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Calculating Loss or Damages for a Potential COVID-19 Business Interruption Claim

04.27.2020

Business interruption insurance policies might not normally cover pandemics, but filing a claim is still important. In a recent St. Louis Business Journal article, Bill Goddard, Director, Insurance Consulting, discussed three important considerations when filing a claim:

  1. Give your insurance carrier prompt notification that you intend to file a claim.
  2. Consult an independent insurance expert to read and understand your policy.
  3. A denial is not absolute; interpretation of the policy could uncover a ‘maybe.’

A policy might say there has to be physical loss or damage to property, but determining coverage for loss or damages depends on the language in the policy and its interpretation.

When filing a COVID-19 business interruption claim, it is important to start preparations for calculating the amount of profits lost and continuing expenses. Many insurance policies include a provision that, if the claim is approved, the insurance company will pay the cost of hiring an expert to help the insured calculate the claim. Proper documentation is critical to support a business interruption claim. Ensure you’re maintaining accurate and up-to-date business and financial data:

  1. Keep track of the dates the business was closed or was detrimentally affected by COVID-19.
    • This includes documenting key dates such as local and statewide stay-at-home mandates, as well as other important dates.
  2. Ensure accurate, timely financial statements (balance sheets, income statements and statements of cash flow) are prepared on a monthly basis.
    • This includes monthly financial statements for 24 months before the effects of COVID-19, monthly financial statements while the business is affected by COVID-19 and monthly financial statements after the effects of COVID-19 have subsided.
    • Retain copies of any key reports used by management to run the business. These typically vary by business and contain metrics used by management to gauge how operations are performing on a daily, weekly or monthly basis.
    • Make sure all supporting accounting documentation is organized and easily accessible as well (examples include purchase orders, invoices, receiving documents, customer contracts, supplier contracts, receipts, etc.).
  3. Maintain accurate, timely records of employee headcount and monthly hours worked before, during and after COVID-19.
    • This also includes records of employees with reduced hours, who were let go, who were unable to work due to COVID-19, and employees that took leave under the Families First Coronavirus Response Act along with the reason leave was taken.
  4. If available, pull together historical projections and long-term planning documents used by management to guide the direction of the company.
    • If accurate, these can be an important indicator of the company’s expected performance before COVID-19.
  5. If Paycheck Protection Program (PPP) funds were received, and are ultimately forgiven, ensure accurate records are kept to document how much was received, when it was received, when the funds were paid and what they were used for, and ultimately when notice of forgiveness was received.
  6. Separately keep track of additional expenditures directly related to COVID-19.
    • This can include increased office cleanings, additional cleaning supplies, safety gear for employees, additional technology purchases to allow employees the ability to work from home, etc.

If you would like assistance reviewing your insurance policy or filing a business interruption claim for COVID-19, contact Bill Goddard, Director, Insurance Consulting, at 314.983.1253 or bgoddard@bswllc.com. If you have questions about calculating damages or loss for your business, contact Jason Buhlinger, Principal, Transaction Advisory and Litigation Support Services, at 314.983.1310 or jbuhlinger@bswllc.com.

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