Kirkland & Ellis Considerations in Business Interruption Insurance Claims

Overall Philosophy

  • Business interruption claims should not be litigated
    • Unlike many other insurance claims (e.g. general liability claims), where confrontation is the rule
    • Insurers generally treat business interruption claims in context of normal individualized claims handling, not management of large category of long-tail, historic losses
  • The team
    • Claim should be adjusted through in house personnel, broker and outside accountants; counsel should take background role
    • Active involvement of insurer's counsel is a trouble sign
    • Counsel should become visible if insurer stonewalls claim, raises significant coverage issues, or inserts its counsel into process
    • Once counsel surfaces, role should be dictated by insurer's claims handling practices

Presentation of the Claim

  • Format of the proof of claim is critical
    • Especially true if insurer retains claims counsel or accountants
    • Claim should be carefully structured to fit "buckets" of coverage
    • Assume claim presented will be claim litigated
  • Claim preparation
    • Conservative claims are adjusted; aggressive claims are litigated
    • Reasonableness of assumptions and projections should be documented based upon business records wherever possible
  • Claim follow-up
    • Claim should be followed with early meeting to discuss methodology, claim calculation and claims (not coverage) issues
    • Keep the pressure on -- ongoing follow-up with insurer is crucial
    • Defend vigorously strong aspects of claim; acknowledge weaknesses and be prepared to compromise on them
    • Make the adjuster your friend, but demand involvement of senior personnel if necessary

Coverage Issues

  • Focus of negotiations should be on amount of payment, not coverage
    • Press for acknowledgment of coverage
  • Respond vigorously to "smokescreen" coverage issues
  • Table disagreements over legitimate coverage disputes
    • Serious coverage issues may require compromise

Litigation Planning

  • Work for settlement; plan for litigation
    • Assume claims process is discoverable and admissible
    • Document admissions during negotiations
  • Involve counsel in key strategic decisions
    • Protects litigation position
    • Maximizes chances of successful privilege claims

We make this outline available with the understanding that the authors are not rendering legal, accounting, or other professional advice or opinions on specific facts or matters and assume no liability whatsoever in connection with their use.