COVID-19: Prepare Now to Maximize Insurance Recoveries

To help address some inevitable issues and to assist with the initial insurance claim process, we offer the following reminders.

1.  Obtain and Review Your Insurance Policies.
Step one, ideally, is one you’ll have prepared for before the pandemic because it is crucial to ensure that all potentially applicable insurance policies and binders will be available.  Arrange to have the policies at your fingertips even if you cannot get into your office. Cloud storage is a good solution for when you cannot get to physical files. Review and evaluate all potentially applicable insurance policies for potential coverage. 

Calendar any deadlines for securing coverage under each policy—including by when you must give notice, file a sworn proof of loss, and—if the insurer makes an adverse coverage determination—file suit to vindicate your rights. Many of these tasks are time-intensive, so also calendar reminders set several weeks before each deadline to get them started. Any tasks the policies require to be done in a “reasonable” time should be completed as soon as practicable. Insurance companies frequently claim that a policyholder missing a deadline is fatal to its claim. 

If the policy specifies a deadline for filing proof of loss, make an early assessment whether it will be possible to meet the deadline.  If necessary, ask your insurer for more time.  Insurers will normally honor reasonable requests for an extension.

2.  Assess All Possible Coverages.
“First-party” policies, such as commercial property policies, typically provide coverage for business or property owners’ own losses, and are likely to be the most access policies because of COVID-19. Particularly relevant with respect to COVID-19, many commercial property policies are also endorsed or extended to cover losses due to the interruption of the insured’s normal business activity because of damage to suppliers, customers, infrastructure and other critical, or dependent, properties. You should also review your policies to look for “contingent business interruption” coverage when suppliers or customers suffer damage that disrupts your own supply chain. Depending on the coverage you purchased, there may even be coverage when closures of roads, rail, ports facilities, and other conveyances disrupt supply chains. Similarly, government orders prohibiting access to your facilities, such as orders prohibiting “non-essential” workers from going to work—may trigger “civil authority” coverage under your policies.  

But as the situation continues to unfold, businesses should also be prepared to look at “third-party” policies, which typically provide liability coverage for claims asserted against the policyholder. It is possible the corporate policyholders might eventually be subject to suits brought by shareholders (for alleged failure to adequately respond to the pandemic, which resulted in poor financial performance) or by customers, employees, or individuals (for alleged actions or inactions that contributed to the spread of the virus).

3.  Place All Insurers on Notice As Soon as Practicable.
Don’t wait to complete the inventory of your losses before placing your insurers on notice.  You will have time to do that in your sworn proof of loss.  As soon as possible, place all your insurers on notice, even if you are not yet sure your loss will affect the particular coverage.  Do not assume you do not have coverage or that a particular policy will not be called upon to respond. As you tote up your losses, you may discover—well after the fact—that you had losses you did not initially expect. So give notice anyway. Notice is just that: advice to your insurance company that you might have a claim. It need not be too detailed at first, and generally does not need to state a cause of loss.  There is no need to delay.

In giving notice, be sure to follow the directions given in each insurance policy precisely, always bearing in mind that different policies have different notice requirements. Pay close attention to your notice deadline, the person or organization you have to notify, and the required form of notice. Insurance brokers may be best positioned to provide the notice, so be sure to consult with your broker. But always remember that the insured will be held responsible for noncompliance with the notice condition, so take it upon yourself to ensure that notice is actually provided.

4.  Engage Experts Early.
Especially for a business interruption loss, it is usually prudent to engage professional claim consultants early. (In fact, it is a good idea to have a relationship with a forensic accounting firm that knows your company’s business even before a disaster hits.)  Additional experts may be needed to model the unique financial aspects of your business. Their professional fees and other mitigation expenses are frequently covered under property policies, subject to certain limits.

It is also a good idea to retain an experienced insurance coverage lawyer, not just for when you need an advocate, but also to help you in the first instance to present your claim in the best way to maximize your opportunity to recover.  Coverage counsel can help protect privileged communications and avoid many of the traps for the unwary in presenting your insurance claim and in responding to the insurer’s information requests. They can also identify when an insurer has engaged in any improper claims handling practices under applicable law.

You must cooperate with the insurance company’s adjuster.  At the same time, remember:  the adjuster works for the insurance company—not for you. If you need an advocate, don’t expect one in the adjuster.  Hire your own. 

5.  Document and Mitigate Your Losses.
Carefully documenting losses is critically important for evaluating the loss—and ensure they are backed up somewhere. Also make a record of what you do to address or mitigate losses.  Track expenses costs associated with mitigation, decontamination, and the professionals you engage to perform these tasks and to prepare your insurance claim.  Establish unique accounts in your accounting system to track all losses and expenses.

You may also be obligated to preserve and protect your property from further losses, including mitigating additional damage. Because such steps are required, mitigation expenses are usually covered under property insurance policies.

6.  Detail Your Business Interruption and Contingent Business Interruption Claims.
A majority of the losses associated with COVID-19 are likely to be business interruption losses. Business interruption coverage reimburses insureds for earnings lost because of disruptions caused by a covered event. A special category of insurance, contingent business interruption, covers business interruption losses resulting from damage to parties other than the insured, such as customers or suppliers. For contingent business interruption to apply, the damage to the suppliers or customers must be caused by a covered event under your policy.

The biggest challenge in securing coverage under either of these types of insurance is valuing and documenting the loss. The quantification of losses often depends on a sophisticated analysis of the business revenue that would have been expected if the event had not occurred, taking into account seasonal business cycles and other facts.  This is an exercise that requires the assistance of experienced forensic accountants.  (See above.) 

It is crucial to keep detailed records documenting when and how your business was interrupted. This typically requires close communication with your suppliers and customers, so you can document what happened and how it has affected your supply chain and markets.

7.  Follow the Policy to Preserve the Claim.
After notice of loss, most property policies also require that the insured later submit a sworn proof of loss to catalogue the damages. Although this is usually done after reaching agreement with the insurer on the amount of the insured claim, policies sometimes require the insured submit a proof of loss within a fairly short time after the event. As noted, insurers are usually willing to extend these deadlines, but make sure you ask for such extensions in a timely manner, and memorialize the request, and any agreement, in writing. State governments might also extend deadlines after a major disaster, so it is important to stay up to date on those developments as well.

8.  Consider Accessing Government Funds.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides financial assistance, loans, and other investments to different business and industries. Figuring out what funds are available to your business and how to access them might require assistance from the right team of professionals. 

Additionally, FEMA and other government-based programs are also potentially available for certain not-for-profit organizations that provide critical infrastructure and essential services. Critical infrastructure and services include hospitals and other medical-treatment facilities, fire, police and other emergency services, power, water and sewer utilities, educational institutions, libraries, museums and zoos, community centers, senior citizen centers, and day-care centers. The program and application process can be daunting—and strict time limits apply. FEMA does not, however, pay for business interruption losses, and grant recipients must reimburse FEMA for any benefits that are duplicated by other sources, such as private insurance.

Even with COVID-19’s havoc, by following these tips, business and property owners should be well positioned to maximize their recoveries.

Pillsbury’s Insurance Recovery & Advisory Group is a nationally acclaimed, market-leading policyholder-side insurance group within one of the most respected global law firms headquartered in the United States. Pillsbury stands ready to assist with recovery efforts stemming from COVID-19. 

Pillsbury’s experienced, multidisciplinary COVID-19 Task Force is closely monitoring the global threat of COVID-19 and providing real-time advice across industry sectors, drawing on the firm’s capabilities in crisis management, employment law, insurance recovery, real estate, supply chain management, cybersecurity, corporate and contracts law and other areas to provide critical guidance to clients in an urgent and quickly evolving situation. For more thought leadership on this rapidly developing topic, please visit our COVID-19 (Coronavirus) Resource Center.