Author: Jordan Rodgers
As businesses seek to cope with the impact of coronavirus (COVID-19), Brady Martz is here to help. One potential resource for your business during this time of disruption is business interruption insurance.
Also known as business income coverage, business interruption insurance is a standard endorsement that is often added to a business owner’s insurance policy. It is designed to protect businesses from lost revenue due to a covered event. Most commonly, this coverage is tied to losses of business income due to physical property damage, but each individual policy will list the specific types of events that are covered, as well as those that are excluded.
Follow the following steps to determine if your organization should file a business interruption claim due to the impact of the coronavirus pandemic.
Step 1: Read Your Policy
Find your declaration sheet and policy details. Read them carefully to determine if you have coverage for COVID-19. It is possible that you will not be able to discern your coverage, due to the complexities of insurance language. Don’t be discouraged—simply contact your agent or attorney to get their take on whether your policy considers COVID-19 to be a covered event. Keep this in mind: even if you think you may not qualify, you cannot know for sure if you do not ask.
Step 2: Keep an Eye on the Time
Many policies require timely notice. Timeframes vary by policy, so make sure you are aware of what your policy specifies. Even if you are covered for COVID-19, your claim may be denied if you fail to give timely notice.
Step 3: File a Claim
Reach out to your insurance agent to notify them that you want to file a claim. He or she will provide you with the requisite reporting documentation. This will also create a record of your initial loss date in their system, which can help you avoid issues with policy reporting deadlines.
Step 4: Keep Thorough Records
Utilizing the tools that your insurance company offers, be sure to aggregate and maintain thorough evidence of loss. Most insurers provide worksheets to assist with the reporting process. Your ability to collect complete data on customer and sales activity—including cyclical effects—will assist in the claims process. Focus on gathering data in the following areas:
- Loss of customers and sales
- Fixed costs
- Extra costs incurred
- Cost savings
Step 5: Calculate Income Loss
Unlike physical losses, business interruption losses take place over a period of time. Remember that you are entitled to recovery for the entirety of the loss caused by a covered event. It is tricky to calculate business income loss because it does not take place at one point in time. The correct loss calculation will fully compensate for the lost income during the loss period.
Here are some tips for calculating income loss:
- For some businesses, the period of damage will be relatively brief and well defined. The lost business will be restored when they are allowed to re-open their doors. While they may have some lingering expenses, perhaps in the form of incremental borrowing costs due to debt they took out to operate during the closure, the bulk of the damage may be over once they re-open.
- For some businesses, the damage period may be longer, or even indefinite. Depending on your policy, the claim process may be different. It is possible you will need to estimate your period of damage before the recovery is complete. There are many ways to do this and it can be quite complex.
- Please note: You should make sure that you are doing everything you can to mitigate your losses and ensure as rapid a recovery as possible. You are not entitled to recovery for damages that could have been avoided.
Brady Martz is Here to Help
We hope that your quest to make a business interruption claim goes smoothly and you receive fair compensation. Unfortunately, because the calculations and estimations involved are complex, businesses and insurers frequently develop differing positions on a loss. If you encounter this issue, we are here to help. Please do not hesitate to reach out to your Brady Martz accounting advisor for support during this process. We are experienced in business loss calculations and are ready to help.