Measuring Losses For Small Business Interruption Claims: Depreciation Expenses

Abstract

Business interruption insurance, commonly called lost profit insurance is written to protect a firm when its operations are interrupted and income is reduced due to a covered peril. The calculation of the economic loss depends on how certain expenses are used in the loss computation. Depreciation is an expense that can have significant implications on the measure of the loss figure but how depreciation should be accounted for is not specified in policies or law. This paper reviews the depreciation controversy and offers a more theoretically correct solution.