Submitting a business interruption claim can be a valuable means of recuperating your loss of income during high-stress times. However, the process can require time and resources that divert your attention away from critical planning to move your business forward. As a business owner, seeking guidance from third party entities to help you submit a claim can bolster your credibility, offset additional costs and give you valuable time back.
We’ve assembled several industry experts to provide the guidance you need to help mitigate your losses in the midst of the coronavirus pandemic.
With COVID-19 disrupting global supply chains and sales, businesses are losing income and incurring additional expenses. Following the 2003 Severe Acute Respiratory Syndrome (SARS) outbreak, insurance companies rewrote standard policies to exclude infectious diseases. As a result, there will be little first party coverage available on common policies; however, Business Interruption and Supply Chain Interruption are two main types of insurance pertinent to this type of loss. Directors and Officers (D&O) and Employment Practices Liability Insurance (EPLI) policies could respond to third party liability claims, depending on the individual terms and conditions.
Once we understand the full scope of the COVID-19 virus, the insurance industry will likely work on policies that will be available on a go-forward basis for these types of outbreaks.
The natural first thought is to jump right into filing a claim for potential coverage with your insurance carrier. While it is absolutely a great idea to start that process sooner rather than later, a smart business is simultaneously reviewing their own contracts to both support any claim and also mitigate future risk. First, have you reviewed your existing contracts to see if they have provisions that would either permit or restrict cancellations of events, orders and the like? Force majeure clauses free both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties occurs. Such circumstances generally include war, strike, riot, crime, or an ‘act of God.’ As global pandemics are rarely thought of at the time of contracting, force majeure clauses should be evaluated when presented with any difficult business situation related to coronavirus.
Businesses can be proactive as well. When Morgan Stanley acquired E-Trade in February the deal explicitly excluded coronavirus as a ‘material adverse effect.’ What this means, is that the virus was acknowledged and accounted for in the deal price. Absent other extenuating circumstances, the virus could not be used as an excuse to back out of the deal, no matter how much the stock market or the economy was later disrupted. Are you specifically calling out the virus and its effects in the contracts you are about to enter into? An ounce of prevention is worth a pound of cure.
Tracking the effects of the coronavirus on your bottom line can fall through the cracks while trying to stay one step ahead of evolving challenges.
However, following these steps now will help you quantify your losses and assist in a potential recovery:
- 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.
- Retain copies of 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 any potential business impacts you didn’t consider, but for which coverage is provided in your policy.
The crisis is now, but not forever. The common belief among business owners is that there is a choice to be made between running their business or managing the claim. The truth is, retaining a 3rd party expert allows business owners to focus on what they know best: running their business while their claim is being properly managed and the potential recovery is being maximized.