Key Points:
- Many policyholders miscalculate lost profits or fail to document their losses, which weakens their business interruption claim.
- Common filing errors and misunderstandings of policy language often delay or reduce insurance payouts.
- Public adjusters help by interpreting policy terms, organizing documentation, and negotiating with insurers on your behalf.
According to a study by the National Association of Insurance Commissioners (NAIC), over 40% of small businesses never reopen after a disaster, largely due to inadequate insurance recovery. For businesses relying on business interruption (BI) coverage, a flawed or mismanaged claim can be the difference between recovery and permanent closure. Yet, many policyholders unknowingly make preventable mistakes—errors that can severely reduce the payout or even lead to a denied claim.
What Are the Common Mistakes in Business Interruption Claims?
Business interruption claims are often mishandled due to miscalculations, poor documentation, or misunderstandings of policy terms. These mistakes can delay your settlement or lead to underpayment. Working with a public adjuster significantly reduces these risks by ensuring the claim is prepared accurately and strategically.
Why Business Interruption Claims Are So Complex
Business interruption insurance is meant to cover lost income when a covered event forces a business to suspend operations. But unlike property damage, which can be visibly measured, lost profits are theoretical and require projections, accounting data, and legal interpretation. That’s where the complexity begins.
Not only must the insured prove they lost money, but they must also justify how much they would have earned had the disruption not occurred. This often involves forensic accounting, historical data, and industry trends. If these elements are poorly presented or missing, insurers have the advantage.
Misunderstanding Policy Coverage Limits and Terms
A major cause of denied or reduced BI claims is the policyholder’s misunderstanding of what their insurance actually covers. Business interruption policies can be dense, full of exclusions, sublimits, and defined timeframes for what counts as “interruption.”
Some key areas where confusion occurs:
- Period of Restoration: This is the timeframe during which coverage applies. Some assume it lasts until the business is fully restored, but it’s typically defined by how long repairs should reasonably take.
- Contingent Business Interruption (CBI): Not all BI policies cover supplier or customer disruptions. Many businesses assume third-party interruptions are automatically covered.
- Civil Authority Clauses: Policyholders may believe government-mandated shutdowns qualify, but unless access is specifically prohibited due to physical damage, these claims may be denied.
Understanding your policy’s language is critical. Even minor misunderstandings can derail your entire claim.
Poor Documentation of Financial Losses
Filing a business interruption claim means you’re essentially making a financial argument—and without solid documentation, your claim stands on shaky ground. Common documentation failures can seriously weaken your case. A lack of historical records makes it difficult for insurers to estimate pre-loss profit margins, which are crucial for determining what was lost. Missing expense records are another issue; only certain ongoing costs, such as rent or payroll, are reimbursable, and if they aren’t tracked accurately, they may not be included in the claim. Improper accounting, such as mixing personal and business expenses or failing to isolate costs related to the interruption, often leads to confusion and disputes. A public adjuster plays a key role by ensuring all necessary documents are properly compiled, formatted, and presented to help prevent delays or denials.
How Do You Calculate Lost Profits in a Business Interruption Claim?
Calculating lost profits goes beyond simply reviewing last year’s earnings. It requires a comparison between projected revenues—what your business would have earned if the loss hadn’t occurred—and the actual revenues during the disruption, while also subtracting any expenses you didn’t have to pay during that time. This process hinges on several key elements that help insurers and businesses arrive at a fair estimate of lost profits.
Among those elements are gross earnings or net income, depending on how the policy defines the covered loss. Only fixed, ongoing expenses like rent and utilities can typically be claimed—not variable ones. Businesses must also factor in trends and seasonality, especially if they experience peak seasons that would have affected revenue. Additionally, any mitigation efforts—such as setting up a temporary location to continue operations—should be accounted for, as those costs may also be covered. Since insurers often challenge these figures, providing accurate, well-documented, and reasonable data is essential to support your claim.
Filing Too Late or Without Professional Guidance
Timing is critical in any insurance claim, especially in BI claims. Policies usually contain prompt notice clauses, and failure to notify in time can lead to denial.
Problems from late filing include:
- Missed deadlines for submitting proof of loss
- Greater scrutiny from the insurer
- Lost or deteriorated documentation
- Missed opportunity for mitigation coverage
Even filing early—without preparing—can backfire. A vague or poorly documented initial claim sets a weak precedent, making it harder to negotiate later. Many businesses rush to file under pressure and end up locking themselves into undervalued losses.
Underestimating the Role of Forensic Accounting
BI claims are not just paperwork—they are financial investigations. Insurers use forensic accountants to comb through your finances and find reasons to lower your payout.
Some tactics used:
- Questioning growth assumptions: Insurers may say your revenue projections are unrealistic.
- Challenging expense classifications: They may dispute whether certain ongoing costs should be reimbursed.
- Comparing your business to industry norms: If your profit margins seem too high, they’ll argue you’re inflating losses.
Policyholders need a similar level of expertise on their side. A public adjuster with access to forensic accountants helps balance the playing field and supports your numbers with industry-standard analysis.
Common Errors in Claim Presentation
Even if you understand your insurance policy and know the extent of your losses, how you present your claim can significantly impact the outcome. Insurance companies tend to favor claims that are clear, well-organized, and supported by solid evidence. Unfortunately, many policyholders make critical mistakes that weaken their case. Inconsistent narratives—where details differ from one document to another—can raise doubts about the claim’s credibility. Similarly, vague explanations for how losses were calculated, or failing to justify assumptions with data like past performance or signed contracts, can lead to delays or outright denial.
This is where an experienced public adjuster becomes invaluable. They ensure your claim isn’t just factually accurate, but also presented in a compelling and defensible way. A well-prepared claim anticipates questions, supports every assertion with documentation, and tells a consistent financial story from start to finish. With a professional guiding the process, you avoid common pitfalls and improve your chances of receiving a fair and timely settlement.
How a Public Adjuster Can Help Fix or Prevent These Mistakes
Public adjusters work exclusively for the policyholder, not the insurance company. Their role is to maximize your claim by ensuring all losses are captured, justified, and documented correctly.
Here’s what a skilled public adjuster brings to the table:
Hiring a public adjuster early can prevent the common mistakes in business interruption claims that lead to delays or denials.
Avoiding Costly Business Interruption Claim Mistakes
Disaster situations demand fast, fair compensation for your business to survive. Unfortunately, business interruption insurance isn’t a safety net unless the claim is properly filed. Most claim disputes arise not from bad faith by insurers, but from policyholders unknowingly making errors that reduce their coverage. From misunderstood policy language to inaccurate financial projections, these pitfalls can be avoided—with the right guidance.
Get Expert Help from Crestview Public Adjusters
If you’re facing a business interruption or cyber-related loss in New York, Florida, or New Jersey, don’t go it alone. Crestview Public Adjusters specializes in representing policyholders, helping them avoid the common mistakes in business interruption claims that cost time and money. We handle the paperwork, negotiate directly with your insurer, and ensure your losses are fully documented and properly valued.
Contact Crestview Public Adjusters today—your insurance company has experts on their side. So should you.
