What is Key Employee Business Interruption Insurance?

J.P. Gonzalez-Sirgo
Founder of J.P. Gonzalez-Sirgo, P.A.

As a business owner you take many calculated risks and aim for as secure and stable of a financial future as possible. A wise business owner typically has some sort of insurance policy to guarantee that security in the case of unforeseeable perils that are outside of their control. Business interruption insurance is a unique kind of insurance that accounts for loss of income stemming from these events, whether it be an unexpected illness of a key employee or the destructive power of a natural disaster. Unexpected loss of payroll or unforeseen closures of a business often create massive financial losses. These losses can make it difficult to recover or may make your new business lose momentum unless you have the proper insurance coverage to safeguard your finances from these unexpected interruptions.

The common type of business interruption covered that will be examined is compensation for loss of a key personnel. This is an employee that is vital to your business and typically cannot be easily replaced making their unexpected absence a large detriment to your business and its internal management structure.  An unforeseen illness or injury to a key employee could ruin the flow of your business operations. With business interruption insurance your business will have a safety net for circumstances like this, making your “bounce back” period of recovery much shorter and not as harmful to your overall finances.

How are these losses calculated under a business interruption insurance policy?

Losses under this policy attempt to assess what was the typical cost of operational expenses, lost profits and earnings prior to the occurrence of the event that created the interruption. Fire Ins. Co. v. Scandia of Hialeah, Inc., App. 3 Dist., 414 So.2d 533 (1982). This calculation may be retroactively applied to the period of closure when determining the amount you may recover from your claim. If there is an absence of prior financial records making it difficult to assess your recovery amount, certain policies will look at the estimated gross income or net profit lost that can be predicted with reasonable certainty or standard operational costs customary for the industry you partake in.

Something to be aware of is that you may be barred from recovering business interruption insurance claims if the interruption was created by your business’s own folly or negligence. It is important that you keep track of your day to day operations to make sure the interruption was not created internally by your own employees or management staff. If you or anyone acting on behalf of your business is not the proximate cause of the interruption than this type of insurance policy will indemnify the insured from losses incurred during this period of inactivity (37 A.L.R.5th 41). However, if steps are not taken to mitigate the damages done to your business following this period of interruption you may be barred from recovery or have a reduction to the amount of your claim. Due diligence is typically the standard applied when deciding whether proper steps of mitigation were taken. Some business insurance policies require expedited notification of the interruption to recover. This can be found within the provisions of your policy. A common misconception is that this type of insurance will allow you to recover speculative profits and put you in a better situation than initially, but this is not the case. It is a precautionary insurance plan to put your business in the same position as if the losses had never occurred and usually aims to calculate profits that could be reasonably estimated.

An experienced insurance claims attorney can help you understand your business interruption insurance policy and what limits to recovery exist by examining your policy and the confusing legal language it often contains. You should be on the lookout for terminology such as “loss net income” or “lost profits”. Depending on what your policy defines as proper compensation for your business interruption, you may recover more or less than expected. Knowing the difference between loss of “gross earnings” and “net profits” can make the difference in the financial steps your business will take after an interruption has occurred.  Whether certain perils are covered can also be found in the contractual language of your policy and sometimes insurers may use ambiguous general language that may be disputed if your claim is denied on the basis of this ambiguity.

Understanding the period that you may file your claim, known as the “period of restoration” can aid in allocating your business’s financial assets and is often found within provisions of your policy that your experienced insurance claims attorney can help you analyze. Another aspect that will likely require an attorney is how your policy and its provisions fit into Florida’s statutory prohibitions regarding insurance policies which only a legal expert would know. To recover the full amount possible from your claim it is recommended you contact an experienced insurance claims attorney.

You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at[email protected].

Source: 37 A.L.R.5th 41

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