When It Rains, It Pours: Insurance Recovery For Earnings Loss

Author:Mr Daniel Edwards, MA, CA•IFA, CA•CBV, CFE
Profession:Crowe Soberman LLP

As I write this article, Toronto is recovering from its biggest rainfall since Hurricane Hazel. Two weeks ago, downtown Calgary was affected by days of heavy rains following which the Bow River burst its banks. And while the initial focus should always be on the personal safety of those affected, in short order this focus will give way to dealing with the financial consequences of the events which have occurred.

As "forensic accountants," who specialize in insurance and litigation claims, our group knows the "financial" questions that may surface when natural disasters occur. The first question may be, "Are we covered by insurance?" This question is followed by, "What exactly are we covered for?" If you are unsure as to whether coverage applies, you should consult with your insurance counsel or insurance broker. If you determine that coverage is available, the next question may be, "How much can I claim?"

If your business has been affected by the recent flooding (or by any other insured event), and the business has or will suffer an earnings loss, you may wish to check with your insurance broker to determine if you have coverage for earnings loss. Often this is called coverage for "business interruption." Whatever name is used, the coverage allows you to claim for the earnings loss resulting from the damage caused, subject to the policy terms and conditions.

Our firm has varied experience in the assessment of business interruption losses, where businesses have been affected by an insured peril.

Often an insurance adjuster will advise business owners that the insurer will retain an accountant to quantify the business interruption loss that can be claimed. Based on our experience, business owners would be wise to consider retaining their own accountants (with the necessary specialized knowledge) to develop business interruption loss calculations. In fact, your insurance coverage may include a provision (or endorsement), that will reimburse the cost of retaining your own "forensic" accountant. This, of course, is subject to the limits of any coverage provided, and is often referred to as "professional fees coverage."

Generally, an accountant that has been retained by the business will develop calculations, which subsequently (along with supporting documents and information) may be provided to the insurer's accountant for review. While the insurer's accountant may not always agree with the approaches adopted, areas of agreement may be...

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