Following Hurricane Katrina, I was retained to help a private school quantify its business interruption loss. I valued the business interruption loss related to the period of restoration as well as the extended period of indemnity.
The first hurdle was getting the adjuster to understand that a school doesn’t make widgets. What I mean is that once five weeks of school were missed, due to the physical damage, that the entire quarter was a complete loss. A school is not a widget factory that can just add another shift or work overtime. The students can’t go to class for 22 hours a day once repairs are done. Do I sound a little annoyed? Check the header of my website and note the word “passion.” Yes, I do get worked up over my clients’ situations.
Once we moved past that issue, the adjuster said the correct valuation of the loss for the extended period of indemnity was $0. Yes, that’s right, zero dollars. He said that the ongoing loss was not due to the physical damage caused to the insured, but was because of the personal damage sustained by the students, such as the homes of students were so destroyed that they moved from the area. He further said that the personal damage sustained by students was excluded under the “Loss of Market” exclusion in the policy.
In this case, the only thing the adjuster was lacking was support, because there was no definition for “Loss of Market” in the policy. He could not identify the school’s “Market,” he had no addresses for, or direct proof of damage to students’ homes. It was one of those theoretical defenses. The end result was that the broker and insured were able to use my observations to negotiate an equitable settlement.
My advice to schools and universities: Work with your broker to see if your policy contains a “Loss of Market” exclusion. If it does, make sure that it is clearly defined or remove it from the policy so you don’t have to figure out what it means in the middle of a business interruption insurance claim.
Need a forensic accountant?
We’re not your typical bean counters. We know how to calculate, present, and defend business interruption insurance claims with off-the-charts winning results for our clients.
We’d love to help you. Please get in touch.
