Was Your Business Interruption Insurance Claim Wrongly Denied?

Navigating the aftermath of a disruptive event can be challenging for any business, especially when it comes to insurance claims. If your business interruption insurance claim has been denied, it’s important to understand why and to evaluate if the denial was justified. If not, you may have the right to take legal action against your insurer. Let’s examine how business interruption insurance works and what to do if your claim is unjustly denied.

What Is Business Interruption Insurance?

Business interruption insurance, also known as business income insurance or BII, is a type of insurance coverage that helps a business cover its expenses in the event that it is temporarily unable to operate due to a covered peril. This type of insurance is typically part of a commercial property insurance policy or a business owner’s policy (BOP). It’s designed to put a business in the same financial position it would have been in if no loss had occurred.

Typically, this insurance covers:

• Lost Income: The primary purpose of business interruption insurance is to compensate for lost income that occurs as a result of a business being unable to operate. This includes profits that would have been earned based on previous financial records.
• Operating Expenses: It can cover operating expenses that continue even when the business is not operating, such as rent, utilities, and employee salaries.
• Relocation Costs: It will typically cover expenses for moving to and operating from a temporary location.

This coverage helps maintain financial stability by covering lost income and expenses during an unexpected closure. It’s a crucial component of a business’s risk management strategy, providing a safety net in case of unforeseen events.

Covered vs. Uncovered Perils for Business Interruption Insurance

These policies typically cover perils such as fire, theft, wind, lightning, and other natural disasters. When disasters like these strike, the insurer agrees to protect the business’s expenses as dictated in the policy, up to the policy limits.

It’s important to note that each policy has a unique list of covered perils, and businesses must check their policy for specifics. Furthermore, several kinds of perils are almost always excluded from business interruption coverage, including:

• Flood and Earthquake Damage: These perils are often excluded from standard policies but may be covered under separate policies.
• Pandemics and Infectious Diseases: As seen in recent times, many policies exclude losses due to pandemics or infectious diseases. However, this can vary based on location and specific policy wording.
• Intentional Acts or Gross Negligence: Losses resulting from intentional acts or gross negligence by the business owner are not covered.
• Man-Made Events: The coverage for incidents such as vandalism, terrorism, or civil unrest can vary widely, so it’s important to understand your policy’s specifics.

Responding to Denied Business Income Insurance Claims

If a covered peril has seriously impacted your company, your BII coverage can help you remain operational. However, that requires making a successful claim. If your insurer denies this critical coverage, it can put your organization’s entire financial future at risk.

However, a denial is not necessarily the end of the story. In fact, in many situations, insurers deny or underpay claims that should be covered to save money. When this occurs, they are acting in bad faith, and you may have grounds to take legal action.

That’s why it’s important to understand the difference between justified and invalid reasons for BII claim denials.

Understanding Common Reasons for BII Denials

Insurers have no obligation to fulfill claims that are not covered by your policy. Some of the most common reasons a BII claim may be justifiably denied include:

• Policy Exclusions: As mentioned above, if your business was harmed by an excluded or uncovered peril, the insurer does not need to cover the claim.
• Lack of Direct Physical Loss or Damage: Insurers often argue that business interruption coverage is only triggered by direct physical loss or damage to the insured property. Disputes arise over what constitutes “physical damage.”
• Failure to Mitigate Losses: If an insurer believes that a business did not take reasonable steps to mitigate losses after a disaster, it may deny the claim.
• Inadequate Documentation: Insurers can deny claims if they deem the provided documentation of losses insufficient or incomplete.

Dealing With Potential Bad Faith

But what if your claim should be covered and it’s denied anyway? That’s when bad faith may be at play. Bad faith in insurance involves an insurer’s intentional refusal to fulfill its contractual obligations. This could manifest as unreasonable delays, lack of communication, unfounded claim denials, or failure to conduct a proper investigation.

If you suspect your insurer is not honoring your policy, you can take action. Here’s what to do first:

• Document Everything: Keep detailed records of all communications with your insurer. Document their responses, any delays, and your attempts to provide necessary information.
• Seek Legal Advice: Contact an attorney experienced in insurance law and bad faith claims. They can offer insights into whether your insurer’s actions might constitute bad faith and guide you on the next steps.
• Review Your Policy Thoroughly: Work with your lawyer to understand the specifics of your policy.
• Get a Professional Evaluation: Consult with an independent adjuster or a business interruption consultant. Their assessment can provide a counterpoint to your insurer’s evaluation.
• Formal Complaints: Your attorney may recommend you file a complaint with your state’s insurance department.
• Litigation: If all else fails, your attorney may advise you to file a lawsuit. A court can determine if the insurer acted in bad faith and award damages beyond the original claim.

Get Help From the Professionals

Having your insurance claim denied can be a serious problem, but not all denials are final. By understanding your policy, gathering the necessary documentation, and seeking professional advice, you can effectively challenge a wrongful denial. At Oksenendler Law, P.C. in San Francisco, our skilled attorneys are available to help you. We specialize in helping individuals and businesses hold insurers accountable for failing to uphold their policies. Schedule your consultation today to learn how we can help you pursue fair compensation for your denied BII claim.