COVID-19 and business interruption insurance: What you need to know

March 19, 2020

This paid piece is sponsored by Eide Bailly LLP.

Many businesses in the United States and throughout the world are beginning to, if they haven’t already, feel the effect of the coronavirus. Among the impacts of COVID-19 is potential loss of business income because of closings and additional business disruptions.

How do businesses potentially combat this loss? During a crisis, businesses often look to their insurance policies for potential coverage for loss of business income.

What is business interruption insurance coverage?

The general purpose of business interruption insurance is to make the insured party whole from the damaging event. Business interruption and expense loss must be supportable. In other words, you need to document it to ensure it’s not speculative.

How do you utilize business interruption insurance coverage in the wake of COVID-19?

Currently realized or anticipated loss of business income is a significant concern for owners and other stakeholders in light of COVID-19.

Here are a few tips to help navigate business interruption insurance:

  1. Obtain a copy of the insurance policy and declaration page. You, and/or your legal counsel, should review the policy for potential coverage. Business interruption insurance is typically included as part of a commercial property insurance policy. Policy wording is vital as this type of insurance is typically triggered when there is a “direct physical loss of or damage to” an insured’s property. Additional contingent coverage may exist depending upon the policy. Certain industries such as health care, hospitality and travel may have specific coverage for diseases such as the coronavirus. Pay attention to covered causes of loss, exclusions and limitations.
  2. Time matters. You may have a deadline to report your claim within a certain window such as 60, 90 or 180 days. The clock starts running as of the date of damage. A phone call to your insurance provider along with a follow-up email to memorialize the call is recommended.
  3. Documenting your loss. How has the business been affected by the damage? Documentation is needed to substantiate loss of sales, customers, extra expenses such as payroll, material, rent and replacement inventory to shorten the period of restoration, and hard costs such as legal and accounting. Documenting sales trends and business cycle before and after the damaging event is important to show the related losses.
  4. Documenting saved expenses. What expenses were not incurred as a result of the loss? Saved expenses include but are not limited to payroll, inventory and utilities.
  5. Identify the preliminary estimated period of restoration. The period of restoration starts at the date and time of loss. It ends when the business’s income is back to “normal” — inventory or production levels return to normal. This may be calculated in days, weeks, months or years.
  6. Mitigation of losses. The business should attempt to mitigate losses to the extent it can. Mitigation examples include continuing to operate if possible, limit the period of restoration or mitigate certain costs.
  7. Frequent communication. Ongoing communication with the insurance adjuster is important to address expected timelines for all parties and to cover additional items. You’ll need to communicate how these potential extra expenses may be handled by the insurance provider.
  8. Get your documentation ready. Insured parties often need help by forensic accounting experts to document their loss of business income for insurance. Tax returns, financial statements, sales forecasts, invoices, receipts, contracts and exports/reports from accounting systems are a good start for independent third parties to document and verify the loss of business income.

Why you need to consider business interruption insurance

These eight steps will help you explore the possibilities of recovering from your loss of business income through business interruption insurance. You might not be able to prevent pandemics like the spread of COVID-19, but you can potentially find relief from a loss of business income.

To learn more

Eide Bailly has put together numerous helpful resources for businesses related to COVID-19. To see them, click here.

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COVID-19 and business interruption insurance: What you need to know

If your business has been impacted by closings and additional business disruptions, business interruption insurance might bring some relief.

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