J.S. Held Releases Insights on Risks & Opportunities Expected to Impact Organizations in 2025
Read MoreNOTE: This is part three of a series designed to present thoughtful topics that will affect insurance claims arising from the current pandemic.
As each day passes, it becomes more apparent that there will be massive economic consequences stemming from the local, national, and global response to COVID-19. Setting aside the myriad of coverage hurdles for new insurance claims caused by COVID-19, there is a more immediate issue at hand. Changing market conditions due to COVID-19 have the potential to materially affect open (ongoing) and new (non-COVID related) business interruption claims. As government agencies institute policies, closing and/or restricting businesses and movement of the population, there will be substantial impacts on the nation’s economic activity.
In general terms, the intent of commercial property insurance is to indemnify against losses sustained as a function of covered peril to covered property. Business interruption loss is measured as a function of continuing operations, if any, deviating from probable levels but-for such property damage. And therein lies the issue, estimating a business’s probable experience but-for covered peril to covered property will warrant consideration of COVID-19 factors; how, and to what extent, will vary case by case.
As a starting point, experts may evaluate how a business tracks with broader economic patterns and thus how its operating results are expected to change in the context of the COVID-19 economy. Some industries, for example, may be largely unaffected by COVID-19 factors; or even benefit from them. Retail grocery stores and healthcare facilities are, or are likely to, see a surge in demand. On the other hand, restaurants, sports, music, and the tourism industry are clear victims of the changing tide. At the time of this publishing, less obvious patterns have yet to emerge but are likely to sprout in energy, manufacturing, and durable goods.
Incorporating COVID-19 factors into a business’s expected operating results but for covered peril to covered property may also involve a more finite evaluation of unique conditions applicable to a named insured. For example, understanding how production and revenue would be impacted by work from home initiatives may warrant a deeper dive into understanding workflow processes and the technology available to support it. It may involve incorporating periods of closure by government mandate unrelated to covered peril to covered property. It may include evaluating how unit pricing is likely to change with changing demand.
These examples highlight the new and unique challenges to measuring business interruption losses in a COVID-19 world. Economic data that can be used to address these complexities may be readily available. In other instances, it may not be readily available for months after the fact. Such record availability constraints will warrant careful coordination and constant communication between insurance professionals and financial damages experts tasked with measuring these claims.
Having a secondary event impact an industry while measuring a business interruption loss is not uncommon. The COVID-19 outbreak, however, is likely to present the most wide-ranging example in recent history. The most important question to answer is not if COVID-19 will be factored into the loss measurement, but instead how and to what extent. The answer will rest in case-specific details. While there is much uncertainty in recent events, you can certainly rely on financial damages experts to help provide clarity.
Daniel L. Williams
is a Senior Vice President in J.S. Held’s Forensic Accounting - Insurance Services Practice. He brings two decades of forensic accounting experience and is primarily engaged as a consultant by insurance companies, independent insurance adjusters and attorneys. Daniel is a Certified Public Accountant and holds the CFF (Certified in Financial Forensics) designation from the AICPA (American Institute of CPAs). He specializes in the financial evaluation of damage claims, including first party property losses, commercial litigation, and fidelity matters. Daniel focuses his industry expertise on commercial airlines and renewable energy, including wind and solar farms as well as hydro-electric and bio-mass facilities. He has been responsible for evaluating damage claims totaling over $3 billion.
Daniel can be reached at +1 510 740 0378 or [email protected]
Michael Haugen is a Senior Vice President in J.S. Held’s Forensic Accounting - Insurance Services Practice. He specializes in providing litigation support, conducting financial investigations, and delivering commercial insurance claim services. Michael provides clients with expertise in measuring lost profits, fraud and embezzlement investigations, lost earnings and earnings capacity analysis, and wrongful death calculations. He is practiced in commercial litigation matters including contract disputes, merger and acquisition disputes, and shareholder disputes. He has assisted counsel in securities fraud and criminal law matters. Michael has measured hundreds of business interruption, extra expense, property loss, and fiduciary claims for commercial property and casualty insurance carriers across the entire country.
Michael can be reached at +1 480 351 8549 or [email protected]
J.S. Held is the world’s leading multi-disciplinary expert services firm specializing in all aspects from property damage, to environmental issues, forensic accounting & economics, equipment and production lines, and more. J.S. Held experts were leaders on some of the most complex claims in history, including 9/11, hurricanes, and wildfires, and have extensive experience understanding and accounting for extraordinary post-catastrophe circumstances. Our experts work seamlessly together to provide the highest quality verifiable and supported conclusion on the most complex assignments.
For more information, visit our website at www.jsheld.com, or contact any of our practice leads listed below:
View article one: "The Effect of COVID-19 on the Insurance Claims Market"
View article two: "The Effect of COVID-19 on Time Element Claims"
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