COVID-19 - Preparing to File an Insurance Claim for Lost Income

When we think of common business interruptions, we typically think of fire, flood or other water damage, and natural disasters. When these incidents interfere with business operations, financial performance suffers. Some of these causes or events have a definite or finite period of loss, while others may extend indefinitely. To help alleviate this financial impact, businesses are able to purchase business interruption (“BI”) insurance policies to recover any potential losses. BI insurance is intended to compensate the insured for the income lost during the period of restoration or the time necessary to repair or restore the physical damage to the covered property. BI insurance may entitle the insured to recover additional expenses that would not have been incurred during the ordinary course of business.

Today, our country faces a new threat to business operations in the form of a pandemic – COVID-19. However, BI insurance typically excludes “viruses”, which means claims related to COVID-19 are not covered. Accordingly, any business that has suffered lost income or incurred extra expenses may not be able to recover its losses under a BI insurance claim. That means one of the only ways for a business to recover its losses due to COVID-19’s impact may be under infectious disease coverage. It is possible, however, that this gap in coverage and resultant economic loss will soon be addressed at the state level. The New Jersey State Legislature, for example, is currently considering New Jersey Bill A-3844, which would force insurance companies to pay COVID-19 related BI claims, even when “viruses” are specifically excluded from BI policies. If passed by New Jersey, or other states, insurers may challenge its legality in court due to the unprecedented risk and exposure insurance companies could face from a significant volume of BI claims.

In the wake of the COVID-19 pandemic, businesses that experience BI losses for an indefinite and unforeseen time period include all non-essential businesses, many of which have been ordered to shut down by federal, state, or local governments. Even businesses that remain open and have been deemed essential businesses are likely to experience an interruption to their business due to modified hours, imposed curfews, or restrictions causing some business to be limited to online and delivery-only services.

In the event businesses do ultimately acquire assistance from lawmakers through expanding BI coverage to include the impact of COVID-19, businesses must be proactive in collecting the relevant financial documentation needed to calculate lost income and extra expenses to support their claim. As the COVID-19 situation continues to develop, there may be other alternative means for your business to seek recovery through prospective local, state, or federal legislative policies. If possible, businesses should set up a separate account in the business’ internal accounting system to track expenses related to COVID-19 expenses. This step would help improve the reliability of the documentation available when it comes time to submit a BI claim.

Examples of information that a business should proactively collect in order to support a BI claim include:

• Historical and current annual financial statements
• Federal and state annual tax returns
• Monthly profit and loss statements
• Budgets, forecasts, or projections done prior to and after the event
• Monthly bank statements
• Inventory reports
• Payroll records
• Invoices and purchase orders
• General ledger accounts established to account for any expenses related to the loss such as additional payroll, shipping, temporary facilities, etc.
• Documentation to support extra expenses including receipts, invoices, time sheets, advertising costs, etc. 

Taking these steps will assist an insured in attaining the appropriate coverage during the BI insurance claim process.