One of the many remaining uncertainties for businesses impacted by coronavirus is whether the loss of income will be covered under their business interruption insurance policies, as such policies are often triggered only by physical damage from natural disasters.
The practical reality is that the losses businesses incurred due to COVID-19 were not priced by insurance companies nor paid for by customers before the pandemic struck, so insurance companies have a legitimate case to reject the claims. However, a number of states are already attempting to legislate coverage into existence, South Carolina included, and numerous lawsuits have been filed nationwide demanding coverage. It’s possible you’ll still get some level of coverage even if your current business interruption insurance policy doesn’t mention pandemics.
However courts and state legislatures decide the issue in the coming months, there is much you can and should do to prepare for potential claims -- even if you think your current policy won’t cover this pandemic because it might. If it does, any payouts will be highly dependent on the individual facts and circumstances of your loss. There will be a rigorous claim investigation, so building evidence for your claim now is critical.
Here’s what we recommend:
- Identify and track coronavirus-related expenses.
Begin by identifying and cataloging expenses you incurred as a result of the coronavirus -- expenses that fall outside of normal business functioning. Expenses can include facility cleaning, hiring security to watch over the business during the extended closure, personal protective equipment, additional advertising or marketing to announce closure, or any other new expenses you incurred as a result of the coronavirus and related shutdowns.In other words, if you have an invoice that’s new to you to this year because of COVID-19, pay it, save it, and have it handy in case there’s an opportunity to file a claim for it.
- Capture canceled sales and sales you weren’t able to take.
Another category of income loss is canceled or lost orders due to the pandemic. All businesses have felt the pinch, but what’s important to note and track is what you would have made in sales if it were not for the coronavirus. These include sales you had to cancel due to the shutdown and orders you were not able to take because of it.Demonstrating the loss of expected revenue will be a key component of developing a claim, and we recommend working closely with your BGW team when the time is right to calculate and record your pre-closure revenue projections. We’ll need to demonstrate what normal operations were before the crisis to more accurately assess what you lost during closure.
- Consider the impacts on your suppliers.
You should be recording supply chain disruption, vendor closure, and any infrastructure restrictions (like delivery delays) that have had a significant impact on your organization's ability to produce and sell products.It can be challenging to pinpoint how and where someone else's disruption impacts your organization, so again, work with us when the time is right.
- Keep records of employees who were ill.
You may be better able to argue that there was physical damage to your space if an employee demonstrated symptoms or had a confirmed case of COVID-19 and that illness required that your physical space be closed and sanitized.
Be very careful, however, to adhere to federal health privacy and security regulations under the Health Insurance Portability and Accountability Act (HIPAA) and to other state and local privacy laws, and work with your CPA to carefully consider if this raises liability issues under other insurance policies.
- Track official decrees.
Many business disruption and business income loss policies contain "civil authority" provisions, which means that government orders that prevent access to or operation of a business qualify as triggering events. It is not clear if COVID-19 stay-at-home and social-distancing orders will qualify under these provisions, and courts are also litigating the civil authority question, but please continue to collect all official government closure orders to help bolster a claim under civil authority provisions if we get the okay to do so.
Again, all of this is still very uncertain, but we’re continuing to monitor it and encourage you to do the same. We look forward to working closely with you during the claims process if, in fact, a claims process comes to be.
For more information on navigating your business through the current crisis, including managing PPP loans, please visit our COVID-19 resource center or join us on an upcoming free webinar. Recorded sessions are available on our YouTube channel.