I know you’re scrambling to survive and overwhelmed with conflicting information. In the spirit of trying to help you as much as possible, I want to share with you everything I’ve seen evolve in recent days. I am not an expert from a legal, accounting or banking standpoint, but I will continue to update you on everything I’ve outlined below over the coming days and weeks as I learn more about these topics. To give you direction, you may use this information to discuss with your accounting, banking and legal counsel. Please let me know if you need help finding support from the experts, and I’ll send you a suggestion.
WE CONTINUE TO SEE CHALLENGES
The impact of COVID-19 continues to become more and more real for all of us. During these unprecedented times, it’s important to remain optimistic and collaborate together for the best outcome possible for employers and employees. Unfortunately, there are several challenging topics to navigate in the coming days/weeks, and then we’ll all be doing everything we can month to month as a remote unified community. My team and I wish all of you continued health as we weather the storm.
WILL INSURANCE CARRIERS PAY CLAIMS?
I’ve read several policyholder lawsuit articles lately. If a policyholder wins in court against an insurance carrier, the whole landscape will change, so I’ll keep you posted, and please let me know if you hear of an official court verdict as well. If insurance carriers pay claims, it will probably be from a government mandate as opposed to a policyholder lawsuit verdict. From what I’ve read, the government has realized forcing insurance carriers to pay would replace one set of issues with another set. Forcing the insurance carriers to pay could cause many carriers to have an insolvency event and the precedent would be set that carriers will be forced by the government to pay uncovered claims. If that were to happen, underwriting and actuary data would become unreliable and the whole insurance and financial infrastructure would be in jeopardy causing long-term damage. However, New Jersey has been working on a Bill to require insurance carriers to pay business interruption claims, but the bill will allow carriers to apply to the Commissioner of Banking and Insurance for reimbursement for indemnity paid to policyholders through the Bill. This relief would be funded via a special purpose apportionment on insurance carriers operating in the State of New Jersey. The Bill is still in the early stages of the legislative process, but is expected to proceed quickly. The New Jersey Bill appears to only apply to policies issued to policyholders with less than 100 full-time employees.
Other States may follow if New Jersey is successful, but to temper expectations, I’ve been told by an attorney that even if the legislation passes in any State and is signed by a Governor, the carriers would immediately fight the Bill in litigation. I understand that everyone is suffering due to COVID-19, but the carriers did not calculate premiums covering a pandemic event. As a result, I believe the only chance of success through a Bill is if the government truly funds the insurance carriers “in real time” to pay for business interruption losses. It makes good sense for the government to utilize the insurance carrier infrastructure to administer funds with their claims adjustors.
PAYCHECK PROTECTION PROGRAM (PPP)
Bottom line, our government should be acting faster, and businesses are suffering. I believe the government’s fastest way to get money to small businesses is through forgiveness loans and grants via the CARES Act and SBA Paycheck Protection Program (PPP). I have legal and accounting resources that agree with the interpretation of the PPP forgiveness that I emailed last week (reference prior email for interpretation). It’s my understanding that the PPP will apply to an 8 week employment period known as the coverage period and continual employment through June 30th will not be required if the pandemic continues without further stimulus help, but I have also heard conflicting interpretations from many experts. I’ve been trying to think about it in the spirit of the Act itself. If the government’s goal is to keep as many people employed as possible during the crisis, it doesn’t make sense that they’d penalize businesses for having laid employees off prior to the stimulus information being available, which is what would be occurring if you take the entire Feb 15th – June 30th 2020 period into account as the reimbursement calculation in order to retain maximum loan forgiveness. How the PPP forgiveness program applies in real life should be better understood by the end of the week.
HOW TO GET A CERTIFICATE OF GOOD STANDING
Please let me know if anyone learns important details from their expert resources (legal, accounting, and banking) when you conference with them this week. It’s going to take all of our brain trust together to navigate PPP provisions and tap into the PPP funds successfully. I’ve attached a preliminary requirement checklist to help you prepare before applications are being accepted. We recommend compiling your business payroll information for the entirety of the 2019 financial year, and ordering a certificate of good standing which we have been told will accelerate you through the loan application process. For those who have only been operating for a fraction of 2019 or 2020, we recommend accumulating payroll information for the entirety of time you have been in business leading up to the date of February 15th, 2020.
WHAT HAPPENS WHEN EMPLOYEES FILE UNEMPLOYMENT?
I’m assuming the government did not intend to do this, but it appears that unemployment benefits are higher than they should be which could completely backfire on the mission to save small businesses through PPP funds. I’ve heard from a couple clients that unemployed employees are circulating the unemployment paycheck amounts to the employees still working and now the owners are starting to hear grumbling that people are going to quit. The difficulty this presents for the owners is they’ve already had a staff member and a manager quit to claim unemployment, and hiring any employees back who have already claimed unemployment is going to be difficult to do with the unemployment stimulus.
The unemployment incentives that were added are for the entire country, so it could cause an issue in lower cost of living states/cities. It appears the Fed portion of unemployment equals $15/hr for a full 40 hr week. Then there is state unemployment up to $8/hr for a full 40 hr week which could be added on top of Fed. I’m not sure how this will apply to each specific unemployment situation, but I know for many of you $15/hr is more than what a lot of the cooks are compensated and $23/hr is more than a lot of the servers & bartenders are compensated. Please let me know if any of you are encountering the same thing, and if not, be prepared to have the conversation. Also, keep in mind, the length of the stimulus is 20 weeks for MO and 33 weeks for the Fed. The unemployment stimulus will cause less of a hiring challenge for more expensive food concepts and areas. For clients in other States, please reach out to me directly if you have questions about your State.
BUSINESS INTERRUPTION CLAIM
Also, please know it’s your right to submit a business interruption claim for COVID-19 to your insurance carrier. We will definitely submit a claim if you’d like an opinion from your carrier about business interruption coverage. My team and I have researched every angle for coverage upon which I updated all of you in my first email of 3/18/20, the very first email of this email thread if you scroll down. As you know, we have successfully suspended most insurance payment installments for 30-60 days depending on the carrier since their procedures differ. As we come up to your revised payment due dates 30-60 days from now, we will ask the carrier for another extension if you need it.
Again, I cannot guarantee my interpretations above are 100% accurate because this situation is new and fluid. I highly recommend seeking help from experts in their respective fields.
We’re all in this together, and my Team of 35 are working full time remotely, ready to help you as needed.