COVID-19, or Coronavirus, has impacted most if not all of the businesses worldwide. Some have been impacted since the beginning of 2020 while others may be just starting to feel the impact over the past few weeks. Many have been questioning whether the losses of income are covered under business interruption insurance.
What is Business Interruption Insurance? Business interruption insurance is typically a part of a commercial property insurance policy. The intent is to protect businesses against business income loss. It is commonly termed in commercial property insurance policies that the suspension of operations must be covered by a “covered cause of loss” that results in direct physical loss of or damage to insured properties.
Does Loss of Business Income Covered? The language of the insurance policy determines what constitutes physical loss or damage. Commonly seen language that determine coverage include “Tangible change resulting in damage to property”, “Demonstrable alteration of property”, “Not usable” or “Not merchantable”. Whether it is covered depends on the specific facts and circumstances, the language of the insurance policy, and specific coverages and exclusions in the policy. Some policies have “Contingent Business Interruption Coverage” which generally covers losses due to properties of others. Policies may contain “Exclusion of loss due to virus or bacteria”, “Communicable Disease Exclusion”, “Governmental Action” which may apply to preclude coverage. A business has to further analyze the exclusions and be able to present that the business interruption insurance is triggered by the physical loss in accordance with the insurance policy.
How to Determine the Loss? Business interruption loss cannot be speculative and thus requires appropriate documentation to support the claim. Common questions include: How was the business affected by the event? Was it a partial/departmental closure or a full shutdown? How long was the period of restoration or an estimate if it’s ongoing? The answers to these questions will have to be supportable by sufficient documentation.
What Are Necessary Documents? To help and support a business interruption claim, necessary documents include a copy of insurance policy, monthly income statements (or profit and loss statements, tax returns, sales reports) for the past three to five year, budget and forecast during the normal course of business if available, and all supporting documents for lost revenues, saved expenses, and extra expenses incurred. Having these documents ready as much as possible could save time for all parties and avoid further disputes.
A&C’s qualified and experienced professionals calculate the change in business income by comparing the level of profits before and after the relevant actions while factoring in changes in the industry as well as pre-existing projections that would have led to a change in profits even in the absence of any outside influence. A&C’s calculations assist businesses & insurance companies in reaching a supportable lost profit analysis.