Covid-19 and Business Interruption: Maximizing Insurance Coverage - - PowerPoint PPT Presentation

Covid-19 and Business Interruption: Maximizing Insurance Coverage and Federal Grants

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Overview Overview Overview Overview

Catastrophic Losses

Overview Overview Overview Overview

95% of Americans Subject to Stay-at-Home Orders

Overview Overview Overview Overview

Devastating Business Interruptions

• 26 million new jobless claims in 5 weeks (2 in 10

full-time American Workers)

• Business interruption losses for U.S. small

businesses are estimated to be $431 billion per month

Overview Overview Overview Overview

Potential Sources of Recovery

• Business Interruption Insurance

Insurance

• Federal Grants

Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance

Purpose

• Protect the insured’s business

against loss of income

• Put the insured in the same financial

position as if no loss had occurred

Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance

Coverage Grant

• “We will pay for the actual loss of Business Income you

sustain due to the necessary "suspension"

• f

your "operations" during the "period

• f

restoration". The "suspension" must be caused by direct physical loss of or damage to property. . . . The loss or damage must be caused by or result from a Covered Cause of Loss.” ISO CP 00 30 10 12

Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance

“Chain Rule”

IN THE EVENT OF

• 1. A Discrete Event of Physical Loss or Damage
• 2. To Described Property
• 3. From a Risk of Loss
• 4. Where No Exclusion Applies
• 5. Which Causes an Interruption of Business Operations

THE POLICY COVERS

• 6. The Defined Loss
• 7. For The Defined Indemnity Period

Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance

Physical Loss or Damage

• Physical loss or damage means:

“physical dispossession of property from the insured without their consent, or actual, substantive, physical changes to property that reduce the property’s worth or usefulness, as distinguished from changes that exist only in the minds of people.”

Loss of Use of Property Constitutes Physical Loss Physical Destruction of Property Not Required

Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance

Coverage Extensions

• Event Cancellation Insurance
• Civil or Military Authority Interruption
• Ingress/Egress
• Contingent Business Interruption

Event Cancellation Insurance Event Cancellation Insurance Event Cancellation Insurance Event Cancellation Insurance

• Covers business losses when an important event does not occur as

planned

• Many businesses buy this type of insurance when they are about to host

a large meeting or conference that has the potential to generate income for the business

• Typical Buyer: Tradeshows, Conferences, Expos, Consumer Shows,

Annual Meetings, Conventions, Sporting Events, Concerts, Award Ceremonies, Fairs, Festivals

• In response to the SARS outbreak, insurers adopted a SARS exclusion that

may apply to other “Pandemics” and government-mandated quarantines

Interruption by Civil or Interruption by Civil or Interruption by Civil or Interruption by Civil or Military Authority Military Authority Military Authority Military Authority

• Reimburses policyholders for BI losses incurred when

access to property is prohibited by an order of a civil or military authority following a specified event

• Potentially, no coverage extension has broader

implications for Coronavirus claims

Ingress/Egress Ingress/Egress Ingress/Egress Ingress/Egress

• Insures against losses arising when access to

insured property is prohibited by something

• ther than civil or military authorities
• Historically, such coverage has not been

available under ISO forms

Contingent Business Contingent Business Contingent Business Contingent Business Interruption Interruption Interruption Interruption

• Reimburses lost profits resulting from an

interruption of business at customers’ or suppliers’ locations

• Coverage is generally triggered by physical loss or

damage to the property of the dependent customer or supplier, or to property upon which the insured depends to attract customers

Coverage Extensions Coverage Extensions Coverage Extensions Coverage Extensions

“Covered Cause of Loss”

• “The loss or damage must be caused by or result

from a Covered Cause of Loss.”

• “Covered Cause of Loss” means Risks of Direct

Physical Loss unless excluded or limited

Virus or Bacteria Exclusion Virus or Bacteria Exclusion Virus or Bacteria Exclusion Virus or Bacteria Exclusion

• “We will not pay for loss or damage caused

by or resulting from any virus, bacterium or

• ther microorganism that induces or is

capable of inducing physical distress, illness

• r disease.”

Virus or Bacteria Exclusion Virus or Bacteria Exclusion Virus or Bacteria Exclusion Virus or Bacteria Exclusion

ISO Explanation “While property policies have not been a source of recovery for losses involving contamination by disease- causing agents, the specter of pandemic or hitherto unorthodox transmission of infectious material raises the concern that insurers employing such policies may face claims in which there are efforts to expand coverage and to create sources of recovery for such losses, contrary to policy intent.”

Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance

Pending Litigation

• Initial wave of coverage litigation
• Analysis of initial wave of coverage litigation
• Analysis of plaintiffs (restaurants, retail businesses, etc.,)
• Types of coverage and policy language (presence of “virus

exclusion”)

• Predominate coverage arguments (property damage, loss
• f use, etc.)
• Types of claims and requests for relief (declaratory

judgement, bad faith, etc.)

• Predictions and critical takeaways

Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance Business Interruption Insurance

Proposed Legislation

• State legislation
• New Jersey legislation (The New Jersey Assembly Bill 3844)
• Other state legislation (NY, MA, OH, PA, SC, LA)
• Federal legislation
• Pandemic Risk Insurance Act of 2020
• COVID-19 Business Interruption & Cancellation Claims Fund
• Predictions and critical takeaways

Federal Loans/Grants Federal Loans/Grants Federal Loans/Grants Federal Loans/Grants

Available Relief for Small Businesses The Original Coronavirus Aid, Relief, and Economic Security Coronavirus Aid, Relief, and Economic Security Coronavirus Aid, Relief, and Economic Security Coronavirus Aid, Relief, and Economic Security (CARES) Act (CARES) Act (CARES) Act (CARES) Act provided for $349 billion in loans/grants for Small Business through the Paycheck Protection Program Paycheck Protection Program Paycheck Protection Program Paycheck Protection Program (PPP) (PPP) (PPP) (PPP), and through national and local banks, and a $10 billion Economic Injury Disaster Loan (EIDL) Economic Injury Disaster Loan (EIDL) Economic Injury Disaster Loan (EIDL) Economic Injury Disaster Loan (EIDL) program directly from the Small Business Administration’s (SBA) website

Federal Loans/Grants Federal Loans/Grants Federal Loans/Grants Federal Loans/Grants

Two Main SBA Programs

• Paycheck Protection Program
• $349 billion loan/grant program to

pay employees and expenses for small businesses under 500 employees, self-employed, and gig workers to help them stay afloat, if business in operation on February 15, 2020

• Apply at: Covid19relief.sba.gov
• Economic Injury Disaster

Loan (EIDL) Loans/Grants

• $10 billion loan/grant program at

SBA for small businesses, self- employed, and gig workers in business before January 31, 2020

• Apply at:

https://disasterloan.sba.gov/ela/

Small businesses may apply for both PPP and EIDL, but costs may not overlap

• The original Coronavirus Aid, Relief, and Economic

Security (CARES) Act was signed into law on March 27, 2020

and opened on April 3 for small businesses and sole proprietorships and on April 10 for independent contractors and self-employed.

• $349 billion was provided in loans/grants for Small Business

through the Paycheck Protection Program (PPP).

• An additional $10 billion was appropriated for the Economic

Injury Disaster Loan (EIDL) program administered directly

through the Small Business Administration’s (SBA) website.

Both programs were out of money 13 days later.

The CARES Act Funds Exhausted The CARES Act Funds Exhausted The CARES Act Funds Exhausted The CARES Act Funds Exhausted

Distribution by State and Territory Distribution by State and Territory Distribution by State and Territory Distribution by State and Territory

PPP Fund Allocation (April 16, 2020 PPP report)

Distribution by Industry Distribution by Industry Distribution by Industry Distribution by Industry

PPP Funds Allocation (April 16, 2020 PPP report)

PPP&HCEA or PPP 3.5 Provides $484 billion total funding:

Paycheck Protection Program and Paycheck Protection Program and Paycheck Protection Program and Paycheck Protection Program and Health Care Enhancement Act Health Care Enhancement Act Health Care Enhancement Act Health Care Enhancement Act

(PPP&HCEA or PPP 3.5) Signed April 24,2020 and Began Accepting Applications April 27

• $310 billion for the PPP
• $60 billion of which reserved for small banks and

hopefully for smaller businesses.

• The EIDL loan/grant program received $60 billion.
• Seventy-five billion will go to hospitals
• $25 billion for coronavirus testing
• $14 billion administrative fees

PPP Considerations PPP Considerations PPP Considerations PPP Considerations

• Those who previously filed will not have to refile.
• Although the SBA has not issued new rules/ guidance for the PPP 3.5., the

requirements for each appear to be the same as for the original CARES Act.

• The PPP provides for loans for up to $10 million, whereas the EIDL provides for

loans up to $2 million. Small businesses up to 500 employees may apply for both, but funds may not be used to cover the same expenses.

• The PPP provides loans/grants of up to $10 million for businesses operational on

February 15, 2020 to cover payroll and expenses, such as rent, utilities and health care.

• The loan may be forgiven and not counted as income, if 75% of the loan goes

toward payroll and the money is spent within eight weeks of the loan origination date.

• The recipient must maintain the same average number of employees for eight

weeks after the loan origination date, as were employed from February 15, 2019 to June 30, 2019 or January 1, 2020 to February 15, 2020.

• Applications are filed through national and local banks.

Information for filing for a PPP loan may be found at:

https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf & the SBA’s Lender Match Portal at https://www.sba.gov/funding-programs/loans/coronavirus- relief-options/paycheck-protection-program-ppp.

The EIDL Program The EIDL Program The EIDL Program The EIDL Program

The EIDL program allows small businesses in existence on January 31, 2020, to and file a simple online application on the SBA website at https://covid19relief.sba.gov/#/ for loans up to $2 million for payroll, paid sick leave, rent or mortgage payments, and repayment of unmet obligations. The best part of the EIDL is that it gives a $10,000 Emergency Cash Grant, even if the applicant does not qualify for any additional funds. The funds are available on a first come, first served basis. The applications allegedly should be processed in about one week.

Economic Impact Payments (EIP) Economic Impact Payments (EIP) Economic Impact Payments (EIP) Economic Impact Payments (EIP)

• Economic Impact Payments (EIP) paid directly to individuals of

up to $1,200 per adult for individuals with income less than $99,000 or

• $198,000 for joint filers
• $500 per child under 17 years old – or up to $3,400 for a family
• f four.
• The payments will be made by direct deposit or paper check, if

prior refunds not received via direct deposit.

• If individuals have not received their EIP payment, the IRS may

not have direct deposit information and are slowly processing paper checks. Direct deposit may be accomplished by providing social security, date of birth, and 2018-2019 tax return income at IRS.gov or https://www.irs.gov/coronavirus/get-my-payment.

F F F Fu u u ut t t tu u u ur r r re e e e G G G Go

• v

v v ve e e er r r rn n n nm m m me e e en n n nt t t t P P P Pa a a ay y y ym m m me e e en n n nt t t ts s s s a a a an n n nd d d d L L L Li i i it t t ti i i ig g g ga a a at t t ti i i io

• n

n n n Dangers Dangers Dangers Dangers

• Potential Government

Relief

• Another Round of

Business Loans

• Federal CDBG Block

Grants to States and Local Governments for Individuals and Businesses A Decade of Court Battles

• Potential Litigation Dangers
• Reopening Without Following

Standard of Care as Recommended by CDC

• Supply Chain Contract Disputes

Thank You & Questions Thank You & Questions Thank You & Questions Thank You & Questions

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