As businesses respond to the interruptions caused by COVID-19 (Coronavirus), there is an increased sense of urgency to understand the potential economic impact of these interruptions on the business. These interruptions could not only result in economic losses but could also lead to potential claims from or against third parties for consequential breaches of contractual obligations or insurance claims.
Whilst this impact assessment is undoubtedly tying up managements’ time, there are a number of critical questions that management teams need to be asking themselves - failure to do so may prolong the period of firefighting and may potentially lessen the ability of an organization to mitigate the damage the situation causes.
In our experience, we would expect management to consider the following questions and actions.
What should I have done already?
- Have you considered your major contracts and the impact on your business in case of potential breaches (e.g. supply shortages) or invoking force majeure clauses?
- Does your insurance cover this situation?
- Are you considering potential claims against or from third parties arising from business disruption or breach of contract? What evidence are you compiling/securing?
- Have you raised sufficient awareness around opportunist fraud such as CEO fraud and fraudulent invoicing?
What should I be thinking about now?
- How are you maintaining consumer confidence and trust?
- How do you best build your case to recover any costs/damages through your insurance?
- What is the financial impact of this situation? Is there a risk to any of your financial covenants? How much impact has this had on cash-flow?
- How do you quantify the amount of loss you have suffered or you could be liable to pay as a result of these business interruptions?
- If customers are contemplating claims procedures or litigation, do you know the strengths and weaknesses of the financial aspects of your case?
If you have any questions or would like additional advice, please contact us.
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