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PROOF OF LOSS

Proving a loss of profit is a common event in “business interruption” insurance. It will also arise as part of a claim against a wrongdoer where the damage complained of has closed or stymied the business.

However, it is not immediately obvious what the method of calculation should be. The claim is, inherently, speculative. The loss is the profit which would have been generated but for the wrongful act. The turnover for a prior relevant period would be a start, but not conclusively so; what if the turnover was in sharp decline? (As has happened in banking and construction in Ireland recently). Of course the turnover may have been accelerating (as is the current position with the business of lawyers practising in the field of professional negligence).

It is necessary therefore to find the trend.

It is also necessary to remember that a reduction in turnover will not reflect exactly the reduction in profit; many overheads remain while the business limps on; in short, the profit reduction percentage will exceed the reduction in turnover expressed as a percentage.