Business Interruption Insurance and Covid-19 / Coronavirus
Adam Shay CPA, LLC is committed to assisting businesses and individuals proactively respond to the global economic crisis seeded by Covid-19. This article examines the current opportunities for business owners to claim relief from existing insurance policies that cover business interruption and the current debate between insurers and federal, state and local governments.
What is Business Interruption Insurance?
Business Interruption Insurance, also known as business income coverage, helps replace lost income and pay for expenses when a business suffers an impact by a covered loss. The most common covered losses include fire, wind, water pipe breaks, and lightning.
Typically, losses resulting from communicable diseases such as COVID -19 are not covered in the context of a physical loss. For instance, many policies have Limited Fungi, Bacteria or Virus Coverage. This particular policy endorsement can limit or exclude losses caused by COVID-19.
However, some business interruption insurance can include coverage when a business’s operations are prohibited due to an Order of Civil Authority. In North Carolina, there have been statewide Executive Orders restricting business operations which may trigger the “Civil Authority” clauses.
Additionally, certain elective coverage may exist and legislative efforts could retroactively amend coverage terms to include certain losses related to COVID -19.
How can I use Business Interruption Insurance during COVID-19?
As we all know, several businesses were either mandated to close by federal, state, and local orders or forced to drastically change their businesses operations (i.e. restaurants switching to take-out only). There’s also businesses that have seen significant reduction in sales due to the Center for Disease Control’s recommendation to social distance and stay home. The lost revenue resulting from a government order requiring your business to close and possibly the additional costs incurred by performing deep cleanings more frequently, may be currently covered through your business interruption insurance or may become covered through a Federal or State mandate.
DETERMINE YOUR COVERAGE
Review you insurance policy’s Declaration page to identify if coverage exists. Document if your business closure was involuntary such as compliance with state, county, and/or city orders. You also will want to identify limiting endorsements to your policy such as Fungi, Bacteria or Virus Coverage. Review your policy for possible riders and sub-limits. Certain industries such as healthcare, hospitality, and travel may have special coverage for diseases such as COVID-19.
Identify your policy’s claim reporting deadline. Some policies have a reporting deadline of 60, 90 or 180 days. If you’re still unsure after reading your policy, start with a call to your insurance company. Consider sending a confirmation email to the insurance agent to memorialize your communication.
Both Federal and State legislation can be difficult to understand under normal circumstances. Add in a global pandemic with rapidly changing legislation being passed, and it can be confusing to understand what kind of relief programs for small businesses exists. Adam Shay CPA, PLLC has been closely monitoring the legislative situation and has been staying abreast of emerging federal and local bills, specifically looking for how they impact small businesses.
There are federal bills contemplating relief from coronavirus-related losses. Recently, members of the US House of Representatives issued a letter urging four of the main insurance organizations to cover business interruptions claims that emerge as a result of COVID-19. Those four organizations are listed below:
1. The American Property and Casualty Insurance Association
2. The National Association of Mutual Insurance Companies
3. The Independent Insurance Agents & Brokers of America
4. The Council of Insurance Agents & Brokers
However, the CEOs of the organizations responded to the request of members of Congress by stating, “Standard commercial insurance policies offer coverage and protection against a wide range of risks and threats that are vetted and approved by state regulators. Business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19.”
It is not yet apparent if Congress will be satisfied with the insurance companies response; however some states appear to be working on legislation that could retroactively mandate converage for certain losses.
The number one thing business owners can do to boost the likelyhood of their claims being paid is to properly document their claim and losses. Obtain copies of company accounting records and documents related to the business interruption, including:
• Production records for the base period, the period during the loss, and the period after the loss.
• Sales records for the base period, the period during the loss, and the period after the loss.
• Inventory records for the base period, the period during the loss, and the period after the loss.
• Tax returns.
• Sales tax returns.
• Financial statements.
• Other statistical or internal records.
• Bank statements.
• Payroll records for the base period, the period during the loss, and the period after the loss.
Maintain thorough records of costs incurred to avert or reduce the loss. Document expenses that are necessarily incurred to reduce the loss and continue the business, but generally at a higher cost, such as:
• Premium portion of overtime (that is, the additional cost incurred for overtime worked to make up for lost production).
• Price premiums and extra shipping charges to expedite delivery of replacement machinery.
• Extra shipping charges for inventory (such as the difference between air freight and land freight to meet contract deadlines).
• Difference between the cost of buying the end product from a competitor and the insured’s normal variable cost to manufacture.
Document your Extra expenses. The expenses needed to continue business operation so that the business will not lose customers during a shutdown, such as:
• Relocation costs.
• Overtime pay.
• Added freight charges for quicker delivery of emergency supplies.
• Advertising costs in notifying customers of the relocation.
The documentation needed for business interruption claims may seem overwhelming. Seek assistance early in the process. At Adam Shay CPA, PLLC we have experience with helping our clients submit various insurance claims and are able to help gather and analyze the relevant documents to support your claim.
Interested in filing a business interruption claim? Contact Adam Shay CPA, PLLC to help file your claim.
If your business has suffered from a mandatory closure by federal, state or local authority, we would like to assist you in reviewing you policy terms for possible coverage so that you meet any reporting requirements under the contract. We will continue to monitor legislative actions and offer updates if changes are enacted.