Palisades & Eaton Fires: Supporting Business Income Claim Evaluation & Resolution
Business Loss Claims Arising from the Palisades and Eaton Fires
We understand the immense challenges that the Los Angeles area community is facing in the wake of the recent wildfires. The devastation has impacted lives, properties, and livelihoods, and our thoughts are with those affected during this difficult time. We are writing to convey Roux’s experience and capabilities that may facilitate resolving the complex issues and uncertainties that often arise with catastrophic loss events.
As of today, the Palisades and Eaton wildfires have destroyed more than 16,000 structures and claimed the lives of at least 28 people, ranking these fires among the most destructive in California’s history. Although most structures lost were single-family homes, commercial properties used for restaurants, gas stations, retail, corporate offices, multifamily residences, storage, and golf courses, among others, are also within the fire perimeters. Some of the homes lost may have supported home-based businesses including professional services, food preparation, and other cottage industry.
What does this mean?
Businesses with insurance including fire as a covered peril will submit claims with their insurers. Among the most complex and contentious are business income insurance (a.k.a., business interruption insurance) claims. Coverage is triggered when an insured property suffers direct physical damage and typically pays the business’s fixed expenses and its actual lost profit (but not property restoration costs) for a set time period, or until the property can be restored (i.e., the period of restoration), plus any extraordinary expenditures that avoid further business income loss (e.g., rent for a temporary location). Valuing business income claims necessitates determining the business’s hypothetical performance realized “but for” losing use of the property, and requires specialized training in economics, business, and accounting.
Catastrophic events, like the Palisades and Eaton fires, that affect multiple properties across a wide geographic area or many economic sectors, present a distinct challenge. Widespread evacuations, utility outages, and road closures; non-transitory loss of customers or suppliers; and drastic price fluctuations do not typically arise when a single business property suffers a loss. A critical and often contentious question becomes whether the baseline economic conditions framing an individual business’s hypothetical performance absent its property loss should consider or ignore the wider economic impact of the event.
What can Roux do to help?
Experts with Roux’s Economic & Complex Analytics Practice have extensive experience valuing business income insurance claims and lost profits arising from economic torts. Our experts valued business interruption losses from previous California wildfires as well as the COVID-19 pandemic, and their collective experience spans many of the types of businesses affected by the Palisades and Eaton fires. Examples of services that Roux’s experts can provide to support business income claim evaluation and resolution include:
- Assembly, review, and assessment of claim documentation, including analysis produced by financial experts, and communication of findings.
- Facilitating communications among the parties and their financial experts.
- Identification and assimilation of relevant financial statements and their underlying documentation.
- Forecasting sales and/or net income (i.e., profit) using accepted approaches including the (i) before-and-after, (ii) yardstick (a.k.a., benchmark), and (iii) market share approaches.
- Econometric modeling and meta-analysis to construct baseline economic conditions existing “but for” the loss event.
- Delineation of costs into fixed and variable items to meet coverage specifications.
- Forecasting of the incremental costs incurred at the hypothetical level of sales to compute lost net income.
- Quantifying business income loss avoidance per dollar of claimed extraordinary expenditures to meet coverage specifications.
- Survey research to inform price discovery, product availability, and other factors affected by wide-impact loss events.
- Preparation of written documentation as requested by parties involved.
If you’re interested in any of the services above, or are looking for a general evaluation of business loss claims arising from California wildfires, please reach out to us here.
