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Do standard business insurance policies protect against coronavirus? It depends

Local business owners are becoming concerned about the current coronavirus disease and the possible impacts on their businesses. Large events are being canceled, shiploads of tourists being quarantined, entire cities, beaches, restaurants and entertainment venues are being forced to limit hours and customer counts.

Pretty scary.

Many are asking, is this something covered by a general business policy, all risks policy, or is business interruption coverage required?

Standard business policies are not generally designed to protect against people getting sick or a pandemic. However, they may provide limited coverage under the right circumstances. If an employee gets sick, there is no coverage, but possibly, workers compensation policies could offer some coverage for medical professionals.

Many choose to maintain business interruption insurance to cover risks associated with natural disasters such as storms and floods. These events may impact a business’s ability to operate or even survive.

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A standard business interruption policy typically covers loss of business income when operations are interrupted from a covered peril. It is unlikely that coronavirus claims would be covered. Insurance coverage can be very complex, and a careful review of the policy coverages and exclusions by a competent agent or attorney is advised. These policies almost never cover 100 percent of lost income caused by a covered peril, either. In addition to lost income, a business interruption policy may pay for relocation to a temporary facility and the costs associated with getting a business up and running again and replacement of inventory and supplies required.

In the event a company has a covered claim, it is important to bring in financial professionals to determine the lost profit. There are several methods that can be employed, and it may improve the chances of recovery, when the report is prepared by an accredited CPA with a designation such as ABV/CFF or CFE.

Once coverage is determined, financial professionals identify the period of restoration, the time period for loss measurement, or loss period.

According to the American Institute of Certified Public Accountants, some policies include time limits to the period of restoration; the civil authority provision may be limited to a specified number of weeks and loss of business income may be limited to a specified number of months.

Calculation of loss of business revenue and profit

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Given the current coronavirus emergency, the potential loss of revenue and profit may result from supply and product shortages, disruption to the business’s labor force, ability to conduct business. Although most losses in revenue and profit from business interruption are temporary, some may also be permanent. The forensic accountant would have to assess the degree of loss and its longevity.

The forensic accountant would ultimately place reliance on the company’s financial records in order to establish trends. That’s why it is important to maintain accurate books in order to determine the loss.

For new businesses, that do not have historical track-records to rely upon, other approaches may be more relevant. This would include having a comparable location that is not affected by the damaging act use of industry benchmarks to the extent available.

Do check with your insurance agent to see if your company is covered by the fallout from the coronavirus emergency.

Peter Gampel, ABV/CFF, ASA, CBV, CA is director of forensic, litigation and valuation services at Fiske & Company, a Fort Lauderdale-based a full-service accounting and litigation consulting firm, providing litigation support and accounting services to Florida attorneys and businesses since 1972. Visit www.fiskeco.com .

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