The novel coronavirus (COVID-19) has undoubtedly impacted numerous companies across many industries. While certain companies and industries are better suited to handle the operational impact caused by COVID-19, others are experiencing an unprecedented reduction or cessation of revenues and cash flows.
Companies that are negatively affected may not be able to satisfy current and ongoing operating requirements such as debt service payments, rent, insurance, and payroll. A company’s inability to continue to pay its employees and/or contractors, as well as its creditors, only further increases the negative economic effects caused by COVID-19.
While direct consequences are readily apparent, indirect consequences arise when a company’s supply chain is affected. Furthermore, companies may be faced with increased - or “extra expenses” as they are referred to by insurance companies - that would be reduced or absent in the normal and ordinary course of business.
One potential avenue for relief is filing an insurance claim for lost business income and/or extra expenses with your insurer. Generally, business interruption insurance and the related endorsements require that the lost business income and extra expenses are incurred as a result of physical damage to or loss of the insured’s property. This specific language may make it difficult for businesses to successfully recover lost income and/or extra expenses incurred as a result of COVID-19. Further, even if an insurer considered COVID-19 as physical damage to the business’ property, there are other policy terms and exclusions that may preclude recovery. These exclusions can include contamination, virus, bacteria, fungi, and communicable diseases.
However, outlined below are additional coverages and policy endorsements that may provide an opportunity for companies to successfully recover lost business income and extra expenses. This list is not all-inclusive and, as such, companies should review their own insurance policy for additional coverages and endorsements that may apply:
- Non-Physical Damage Coverage – Provides coverage for lost business income and extra expenses incurred as a result of non-physical damage to or loss of the insured property
- Contingent or Dependent Property Coverage – Provides coverage for lost business income and extra expenses incurred as a result of physical loss or damage at the premises of a dependent property or secondary dependent property (i.e., customers and suppliers) caused by or resulting from any covered cause of loss
- Civil Authority Coverage – Civil or military authority impairs access to the insured’s property due to property damage at or near the insured’s location thus, resulting in lost business income and/or extra expenses
- Ingress/Egress – Prevention of ingress to or egress from the insured’s property due to a covered cause of loss or covered peril that results in lost business income and/or extra expenses
- Loss of Attraction Coverage – Provides coverage for when a covered peril occurs within a specified radius or at trigger locations and the insured suffers loss of attraction to an insured location
Should your circumstances warrant it, businesses should begin to compile the following documents and information necessary to establish a claim for lost business income and/or extra expenses:
- Historical tax returns and/or financial statements
- Monthly profit & loss statements for a minimum of two years preceding the onset of COVID-19
- Customer contracts and purchase orders evidencing income that was lost due to the onset of COVID-19
- Forecasts and budgets prepared both prior to and after the effects of COVID-19
- Copies of invoices for any and all extra expenses paid since the onset of COVID-19, as well as documents evidencing the payment of these extra expenses (i.e., copies of canceled checks, wire transfer receipt, hours incurred by hourly employees in response to issues that have arisen from COVID-19, interest on loans or lines of credit that were tapped or increased, etc.)
- Documentation evidencing any accounts and notes receivable balances that became uncollectible as a result of COVID-19
- Documentation evidencing any liabilities assumed as a result of COVID-19 along with contractual interest rates and origination fees
Ultimately, companies should consult with a response team comprised of professionals that can assist with interpreting policy language and provisions; preparing an analysis of lost business income and/or extra expenses; litigation proceedings; and providing other advice related to the insurance claim.
