Best Practices for a Business Interruption Claim Related to COVID-19

The outbreak of the coronavirus has greatly altered the global economic landscape.  The repercussions of this pandemic have been felt immediately and will be felt months, possibly even years from now.  Aside from the very personal effects of this pandemic being felt globally, which are too numerous to list here, businesses have been forced by mandate or through good corporate citizenship to close their doors indefinitely in an attempt to mitigate the spread of the virus.  Some industries have laid off their entire staff as revenue sources have dried up nearly overnight.  Small to medium-sized businesses do not have the resources (either financial or access to specialized inhouse knowledge), especially in light of the current economic downturn, to navigate these completely uncharted waters on their own.  Therefore, it is incumbent upon management, outside accountants, advisors, and legal counsel to step in and guide them in the most prudent steps to mitigate the effects of this pandemic on their businesses.

Business Interruption Insurance is often carried by businesses to help mitigate the loss of revenue due to fire, natural disaster, or other types of catastrophic events.  Because this is such an unprecedented event, it remains unknown if losses resulting from COVID-19 will be covered by insurers.  In fact, many insurer’s, in response to other global pandemics, have specifically excluded pandemics from their policies.  However, due to pressure from the effected businesses and the prospect of government intervention, effected businesses should take steps to ensure they are able to successfully file a business interruption claim.  Below is a list of 3 steps businesses should consider to prepare for a Business Interruption claim.

    1. Review the insurance policy to determine what type of coverage (if any) is in place to cover lost income due to a business interruption. If legal counsel has not already been involved in reviewing the policy documentation, best practice would be to engage legal counsel prior to incurring any extra costs in the preparation of a claim.  Be aware that policies may cover the professional fees incurred in the preparation of a successful claim.
    2. Gather copies of prior tax returns, other financial records, and all supporting source documents (including invoices, contracts, employee time records, and bank statements) that are needed to support a claim. If it is determined that coverage is available, as early in the process as possible, it is recommended to engage an experienced forensic accountant to assist with the preparation of the claim.  An experienced forensic accountant can help ensure that your claim is calculated using commonly accepted methodologies and supported with appropriate documentation.
    3. Undertake the steps required of you by the terms of your policy. Many policies require effected businesses to implement loss mitigation efforts.  A simple example of mitigation would be for a restaurant that is no longer able to serve customers in their dining room to market that they are now offering take-out.  Effected companies should document all mitigation efforts, as well as any revenue and costs associated with these efforts.

Note that even if it is determined that insurance coverage is unavailable, it is likely that relief programs through the federal government will be available in the coming days, weeks and months.  Having a well thought out claim and support readily available will speed the process up in any federal aid program.  Further, having an established “audit trail” in place will aid if any questions arise on the use of the funds after any federal aid is disbursed.

While these steps are not intended to be an all-inclusive list, by considering them early in the process, effected businesses will be able to take proactive steps to manage a successful claim.  IAG Forensics & Valuation is well suited to assist in these matters, with professionals having significant experience in both forensic accounting and financial analysis available.  Please reach out to Allan Raulerson CPA/ABV, CVA, ASA, CFE or Karen Fortune, CPA/CFF, CGMA, MAcc for more information on how IAG Forensics & Valuation can assist in a potential Business Interruption Claim.

By Allan Raulerson CPA/ABV, CVA, ASA, CFE

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