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After a Disaster: Filing a Business Insurance Claim
By Sylvia A. Ezenwa, JD 
Last month this column asked: Can your O&P practice survive a hurricane, flood, fire, earthquake, or other natural disaster? The article explained how to develop a disaster plan to ensure your practice is adequately prepared
before
disaster strikes, and capable of recovering quickly
after
it is all over. How quickly your practice recovers after a disaster will depend on your financial resources, and how effectively you can marshal those resources towards completion of all necessary repairs. Ideally, most of the money needed to repair or rebuild your practice will come from a business insurance policy, in which your insurance company offers a certain "
settlement
" as compensation for damaged business property and reimbursement of lost business income. In order to receive a settlement, you must first file a business insurance claim, describing each damaged item and what it is worth. This article details how to file such a claim, and suggests the kinds of business records that should accompany a claim as irrefutable proof of losses.
How to File a Claim
Step 1: Retrieve your policy
The first step in filing an insurance claim is to retrieve your policy. If the original document has been stored in a fire-resistant and waterproof safe on the premises, or in a bank safe deposit box off the premises, retrieval should be simple. If the original has been water-damaged or destroyed, call the insurance company for a duplicate copy.
Step 2: Review your coverage
Review the policy. Understand the kinds of insurance protection or "
coverage
" provided. Business owners policies (BOPs), often purchased by small and mid-sized businesses, generally include the following:
- Property insurance coverage. Pays to repair or replace any physical damage to a building and its contents caused by a covered disaster. Damage caused by floods and earthquakes usually is not covered.
- Business interruption insurance coverage. Reimburses lost income when a business temporarily shuts down as a result of physical damage to its original location caused by a covered disaster. Again, damage caused by floods and earthquakes usually is not covered.
- Liability insurance coverage. Pays litigation costs (e.g., damage awards, court and attorney's fees) of a business when a visitor to the premises suffers bodily injury or property damage from a dangerous condition or defect on the premises.
-
Review the policy limit and deductible for each kind of coverage. A "
policy limit
" is the maximum amount a policy will pay, and a "
deductible
" is the amount the policy holder is required to contribute first, before the insurance coverage kicks in.
Finally, although BOPs do not cover flood damage, they do cover other kinds of water damage. For instance, during a hurricane, when a fallen tree punctures a hole in the roof of a building, and rain water enters through the hole, any damage caused by the rain water
will be covered
by property insurance. But when high tides flood a building, any damage caused by flood water
will not be covered
. When it is difficult to separate flood damage from rain water damage, insurance companies usually establish criteria for distinguishing between the two.
Step 3: Report your loss
After reviewing coverage, and with policy (and policy number) in hand, call the insurance company's claims department to report the loss. Start by writing down the name of the responding claims representative and the date and time of the conversation. Provide a general description of the physical damage, followed by an explanation of when, how, and where it occurred. Lastly, ask the following questions:
- What is the time limit for filing a claim? Most policies allow one year from the date of the disaster to file a claim.
-
Am I required to fill out a claim form? A claim or "
proof of loss
" form requires details about each item of damaged property; how much each item is worth; and the total amount of money being claimed as compensation for the damage. A claim form can act as a legal document, because by signing it, the claimant it attesting to the accuracy of the statements contained therein.
-
When will a
claims adjuster
visit? A "claims adjuster" is an insurance company employee, provided at no charge, who will inspect the damaged property, determine how much of the damage should be compensated for, and negotiate a settlement.
Step 4: Prepare for the claims adjuster's visit
The claim should include the value of damaged business property (property insurance claim) and lost business income (business interruption insurance claim). To support the amount of money claimed, provide the claims adjuster with documentary proof of both losses.
To support a property insurance claim, provide:
- A written description and color photographs of any structural damage to the building (e.g., hole in roof, cracks in walls or ceiling).
-
At least two written bids from reliable, licensed contractors for the cost of repairing
each item
of structural damage, including the type and quality of building materials to be used.
- A written description of any damage to the building's electrical system, and at least two written bids from licensed electricians for the cost of repairing the damage.
- A written list of all the damaged contents of the building (e.g., laboratory equipment, O&P products and devices, computers and other office equipment), and copies of purchase receipts showing the date of purchase and cost of each item. If receipts have been destroyed, provide the approximate date of purchase and estimated cost of each item.
To support a business interruption insurance claim, provide:
-
Copies of past (i.e.,
pre-disaster
) business records showing the profits your practice generated before the damage occurred (e.g., accounts payable and receivable ledgers; income tax returns, forms, and schedules, including profit-and-loss statements). If past records have been destroyed, try to reconstruct them.
-
Copies of current (i.e.,
post-disaster
) business records showing the profits the practice has been generating since the damage. A comparison of pre- and post-disaster records should indicate lost profits.
-
Copies of current (i.e.,
post-disaster
) utility bills, employee wage and benefit statements, etc., showing continuing operating expenses. Lost business income equals the amount of lost profits plus your continuing operating expenses.
Step 5: Minimize further property damage and lost business income
While awaiting the settlement of a claim, take steps to minimize further property damage and lost business income, such as making temporary repairs or temporarily downsizing your operation.
To minimize further property damage:
- Weatherproof the building by covering holes in the roof and boarding up broken windows.
- Secure the building by locking doors and windows, or hiring temporary security guards.
- If necessary, restore electrical power by installing a portable generator.
To minimize further lost business income:
- Reopen your practice as soon as possible, even if only for limited hours.
- Block off heavily damaged and unusable parts of the building, but continue to operate from the original location in less-damaged areas. Only if the entire building is unusable, should temporary office space at an alternate location be utilized.
- Place a newspaper, radio, or television advertisement notifying patients and customers of when and where the practice will be open.
- Limit continuing operating expenses by downsizing the practice and laying off nonessential support staff.
The cost of these types of measures will be reimbursed by the insurance company, provided the costs can be verified. Therefore, make copies of: (1) receipts for the purchase of building materials, portable generator, and other supplies; (2) paid invoices from contractors, security personnel, media outlets, and other service providers; and (3) receipts for rental payments, if a temporary location is being utilized. Submit receipts and invoices to the claims adjuster or insurance company. Be cautious, though, of how much is spent, because any amounts reimbursed for will be subtracted from the final settlement.
Conclusion
After a disaster, the damage to a practice may be severe. So long as business insurance policies are in place, and insurance claims are filed properly, a timely settlement to return the business to normal can be expected.
References:
-
Insurance Information Institute,
Settling Insurance Claims After a Disaster
, available at
www.disasterinformation.org/disaster2/resources/settling_claims/
(last accessed November 5, 2005).
-
Insurance Information Institute,
How do I file a business insurance claim
?, available at
www.iii.org/individuals/business/basics/fileaclaim/
(last accessed November 6, 2005).
-
Central Insurance Companies,
Filing Your Business Insurance Claim After a Disaster
, available at
www.central-insurance.com/docs/claimfil.htm
(last accessed November 5, 2005).
Sylvia A. Ezenwa is a lawyer, author, and freelance writer based in Superior, Colorado. She is licensed to practice law in the State of Texas. She writes legal articles for trade and consumer publications. She also develops and writes workplace policies and procedures for private and public sector clients. Contact her at e-mail: Sylvia@opedge.com
DISCLAIMER: The information in this article is not intended to constitute legal advice. Please consult an attorney regarding your specific situation.
Copyright 2006 Sylvia Ezenwa. Reproduction of any portion of this article in any form is prohibited without the expressed, written consent of the author. 
Table Of Contents - January 2006
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