Business Interruption Insurance: Fed’s Propose Legislation

Following in the footsteps of numerous state legislatures that are attempting to compel insurance companies to retroactively cover COVID-19 related business income losses, the Federal government may be taking action. A discussion draft of a bill that would establish a Federal program is being developed.  The program, currently named the “Pandemic Risk Insurance Act of 2020”, would provide assistance to the insurance industry when losses exceed $250 million and would be capped at $500 billion in a calendar year.  According to the American Property Casualty Insurance Association,  estimated losses in the United States are between $220 and $383 billion per month for small business alone with the insurance industry potentially handling 30 million claims.

At last Friday’s White House briefing, the President was asked a question about business debt and his response addressed the insurance industry’s negative response to Business Interruption claims. President Trump, noting that companies paid premiums for this coverage for many years and have an expectation of coverage, suggested that insurance companies whose policies did not have an exclusion should pay “if its fair.”  The White House, however, has not taken a position on any potential Federal or State legislation to compel carriers to honor these claims.

While some states grapple with legislation to compel carriers to pay BI claims, others, like California and New York recently issued directives to insurance companies doing business in their states to send notices to policy holders that explain the Business Interruption coverage parts of their insurance policies. These notices essentially mirror the denial letters that the carriers have been reflexively sending out and do nothing more than explain why coverage is not available under their policies.

We continue to recommend that all businesses with Business Interruption insurance put their carrier on notice of a claim and compile the documents necessary to support the claim in the event there is a change in the law.  That documentation would include:

• Historical and current annual financial statements
• Federal and state annual tax returns
• Monthly profit and loss statements
• Budgets, forecasts, or projections done prior to and after the event
• Monthly bank statements
• Inventory reports
• Payroll records
• Invoices and purchase orders
• General ledger accounts established to account for any expenses related to the loss such as additional payroll, shipping, temporary facilities, etc.
• Documentation to support extra expenses including receipts, invoices, time sheets, advertising costs, etc.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice.  For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.