Commercial Coinsurance and Business Income Proof
A Missoula restaurant suffers a broken supply-line leak over a weekend. The commercial property policy has a building limit of $500,000, an 80% coinsurance clause, replacement cost, a $10,000 deductible, and no agreed-value endorsement. The building's replacement cost at the time of loss is $800,000. The insurer's contractor estimates repair at $160,000, including $12,000 of debris removal and $8,000 of tenant improvements. The insured's accountant claims $45,000 in business income loss for 30 days of closure; the policy has a 72-hour waiting period and a 12-month period of restoration. The insurer pays $115,000 on the building and denies the business income claim because the insured did not submit monthly financials, only tax returns. The public adjuster is hired.
1. Show the coinsurance calculation and explain whether the insurer's $115,000 building payment is correct.
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Coinsurance formula: (insurance carried ÷ insurance required) × covered loss − deductible. Required = 80% × $800,000 = $640,000. Carried = $500,000. Ratio = $500,000 ÷ $640,000 = 0.78125. Covered loss = $160,000 (assuming debris removal and tenant improvements are covered building items). $160,000 × 0.78125 = $125,000. Less $10,000 deductible = $115,000. The insurer's arithmetic is correct only if all $160,000 is covered and no agreed value applies. Challenge any item that is not covered building property: if the $8,000 tenant improvements are not insured, the covered loss is $152,000; $152,000 × 0.78125 = $118,750; less $10,000 = $108,750. Also confirm whether debris removal has a separate limit and whether replacement cost holdback applies until repair. The public adjuster should not attack the coinsurance math without checking those coverage classifications.
2. What should the adjuster do about the business income denial and the missing financial records?
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Business income is not proven by tax returns alone, but the insurer cannot deny solely because monthly financials were not initially supplied if the insured is cooperating. The adjuster should obtain profit-and-loss statements, sales tax reports, payroll records, reservations, vendor invoices, pre-loss projections, and the actual period of restoration. The 72-hour waiting period is three days, so a 30-day closure produces at most 27 days of business income coverage unless the restoration period is longer. Calculate gross earnings minus continuing expenses and any saved expenses, then apply any limits. Submit a written proof of loss and ask the insurer to identify exactly what it needs. If the insurer still denies, request a written coverage position; consider appraisal only for amount disputes, not coverage.