[Column] Natural disasters and their effects on businesses
Editor’s note: The following article originally appeared in the September 14 print edition of Caribbean Business.
SAN JUAN — When there is a natural disaster event such as a hurricane like Irma, an earthquake or flood, businesses in the affected area generally suffer two types of damages: property loss and business interruption (BI) loss.
Property loss is related to the damage or destruction of company-owned property or property in which the company has an insurable interest. On the other hand, business interruption losses are reductions in current or future earnings resulting from the loss of, damage to, or destruction of money, records, property or other income-producing assets and/or the inability to use the property.
Business interruption and property damage claims are usually linked but do not overlap. So, they can be both recovered if the company has the proper insurance in place. To be valid, a business interruption claim must be linked to a covered risk. Thus, the insurance policy is essential in these types of claims. The types of losses usually covered by a BI policy are: temporary relocation, loss of profits, extra expenses and the loss of physical access to and from the property, known as civil shutdown ingress/egress.
The terms and conditions of a property damage or BI policy frequently do not explicitly define how a loss will be calculated. So, insurance claims can be an adversarial process that may result in litigation, especially since business interruption claims are, by nature, estimates. These claims can become rigorous and time-consuming projects. Very often claimants and insurance companies will need to hire professionals with expertise in insurance matters, such as attorneys and CPAs. They will work together to interpret the policy, as well as perform and defend the calculation of damages related to business interruption.
—Attorney and CPA Eduardo Soria is president of the Export Services Committee of the Puerto Rico Society of CPAs.