From the time you notify your insurer about  business interruption loss, and you have your first conversation with the insurance adjuster or their consultants, you are being deposed. Of course no one has sworn you in and no one told you that “everything you say can be used against you.” But this is the essence of all communications between you and the insurance company from this point forward.

Please understand that I am not saying that you shouldn’t talk to your insurance company, but I am suggesting that you be guarded in your conversations. Every estimate, guess, maybe, and possibility that comes out of your mouth is being recorded in someone’s notebook. For example, you may have said that a competitor, with whom you have a friendly relationship, may be able to produce products for you to offset your losses. If this “deal” between you and your competitor doesn’t work out for whatever reason, you may have to explain to the adjuster who you contacted, what was said, what were the potential terms, why the deal wasn’t struck, what is the contact information for the person from the other company, can the insurance company call and question them, etc. You will be treated as if you did something wrong when you just tried to mitigate your loss.

My advice on this issue is simple. Answer questions truthfully, directly, and as succinctly as possible. Do not elaborate on your answers and do not guess or estimate. If someone is asking questions you do not feel comfortable answering immediately, ask them to put the questions in writing and tell them you will respond after researching the issue. You will need to answer their questions, but I think you should do submit an answer on your own terms, with time to think about it.

Putting your answers in writing also helps you with the documentation burden you’re tasked with throughout the business interruption claim process.

When dealing with an insurance company representative regarding a business interruption loss insurance claim, it is prudent to operate under the assumption that if it is not in writing, it never happened.  Verbal meetings to discuss a business income insurance claim can be very productive, whether they happen face-to-face or over the phone.

However, I always recommend that risk managers, corporate officers, or business owners should “recap” verbal conversations immediately after they occur.   Here’s an example of how to do that:

Ms. Insurance Adjuster,

Thank you for taking the time to speak with me on the phone today, February 10, 2010.  Based upon our discussions today, it is my understanding that:

1) You agree that we should move forward immediately to obtain new inventory.

2) You agree that, in order to minimize the business interruption loss, I can approve an additional $100,000 to expedite the production and shipment of the replacement inventory.

3) Etc. (List any appropriate items).

If my understanding of the above is incorrect, please reply to this email within 2 days of receipt.  Thank you for your time and effort.

Regards,

L. Parkington

CFO

Amazing Business Co.

This type of written “recap” will help to prevent misunderstandings and create a documented trail of agreements for a business interruption claim.  It will also assist in holding all parties accountable for their commitments.

My glass of water is usually half full.

It’s my nature to be optimistic. For better or for worse, my glass is usually half full. I’m usually the person on an even keel, making others around me laugh and “lighten up.”  However, I’ve found that there are times when being overly optimistic can be downright perilous…particularly if you’re the risk manager or owner of a business that has just suffered a loss.

Let me set the scene:  It’s 11:30 pm. As camera crews set up, a factory burns in the background and firemen drag hoses, shouting to one another. Snap! Camera lights expose the chaos of flames and water, and a news reporter shoves the microphone in front of a tousled, unshaven business manager.   The manager tells the reporter, “It really looks much worse than it is.  We’ll be able to fulfill all orders through our related companies and we will be back up to full production within two weeks.” (Smiles confidently.)  The reporter says, “Back to you in the studios.”

Now cut to me in my living room, watching the same news cast in my jammies, and you will witness a crazy person, shouting “Nooooooooooo!” at the TV screen.  Why, in this case, should a risk manager or owner be less-than-optimistic when talking to reporters?

Because the next morning someone from the factory will call the insurance company. When an adjuster is assigned the file, he will watch the same news clip on the internet–and save a copy of it to his computer. Then, three months later, when the company has lost sales and is still not fully back into production, the adjuster will want to know why the business didn’t get back to production within two weeks, as the manager so confidently told a reporter during the interview.

Hey, I didn’t just tell you a far-fetched bedtime story. I’ve seen different versions of this situation play out many times. It’s not always television: it could be newspapers, trade journals, or even just early conversations with insurance company representatives. Here’s the take away: when it comes to submitting a business interruption insurance claim, overly optimistic statements can come back and bite a business in the rear.

The best course of action, following an event like this, is to talk like a professional athlete. Talk for 30-45 seconds, but don’t actually say anything. Say something like, “This is a very unfortunate event and we’re not exactly sure of the extent of the operational impacts at this point. We have a team of dedicated experts on our staff that will do everything in their power to ensure that we recover from this incident and continue to be leaders in our market. Thank you.”

When speaking with the insurance company, clearly state what you plan to do to aid in your own recovery, but be guarded in your estimates of how effective any of your efforts may, or may not, be. Tell the insurance company you can guarantee efforts, but not results.

So…have you ever been burned because you were overly optimistic?  I’d love to hear from you–leave a comment below.

Many times business owners, corporate officers, or risk managers don’t hear the term, “due diligence and dispatch” until the end of their business interruption claim.  These four little words can have a big impact on your claim.  So what does ‘due diligence’ mean?

The insurance company expects claimants to move forward, at a reasonable speed, to return their business operation to normal.  The insurer provides time for the business to plan for reconstruction, obtain bids, and have the physical structures rebuilt.  The insurance company does not plan on paying for losses related to claimants dragging their feet while making these decisions.

If an insurance company does not believe that an insured acted in a timely manner (with due diligence and dispatch) they will limit the lost business income recovery to the value that they determine would be reasonable if the insured had acted in a timely manner.  This can result in days, weeks, or months of loss value being deducted from a lost business income claim.

To avoid this scenario, keep the adjuster up to date with your intentions to recover. Clearly document all of the business’ recovery activities on a regular basis.  These written records will memorialize the recovery efforts and will help support the claim that the business was making reasonable progress in these efforts.