Business Interruption Claims and COVID-19 Part Two

(This is an update to Tom Pratt’s April 6, 2020 article, Business Interruption Claims and COVID-19)

Many businesses throughout the country continue to lose income because of statewide quarantine orders that have been issued in response to COVID-19. Some have submitted business interruption claims to their insurance providers in an attempt to recover from losses, and a number of restaurants have filed lawsuits trying to confirm coverage under their policies. Bills have been introduced in several states, which, if passed, would require every policy insuring against loss or damage to property for small businesses be construed to include coverage for business interruption due to global virus transmission or pandemic, notwithstanding any law, rule or policy language to the contrary.

Whatever the outcome of the lawsuits and potential legislation, all parties involved – businesses, insurance providers and state, local and federal governments – are strained as they struggle to deal with the negative economic impact of COVID-19. At this time, it’s unclear how the financial burden will be distributed among the parties involved.

In spite of this uncertainty, entities can immediately prepare for a potential business interruption claim by:

• Reviewing existing insurance policies and coverage;
• Contacting their independent accountant to assist in preparing a comprehensive claim;
• Contacting their legal counsel;
• Contacting their insurance carrier;
• Reviewing previous budgets and business plans;
• Gathering historical monthly financial statements;
• Updating budgets and business plans to reflect current conditions and potential scenarios for operations during the upcoming six to nine months; and
• Beginning to actively identify and track all areas of impact that may be included in any claim, such as:
  • Additional direct costs incurred as a result of dealing with the virus, including cleaning supplies, wage premiums, additional staffing, etc.
  • Lost revenues
  • Lost profits
  • Ongoing or continuing costs
  • Lost business value

Detailed accounting information is key to any potential claim. Best practices include contemporaneous recordkeeping and documentation of impact, along with:

• Creating separate cost centers to segregate COVID-19 expenses from normal operating expenses;
• Tracking staffing changes and overtime; and
• Issuing separate purchase orders for COVID-19 items. 

Schneider Downs’ professionals are experienced in helping clients through difficult financial situations. We are at your disposal to assist during these unusual and trying times. Please contact us.