formula of insurance. In its most general form, this includes the following:

  • BI = T x Q x V
  • BI = Business interruption
  • T = the number of units (whether it be hours, days, weeks) that operations are halted
  • Q = the quantity of the goods normally produced or sold per unit of time mentioned in “T”
  • V = the value of each unit of production, typically expressed in profit

This formula may seem straightforward, but that is rarely the case. While calculating the time a business is shut down may not be a problem, it can be more difficult to determine the quantity of the goods that would normally be produced or sold while business operations are halted. This is especially true when demand for the good or service lost is unpredictable. Prediction can become speculative, and insurance carriers are going to push back when a company tells them that “they were having their best year ever.” There needs to be proof, usually in the form of market studies and historical data.

Once the total time of the shutdown is determined, and the quantity of goods lost has been established, the value of those goods must be examined. This can also be complex because the prices of goods and services change all the time. Again, this will rely on historical data as well as current market trends to calculate.

Let our attorneys help you with your business interruption case

If your business has experienced an abrupt stop in operations and you need to use business interruption insurance, it is vital to ensure you receive the correct amount of money. At Bentley & More LLP, our qualified and experienced team of Orange County personal injury attorneys is ready to get to work on your case today. The COVID-19 pandemic has completely altered the way businesses operate in the US and California, so understanding how this insurance is calculated it vitally important. When you need a California business interruption insurance attorney, you can contact us for a free consultation by clicking here.