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:
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:
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.
About the Author
Scott Loesch is a Manager for the Valuation, Forensic and Litigation Support division of BST. As an Accredited Business Valuation expert, he works with clients to help them learn the true value of their businesses and advise them on what to do to improve it prior to a sale. As a Certified Fraud Examiner, he uses his skills to detect potentially fraudulent issues within a business and create
protocols and systems to deter and prevent these types of activities before they happen.
Posted on March 31, 2020 at 10:10 AM