Plan Now for Business Interruption Claims Due to Cancelled Events

March 12, 2020

By Hubert Klein

The coronavirus is forcing major sports leagues, corporations and government entities to cancel events and public gatherings. These actions, while prudent and necessary, will have financial impacts far beyond the cancellation of these events. I recently attended a meeting where the caterer commented on how his business was being negatively impacted by the coronavirus. His largest customer is a well-known university that has changed the remainder of its school year from a classroom setting to a strictly online program, eliminating the need for his services. This will have a huge financial impact on his business and family, and he said many of his fellow service providers and vendors are in the same predicament. 

It occurred to me that many people don’t always fully realize there is a whole network that supports these large institutions of academia, government, entertainment, and so forth. These include a host of vendors and suppliers such as food servers, transportation services, security guards, merchandisers, cleaning crews, etc. 

So while people are focused on the headlines and press conferences of what is happening globally, now is a good time for those vendors to accumulate and organize the pertinent information to support a business loss claim. It will become more difficult to accumulate these documents as time passes.

If a business has contracts, bookings or orders that are cancelled as a result of COVID-19, it needs to assemble the information on both the revenue and expense sides to support the current and future loss claims. Remember, most people fail to realize that a business interruption claim is for lost income (revenues – expenses), not lost gross revenue. 

A few simple things a business can do to prepare:

  • Assemble documents and the related support for the cost of the lost contracts, expenses related to the contracts, and any supporting correspondence.
  • Prepare a list of direct and indirect expenses related to each cancelled contract or event.
  • Create a list of any extra expenses incurred as a result of coronavirus cancellations.

Businesses that provide goods or services that support events must begin to plan and document any expected future losses as soon as possible, before they become too overwhelmed to prepare a valid claim. Being proactive can go a long way in ensuring businesses receive the claims recovery to which they are entitled. And this is where working with a trusted business advisor becomes more important than ever.

About Hubert Klein

Hubert Klein is a Partner and Practice Leader in the Financial Advisory Services Group with technical resources in various litigation actions. He has consulted in complex damages, business valuations and due diligence analysis.