In addition to the Paycheck Protection Program and other provisions of the CARES Act, many companies can potentially look to their commercial insurance policies for recovery from the damaging impacts of COVID-19. Business Interruption Insurance is often the first place a company looks to in times like these for recovery. However, as Business Interruption Coverage typically is triggered by some form of first-party property damage, a company may not be covered under that policy for losses related to COVID-19. Even so, a company may have other types of coverage that may have already been triggered.
What can a company do to maximize the potential insurance recovery for extra expenses incurred and lost profits from this crisis?
The first step in the process is to review a company’s Commercial Insurance Coverage in detail with its insurance broker. While every insurance policy is different, there are specific endorsements and exclusions that may either confirm, reduce or even exclude certain coverage. In addition, be clear on the specifics of what is required for your company to qualify for a claim. Furthermore, look for other coverage that may not require first-party property damage, such as:
- Contingent Business Interruption
- Supply Chain/Trade Disruption
- Civil Authority
- Event Cancellation
- Communicable Disease
The next step is to file a claim with a company’s insurance carrier. As many insurance policies have limits on when claims can be filed, companies should contact their insurance carriers as soon as possible about claims.
The feedback GHJ has received is that many claims have already been filed using preliminary damage estimates, and many of those claims are expected to be initially denied by their carriers due to specific virus and pollution exclusions. GHJ understands that there has already been litigation filed to challenge these exclusions. In the event a company is not satisfied with denied coverage, it may consider getting a second opinion from external counsel specializing in insurance coverage. Depending on a company’s fact pattern and financial resources, a company may choose to pursue a claim through litigation.
Support Your Claim
To the extent a company has been approved for its claim, or chooses to pursue its claim beyond an initial denial, it will be important to adequately document and support a company’s claim.
First, a company should document how the business was impacted by COVID-19, as well as how a company responded to the crisis to mitigate its damages, if even possible. As for extra expenses, GHJ would recommend that a specific expense code for COVID-19 be created in a company’s general ledger to efficiently track these amounts.
As for lost profits, a company should collect financial statements, as well as business plans, budgets and forecasts, to name a few.
The consideration of extra expenses and lost profits is often complex and requires a thoughtful approach, especially considering that the damages period may extend well beyond the date at which “stay-at-home” orders have been relaxed by respective state and local governments. While your company’s staff may perform the calculation of extra expenses and lost profits, keep in mind that these calculations will often be reviewed and rebutted by expert accountants hired by the insurance carriers. GHJ has significant experience in preparing reasonable and defensible extra-expense and lost-profit claims and can assist a company in either preparing the initial claim or helping to respond to questions and/or rebuttal opinions from the insurer’s hired accountant experts.
Please reach out to our COVID-19 Response Team with any questions you might have.