In other words, to calculate recoverable lost income, you take lost sales and then subtract non-continuing costs. Most business interruption policies compensate the insured only for the former. Once this reserve is set, it may be difficult to convince the carrier to accept a larger claim, so make sure you document your losses as accurately and as soon as possible.Įstimating damages with a reasonable degree of accuracy in the early stages demonstrates to the carrier that you’re acting in good faith and supports requests for advance payments.ĭetermining your continuing and non-continuing costs is another critical issue. Then, after a preliminary review, the insurance carrier makes an initial estimate of the loss and establishes a loss reserve. Most policies require the insured to file a detailed “proof of loss” within a short period (30 days, for example) after a loss occurs. Non-continuing expenses include light, gas, and advertising for which there is no contractual obligation. Insurance coverage for loss in the gross earnings of the business (minus expenses that cease while the business is inoperative) as a result of the interruption of normal business activities caused by damage to the premises by an insured peril. Under this coverage, the insured is usually required to select either a 50% or 80% co-insurance factor.Ī definition for the Gross Earnings Form follows: If desired, ordinary payroll may be excluded from coverage by choosing the appropriate policy exclusion. Therefore, “ordinary payroll,” which generally is the expense related to non-essential employees, is insured. The definition of earnings under either Gross Earnings Form does not include a deduction for payroll expenses. The manufacturing form defines insured earnings as the sales value of production foregone, less certain costs and expenses. The mercantile form defines insured earnings as sales foregone, less the direct cost of goods sold and other direct material costs. The differences between the two forms relate primarily to the definition of insured earnings. There are two general forms of Gross Earnings insurance for: 1) mercantile or non-manufacturing companies, and 2) manufacturing companies. Any loss which occurs after operations have recommenced is not insured. The indemnity period may extend beyond the term of the policy, but it will end, at the very latest, at the end of a period specified in the policy, which is normally twelve months after the date of the interruption. Specifically, the period of indemnity is essentially the period of time required, with “due diligence” to “rebuild, repair or replace” the damaged property. With Gross Earnings Insurance, it is assumed that the loss ends once the company is in a position to restart its operations.
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