Impact of the Coronavirus on Business Interruption Claims and Damages

With pandemic mitigation measures intensifying globally and work stoppages impacting nearly every corner of world, there is little doubt that COVID-19 will cause significant disruptions across all industries. The extreme volatility in the financial markets over the past few weeks has already signified that the economic impact of COVID-19 will be far reaching. Given the unprecedented interruptions that the outbreak has caused worldwide, many businesses will turn to their insurance policies to recoup some of the financial loss that they will inevitably incur. Insurers are gearing up for what will undoubtedly be a surge in business interruption claims as a result of the virus outbreak. While many business interruption and contingent business interruption insurance policies typically focus on physical damage, state legislatures are increasingly looking to mandate that the COVID-19 outbreak will be a covered claim. Regardless of whether the proposed legislation is enacted or not, many of these cases are destined for litigation.

Further complicating the matter, the mandatory shut down of non-essential businesses that state and local governments are enforcing throughout the country will also put insurance policies to the test. While a voluntary shut down may or may not ultimately be considered a covered business interruption, forced shut down will potentially create a so-called line in the sand that policy holders will turn to. Additionally, many policies have certain infectious disease and viral exclusionary clauses resulting from the SARS outbreak of 2003. Claims related to these policies will hinge on whether COVID-19 was responsible for the business interruption or the government mandated shut down was the cause. Determining what aspects of the business were impacted at which times and who is ultimately responsible will increasingly become the focus of these business interruption claims. Given the unique nature of the situation, many policy holders and insurers will turn to the court system to resolve claims stemming from the outbreak. Once these claims each the point of litigation, assessing the actual damages will likely require the assistance of financial experts.

Given the unprecedented nature of these claims, determining the actual damages associated with the outbreak will be a complex undertaking. While many damage calculations related to these types of claims have historically focused on a clear timeframe, given the far-reaching and prolonged global implications of the COVID-19 outbreak, determining the damages stemming from these cases will be far more nuanced. Accounting and valuation complexities will play an integral role in the outcome of these cases going forward. As companies have become increasingly reliant on the global marketplace, business operations have become complicated in nature even for domestic focused companies. Given the impact that COVID-19 has had on the entire global supply chain, a key understanding of the historical and prospective financials of the affected company will be imperative in order to put your clients, and their cases, in the best position possible. In these trying times, Duff & Phelps is well positioned to respond to the needs of your clients as they relate to business interruption claims.

At Duff & Phelps we are uniquely positioned to properly assess the intricacies of the damages associated with business interruption claims and contingent business interruption claims arising from the COVID-19 outbreak and can handle all your expert financial and accounting needs. Our valuation and accounting litigation experience and vast network of colleagues across all industries ensures that, no matter the industry, your clients will receive the best expertise possible. Our global footprint is the best in the industry which places us in a position to quickly analyze the global implications at a local level even in a time of increased travel restrictions and uncertainty.