Though many businesses are reopening, generally in a limited capacity, most are not back to their pre-pandemic levels, and COVID-19 business interruption losses continue to mount. Claims are being filed by insureds and are routinely denied by carriers, leading to many lawsuits (more than a hundred, based on our research). The main battleground is still over coverage, but insureds would nevertheless be well advised to begin to calculate their losses or at least take the preliminary steps in that process to better support their claim. Those steps include the following:
- Identify and track COVID-related expenses. Insurance policies generally contain provisions related to coverage of “Extra Expenses”, e. those expenses actually incurred by the business but are outside of the business’s normal operations. Business owners should ask themselves, “If not for COVID-19, would I be incurring this expense?” Such expenses may include the following: facility cleaning, extra security, protective equipment, additional advertising to announce closure or any changes to hours or operations, alternative delivery arrangements, and temporary equipment. In order to track these expenses, businesses may consider creating a separate file for all invoices or other related documents. They may also create new general ledger accounts and/or classifications for these expenses, to separate them from those that would have otherwise been incurred.
- Track cancelled orders. Anything a business can do to note specific revenues it would have earned, but lost, would be beneficial. Such cancelled orders may consist of dinner or hotel reservations, catering jobs, delivery orders, etc. All documents, such as order forms, contracts, emails regarding the order and cancellation and deposit receipts, should be saved. Cancellations by phone could be confirmed by email and saved as well.
- Compile necessary documents. As part of the claim process, insurance carriers will request various documents relating to the periods before, during and after the loss. Such documents may include tax returns, financial statements, budgets/forecasts prepared in the ordinary course of business, payroll records, and bank statements. Additionally, insureds may consider converting their financial statements to monthly, which will likely be necessary to track and demonstrate losses over the discrete periods of time covered by the policy.
- Track official decrees. Orders issued by state and local governments determine not only what activities a business is legally allowed to do, but also the beginning date of the loss period under the policy. These orders and dates should be noted in the insured’s claim.
- Note any impact on customers and suppliers. Businesses should make note of any impact faced by others on whom they depend, such as closure or disruption of vendors, suppliers and customers, or infrastructure restrictions that limit customer access. Any specificity here that explains precisely how the insured’s business was disrupted will ultimately make a business interruption claim more compelling.
- Document mitigation efforts. Also relevant to the insured’s claim is a discussion of the efforts taken to mitigate the loss. For example, many restaurants have opted to remain open for delivery and take-out service only, but in some locales, such as business districts, this limited service may have been less profitable than a temporary shut-down. Insureds may also seek rent concessions with a landlord, or other cost reductions. Any such efforts to reduce the loss, even if they fail, are important to document with specificity, in order to make a claim more compelling.
If you have any questions regarding the calculation of business interruption losses, please contact Michael Kresslein at 240.364.2612.