Although COVID-19, commonly referred to as the coronavirus, is still in its early stages, it has already had a profound impact on businesses’ abilities to generate revenue and, ultimately, profits. For example, on March 15, the U.S. Centers for Disease Control and Prevention recommended the suspension of gatherings of 50 or more for the next eight weeks, which resulted in the cancellation or postponement of thousands of events, including major league sports, concerts, and conferences. On March 16, the White House suggested no gatherings of 10 or more people. Additionally, numerous states, including Illinois and Ohio, prohibited bars and restaurants from providing dine-in service through, at a minimum, the end of March 2020. Effective at midnight on March 19, California issued statewide mandatory restrictions for residents to stay indoors other than for essentials such as food, healthcare, and critical jobs.
It goes without saying that immediate issues of responding to the societal, public health, and human threats posed by this global pandemic are of critical importance and take top priority. Additionally, business owners wish to ensure the viability of their companies for customers, employees, partners, and other critical stakeholders. Businesses may be able to receive critical financial relief in the form of business insurance claims under certain types of insurance coverage or potentially under existing or future government programs. In that light, we recommend acting sooner rather than later and following the steps outlined below.
By considering these six key steps, a company will better situate itself to 1) submit a credible business insurance claim and 2) minimize the potential for the claims process to become adversarial.
1. Review the company’s insurance policy(ies) to determine the type of insurance coverage and the relevant recovery options available to the company. Different forms of business insurance include business interruption, communicable disease coverage, civil authority, contingent business interruption, trade disruption, general liability, and force majeure, among others. It is essential for the company to understand the coverage and recovery options provided for in its policy(ies) before engaging with the insurer. The company should consider consulting experienced and qualified legal counsel to ensure that its policy(ies) provide for some form of recovery before incurring extra expenses associated with preparing a claim. Even if insurance policy coverage is unlikely, additional opportunities for relief may be introduced by the federal government.
2. Create a response team that is responsible for: 1) communicating with the insurance company; 2) implementing systems and procedures to identify, collect, and organize relevant information, including a system to capture any and all related expense items as a result of the interruption (i.e., “extra expenses”); 3) identifying potential mitigation efforts; and 4) developing the systems and procedures to report the business insurance claim. Identifying a dedicated team responsible for the business insurance claim should increase the credibility of the claim and reduce the likelihood of a dispute with the insurance company. The company should consider hiring an outside consultant or expert as an addition to the response team to save the company time and expense throughout the claims process.
3. Be transparent and responsive with the insurance carrier – from the initial request for interim funds through the “accounting” of the final claim – to ensure that the claims process is as easy and seamless as possible. While many people view the insured and insurer as potential adversaries, a transparent and responsive approach to submitting the business insurance claim will increase the credibility of the company and reduce the possibility of the claims process becoming adversarial.
4. Implement systems and procedures to identify, collect, and organize information that can be used and provided to the insurance company as support for the business insurance claim. The response team should consider and implement the systems and procedures that best situate the company to collect information and documentation to support the determination of: 1) lost sales; 2) saved (or avoided) costs; 3) profits generated from mitigation efforts (e.g., increased sales through take-out or delivery); and 4) extra expenses incurred by the company as a result of the loss event (e.g., increased advertising or coupons for delivery and take-out services). Your response team should begin to build a framework for how the company can demonstrate the revenues and profits it would have otherwise earned absent the pandemic. This framework would include critical data such as trends from prior months or years, impacts of seasonality, and recent changes or investments in the business to enable increased sales and profits.
5. Identify potential mitigation efforts to minimize the disruption to the company’s business. Insurance policies routinely require the insured to take appropriate steps to mitigate (or reduce) the impact of the loss event. For example, if the largest customer of a manufacturing company breached its contract, the manufacturing company would most likely be required to take efforts to mitigate the loss, such as attempting to find a new customer to purchase the leftover inventory. The company should implement processes to identify the revenues and costs (including the increased cost of the mitigation efforts) to properly account for the profits generated from its mitigation efforts.
6. Develop the systems and procedures to report the business insurance claim. Properly develop systems and procedures to report, whether the reporting is bi-weekly, monthly, or quarterly, the details of the business insurance claim to the insurance carrier. The systems and procedures to report the business insurance claim are collaborative and complimentary to being transparent and responsive, which adds increased credibility to the claim and reduces the likelihood of the claims process becoming adversarial.
While the steps described above are not intended to be an all-inclusive list, these steps should benefit the company in its quest to obtain the best possible outcome for recovering its losses.