Recovering Business Interruption Losses from Coronavirus
The fight against the coronavirus (COVID-19) is now a full-blown war and surrendering is not an option. Business owners must implement steps now to be in a position to quickly take advantage of potential business interruption assistance as soon as it becomes available.
As the global health crisis continues to unfold, restrictions on travel, prohibitions of public gatherings, limitations on restaurants and closures of other non-essential businesses such as gyms, malls and other retail stores, are crimpling the economy. Many businesses are experiencing significant reductions or a complete loss of revenue due to restricted hours or government-ordered closures resulting from the coronavirus. Even those fortunate enough to remain open are experiencing increased costs related to issues such as sanitation or the implementation of a remote workforce. With most economists agreeing that the worst is yet to come, businesses are now facing the harsh reality that many standard commercial insurance policies include terms which are likely to be narrowly interpreted by insurers to exclude the coronavirus as a covered event, making business interruption losses related to the pandemic ineligible for recovery.
Businesses should continue to seek expertise in reviewing insurance policies for potential coverages and consult with legal counsel to determine if certain clauses within their policy could lend themselves to a favorable interpretation by the courts. However, in addition to the business interruption coverage which may be available in limited situations, recent activity by state and federal government provides optimism that some form of business interruption relief may ultimately be available. Just this week, New Jersey Assembly bill A-3844 was introduced with the intent of forcing insurers to include the coronavirus as a covered peril, even though the virus is otherwise excluded from standard policies. The proposed bill was intended to reimburse policyholders for business interruption losses related to the coronavirus and to subsequently provide relief to the insurers that pay such claims. Although this particular piece of legislation stalled in New Jersey, it is policies such as these, along with other forms of government assistance, that may ultimately provide relief to impacted businesses.
The United States is just beginning to unleash the full force of its public and private response to this unprecedented pandemic. Thus, the type and amount of financial relief which will ultimately become available remains uncertain. Similar to business interruption insurance, potential governmental relief may be predicated on the amount of loss actually sustained as a result of the coronavirus, and businesses should implement steps now to accumulate the information necessary to establish a claim:
- Seek expertise to review insurance policies for any potential coverage.
- Maintain a timeline of events, including the dates restrictions are put in place and released.
- Retain support for all government orders impacting the business.
- Accumulate records related to COVID-19 impacts, including:
- Details supporting any revenue reductions, such as customer cancellations.
- Support for additional costs incurred, such as increased sanitation costs, purchases of masks and gloves, and costs associated with the implementation of a remote workforce.
- Details of loans and related interest costs resulting from decreased profitability.
- Any additional evidence supporting damages resulting from COVID-19, such as information regarding cancellation of events, supply chain delays, or other related issues.
- Be prepared to provide detailed accounting records, such as:
- Monthly profit and loss statements for a two year period leading up to the COVID-19 onset, and continuing monthly profit and loss statements through the date the business completely recovers.
- Forecasts and budgets prepared prior to and after the onset of COVID-19, along with explanations for the differences.
- Historical tax returns, financial statements, and general ledgers for the previous five years.
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With the full impact of the pandemic still unknown, businesses must keep the lines of communication with their trusted advisors open, and plan ahead to ensure they are accumulating the information necessary to submit a claim for relief. Businesses that operate within certain industries, such as restaurants, healthcare providers, and the construction trade, may also need to maintain additional documents, and are encouraged to seek further guidance.
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