In just a few weeks, the outbreak of coronavirus has slowed many businesses, put people out of work, and forced many businesses to cease functioning altogether. The Federal Reserve, Congress, and the President are all proposing relief measures, but few have been fully passed into law or put into action – yet. This article is intended to help you prepare to apply for the stimulus programs that are pending, because the sooner you can file a claim or apply for a loan the sooner you can begin your recovery.
While most business interruption policies specifically exclude coverage for virus or bacteria incidents, we note that:
- In New Jersey, legislation is being considered to extend coverage to COVID-19.
- Some insurance companies believe that if retroactive coverage is passed, it will necessitate a Federal program to fund the claims since carriers did not price, nor create reserves for this type and magnitude of coverage. The sudden drop in the markets also puts pressure on carriers to fund claims.
- The intention of the bills pending in Congress is to put cash into the hands of businesses and their employees to restart the economy quickly. Therefore, stay tuned as these measures develop.
Prepare for a Favorable Recovery
To take full advantage of pending assistance programs, keep thorough records of COVID-19’s effect on your business. A business interruption claim has a basic structure that provides a familiar framework for organizing information. A business interruption claim is organized around:
- Direct Costs of an Incident – All costs associated with containing, replacing, repairing and safeguarding equipment, facilities and personnel
- Maintaining Necessary Business Expenses – Costs associated with maintaining an affected business’ workforce and other operations
- Extra Expenses – Costs associated with overtime, additional rent and professional fees
On 60 Minutes, Neel Kashkari, president of the Minnesota Federal Reserve Branch, indicated that the measured response that characterized stimulus plans in 2008 and 2009 actually delayed a return to full employment. He suggested that, this time, the Federal Reserve will be taking much more aggressive actions to get the economy back on its feet sooner.
In addition to the direct cash payments to taxpayers also being considered, the government is looking at different solutions to get as much liquidity (cash) into businesses as necessary to help them retain employees and prevent layoffs. These programs include enhanced SBA loan programs as well as direct Main Street lending by the Federal Reserve.
Regardless of the final form of the aid programs currently under review by Congress, those businesses preparing thorough records now will be able to apply for relief earlier and receive aid sooner. We urge you to:
- Examine all aspects of your operations to identify potential areas of impact;
- Track time spent managing issues related to the crisis;
- Keep detailed records of direct costs associated with any affected business process;
- Segregate unusual or potentially claim-related costs from normal operating expenses;
- Maintain customer and vendor correspondence regarding cancelled orders and sales;
- Keep up with your pre-crisis projections, forecasts, budgets, meeting notes, etc. that detail expected operations;
- Retain support for any orders issued by local, state or federal agencies limiting access to facilities;
- Review all insurance policy coverages to see if there are foreseeable impacts to the insurance company, which you have not considered.
The purpose of business interruption insurance is to place you in the position you would have held had the incident not occurred. During this national emergency there is nearly universal agreement that the benefits provided to a business should provide the support necessary for businesses to have a strong restart when restrictions relax. With aid programs pending, it’s important to keep track of the costs you’re incurring. Those records will enable an immediate response once aid programs are implemented.
The crisis is now, but not forever, and your recovery will depend on your actions today.
Friedman is a leading accounting firm featuring more than 600 professionals dedicated to helping you do better business under any and every circumstance. We remain on call and ready to discuss the financial impact of COVID-19 and its implications for your business. For assistance assessing your circumstances and preparing petitions for relief, contact a Friedman advisor.