These Amendments that make up the Bill of Rights were put forth to guarantee rights such as freedom of speech, press, protest, and religion. They set rules for due process of law. They reserve power not delegated to the Federal Government to the people. And they detail that “the enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people”.

As a citizen of the United States of America, it is important that you understand your constitutional freedoms as stated in the Bill of Rights.

The First Amendment

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press, or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

The Second Amendment

A well–regulated militia, being necessary to the security of a free State, the right of the people to keep and bear arms, shall not be infringed.

The Third Amendment

No soldier shall, in time of peace be quartered in any house, without the consent of the owner, nor in time of war, but in a manner to be prescribed by law.

The Fourth Amendment

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

The Fifth Amendment

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use without just compensation.

The Sixth Amendment

In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the assistance of counsel for his defense.

The Seventh Amendment

In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury shall be otherwise re–examined in any court of the United States, than according to the rules of the common law.

The Eighth Amendment

Excessive bail shall not be required nor excessive fines imposed, nor cruel and unusual punishments inflicted.

The Ninth Amendment

The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.

The Tenth Amendment

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

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Application

Ahead of the program launch and over the next two weeks, the SBA will conduct a 7-day pilot period where the SBA will address any technical issues ahead of the launch.  Applicants will be able to submit applications as soon as the program opens, but the SBA will prioritize applications from businesses owned by women, veterans, and economically disadvantaged individuals for the first 21 days.  After the first 21 days, the SBA will accept applications from all eligible participants and process applications in the order in which they are approved by the SBA. The SBA has not announced an official launch date for the program.

Applicants will be able to apply through SBA-recognized Point of Sale Restaurant Partners or directly via the SBA’s forthcoming online application portal.  While the SBA is not currently accepting applications, a sample application can be found on the SBA’s website.  Applicants must complete the application (SBA Form 3172) and provide the following additional documentation with their application:

1. IRS Form 4506-T (completion of this form digitally on the SBA platform will satisfy this requirement); and
2. Gross receipts documentation demonstrating gross receipts and, if applicable, eligible expenses. Gross receipts documentation includes business tax returns, IRS Form 1040 Schedule C, IRS Form 1040 Schedule F, a partnership’s IRS Form 1065 (including K-1s), bank statements, externally or internally prepared financial statements, and point of sale reports (including IRS Form 1099-K).
3. Brewpub, tasting room, taproom, brewery, winery, distillery, or bakery applicants must provide confirming documentation that onsite sales to the public comprise at least 33% of gross receipts.
4. Inn applicants must provide confirming documentation that onsite sales of food and beverage to the public comprise at least 33% of gross receipts.

Eligible Entities

Eligibility for the program is confined to those entities that have experienced pandemic-related revenue loss.  Eligible entities include: (1) restaurants; (2) food stands, food trucks, food carts; (3) caterers; (4) bars, saloons, lounges, taverns; (5) snack and nonalcoholic beverage bars; (6) bakeries; (7) brewpubs, tasting rooms, taprooms; (8) breweries and/or microbreweries; (9) wineries and distilleries; (10) inns; and (11) licensed facilities or premises of a beverage alcohol producer where the public may taste, sample, or purchase products.

Funding Calculations

The SBA may approve up to $5 million per location, not to exceed a total of $10 million per applicant and any affiliated businesses. The minimum award is $1,000.  The SBA has provided three separate calculations to determine an applicant’s funding amount:

CALCULATION 1:

For applicants in operation prior to or on January 1, 2019:

(2019 gross receipts) – (2020 gross receipts) – (PPP loan amounts)

CALCULATION 2:

For applicants whose business operations began partially through 2019:

[(Average 2019 monthly gross receipts) X (12 month)] – [(2020 gross receipts) – (PPP loan amounts)]

CALCULATION 3:

For applicants that began operations on or between January 1, 2020 and March 10, 2021 and have not yet opened but have incurred eligible expenses:

[(Amount spent on eligible expenses between February 15, 2020 and March 11, 2021) – (2020 gross receipts) – (2021 gross receipts through March 11, 2021) – (PPP loan amounts)

Entities who began operations partially through 2019 may elect to use either Calculation 2 or Calculation 3.  Further, for purposes of the program, gross receipts do not include:

1. Amounts received from Paycheck Protection Program (PPP) loans;
2. Amounts received from Economic Injury Disaster Loans (EIDL);
3. Advances on EIDL;
4. State and local grants; or
5. SBA Section 1112 payments.

Eligible Use of Funds

Recipients are not required to repay the funding, as long as funds are spent on eligible uses by no later than March 11, 2023.  RRF funds may be used for specific expenses including:

1. Business payroll costs (including sick leave);
2. Payments on any business mortgage obligation;
3. Business rent payments (not including prepayments of rent);
4. Business debt service (both principal and interest, but not including any prepayment of principal or interest);
5. Business utility payments;
6. Business maintenance expenses;
7. Construction of outdoor seating;
8. Business supplies;
9. Business food and beverage expenses;
10. Covered supplier costs;
11. Business operating expenses.

Conclusion

The SBA will announce in the near future a start date to start accepting applications once the website they will be using has been tested.  Until then, prospective applicants are encouraged to visit the SBA website for additional information and begin assembling all necessary data and documentation requirements for the application.

The post SBA Announces Official Restaurant Revitalization Fund Application and Guidelines appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.

As part of its efforts to finalize and unveil program, the SBA has released a draft application form, together with a letter to the Office of Management and Budget asking for emergency review of the materials.  While the application is merely in draft form, it is believed that the finalized application will largely reflect the information included in the current document.  Thus, the draft application helps shed some light on the specifics of the program and what information business owners should have available when applying for the RRF grants.

For instance, the draft application shows that the SBA plans to maximize the covered period under which businesses can spend grant proceeds.  The ARPA identifies a covered period of February 15, 2020 to December 31, 2021, however it also gives the SBA the ability to expand the covered period to no later than two years after the legislation was passed.  The current draft application indicates that the SBA intends to maximize the covered period so that businesses can spend grant proceeds through March 11, 2023.

Further, the draft application provides additional details on the group of applicants given priority under the program.  During the first 21 days of the program, the ARPA gives priority to applications for businesses owned by women, veterans, and/or socially and economically disadvantaged individuals.  Pursuant to the draft application, the applicant must be at least 51% owned and controlled by individuals who are women, veterans, and/or socially and economically disadvantaged individuals in order to receive priority treatment.

Additionally, businesses must not be permanently closed to qualify for the program.  Businesses that have declared bankruptcy but have an approved reorganization plan are still eligible to receive RRF grants.  However, if a business has declared bankruptcy but does not have a plan for reorganization, or has filed for a liquidation, the business will not be eligible for the program.

The draft application also details the documentation required to be submitted when applying for a RRF grant.  All applications must include:

1. a completed application form;
2. a completed IRS Form 4506-T; and
3. documentation demonstrating gross receipts, such as business tax returns, IRS Forms 1040 Schedule C and Schedule F, bank statements, externally or internally prepared financial statements, and point of sale reports. Paycheck Protection Program (PPP) proceeds are removed from gross income for purposes of calculating gross receipts in the application.

Additionally, applicants from businesses defined as brewpubs, tasting rooms, taprooms, breweries, wineries, distilleries, bakeries, and inns must supply additional documentation evidencing onsite sales to the public comprise at least 33% of gross receipts.  In total, the application is expected to take about 45 minutes to complete.

Further guidance by the SBA is expected as the program nears its launch date Though  the application is not “live,” applicants would do well to gather the required information in advance so they have everything ready when the program does go live, especially since the $28.6 billion ear-marked for the program is not expected to last long. In the meantime, the draft application is available for review and can be found at https://omb.report/icr/202104-3245-001.

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Favorable Tax Provisions – Recently, the IRS published its position denying businesses a deduction for expenditures covered by PPP loan proceeds that had a reasonable expectation of being forgiven. Congress, however, has essentially overruled the IRS by legislating that business expenses paid by PPP loan proceeds will be deductible, despite the underlying loan being forgiven, or eligible for forgiveness. This is welcomed news for businesses!

In addition, taxpayers may now obtain a 100% (as opposed to the previous 50% limitation in place) deduction for business meals that will be paid or incurred between January 1, 2021 and December 31, 2022. This increased deduction only applies to business meals, whether dine-in or carry-out, provided by a restaurant.

Congress has also extended, for one more year, the increased limit from the CARES Act on deductible contributions to charity for corporate taxpayers and individuals who do not itemize their deductions. The limit on such deductions was increased to 100% under the CARES Act and shall now stay in place for charitable gifts made in 2021. Taxpayers must maintain documentation to substantiate any gifts made.

Employee Retention Credit – When Congress first passed a COVID-19 relief package, businesses had the ability to take advantage of a refundable payroll tax credit for retaining employees during the pandemic. Notably, businesses could not take advantage of this tax credit and also obtain a PPP loan. However, in this latest relief bill, Congress expanded eligibility for the refundable payroll tax credit to PPP loan borrowers, allowing both future and past borrowers to obtain the credits. Retroactive application of the credits to prior PPP borrowers is permitted.

Second Round of PPP Loans and EIDL Grants – Businesses that previously received a PPP loan may now be eligible to receive another forgivable loan based on the new relief package, provided that they meet the new eligibility criteria. A business is only eligible for a second PPP loan if they have 300 or fewer employees and had at least a 25% reduction in gross receipts for a single quarter in 2020 as compared to that same quarter in 2019. For bars and restaurants in particular, loan amounts must be calculated based on 3.5 times average payroll as opposed to the 2.5 multiplier for other business types. Regardless of the type of business, all PPP loans from the second round are capped at $2 million.

Congress has also mandated a new round of Emergency Injury Disaster Loan grants, for eligible applicants.

Streamlined Forgiveness – The new legislation includes provisions to simplify filing procedures for borrowers to obtain forgiveness for PPP loans for $150,000 or less. This is very good news for borrowers and loan processers alike, as it should save time and stress on obtaining forgiveness.

Sick and Family Leave Tax Credit Extensions – Family and medical leave tax credits provided under the Families First Coronavirus Relief Act will be extended through March 31, 2021, constituting a 90-day extension from the original expiration date of December 31, 2020.

Stimulus Checks – Finally, the new recovery bill provides stimulus payments to individuals, including children, of $600.00, subject to phaseout, similar to what was originally written into the CARES Act. Therefore, if you received a stimulus check during the first round of payments, you will likely be getting another, soon.

Please Consult a Professional Advisor – The first Coronavirus relief package was very complicated and changed very quickly in the weeks and months following its enactment. The second relief bill is nearly 5,600 pages long. It too shall be subject to scrutiny and may change or otherwise be refined as it is rolled out. Businesses are urged to consult with a professional advisor who can help them navigate the complexity ahead and maximize benefits available under the relief bill. Please contact your attorney at McCarthy Lebit to discuss your options and develop a plan that is right for your business.

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Normal commercial business “loans” must be repaid or else the forgiveness of the loan in full or part creates taxable cancellation of debt income. The PPP loans are unique in that the underlying law contemplates the forgiveness of the borrowed money if the borrower has met the criteria for loan forgiveness and submits documents to the lender requesting loan forgiveness. On May 2, 2020, the Department of the Treasury and the IRS released Notice 2020-32 which stated that no deduction is allowed for covered expenses that are otherwise deductible if the payment of the eligible expense results in forgiveness under a PPP loan.

Many commentators wrote to the IRS questioning how taxpayers should report the PPP loans and covered expenses on their 2020 income tax returns. One question is whether the banks issuing the PPP loans should issue IRS Forms 1099-COD for the amount of the PPP loans forgiven. Amounts reported on Form 1099-COD must be included in taxpayer’s income tax returns. In September 2020, the IRS issued guidance to the lending banks directing them not to issue Forms 1099-COD for the amount of the PPP loans forgiven.

Additional questions have been raised as to whether a taxpayer that received a PPP loan, that subsequently may be forgiven, can deduct the covered expenses in the year in which the expenses were paid or incurred. Multiple scenarios arise depending upon when an application for PPP loan forgiveness is submitted by the taxpayer and whether the application for forgiveness is approved or denied in either 2020 or in 2021. The IRS has just issued Revenue Rule 2020-27 and Revenue Procedure 2020-51 to address these questions.

Revenue Rule 2020-27 provides two fact patterns pertaining to taxpayers that properly applied for and received a PPP loan and incurred covered expenses during the covered period in 2020. In the first situation the taxpayer applied for PPP loan forgiveness before year-end 2020 but had no indication from the lender whether the loan would be forgiven. In the second scenario, the taxpayer had not applied for forgiveness before year end 2020 but expected to apply in the subsequent year. Both taxpayers had a reasonable expectation that their respective PPP loans would be forgiven, predicated upon the taxpayers’ compliance with the PPP loan rules.

Revenue Rule 2020-27 analyzed language in the CARES Act, prior IRS Notices, and certain case law, concluding that taxpayers cannot take tax deductions for expenses paid by a PPP loan that is reasonably expected to be forgiven. Whether the taxpayer had received confirmation of forgiveness, or had even applied for such, is irrelevant. What matters is whether the taxpayer, based on compliance with the program rules, has a reasonable expectation that the loan proceeds used to pay the covered expenses are subject to forgiveness. If so, then the taxpayer may not deduct the covered expenses.

Notwithstanding the clarity of Revenue Rule 2020-27, a taxpayer may wonder what happens if, despite having a reasonable expectation of obtaining loan forgiveness, the requested forgiveness is in fact ultimately denied. Or alternatively, what might happen if the taxpayer never actually files for PPP loan forgiveness? To address these contingencies, the IRS issued Revenue Procedure 2020-51, which provides a deduction safe harbor for covered expenses. Pursuant thereto, a taxpayer may be able to deduct some, or all, of the covered expenses paid for with PPP loan funds.

To be eligible for the safe harbor, the taxpayer must have paid or incurred covered expenses during the prescribed time frame and have a reasonable expectation of forgiveness. The taxpayer must also have, by the end of 2020, submitted, or intend to submit, an application for PPP loan forgiveness. Finally, the taxpayer must receive notification from their lender in 2021 that all or part of the loan forgiveness has been denied. Upon such notification, the taxpayer must irrevocably decide to not to seek loan forgiveness for the denied portion of their PPP loan. This can be accomplished by withdrawing the PPP loan forgiveness application. A taxpayer in this situation may deduct the otherwise nondeductible covered expenses paid for using PPP loan funds. Such a taxpayer, however, may not deduct an amount of nondeductible eligible expenses in excess of the principal amount of the taxpayer’s covered loan for which forgiveness was denied or will no longer be sought. As an example, if a taxpayer’s PPP loan amount was $500,000 and he spent the entire $500,000 on covered expenses during the prescribed time frame in 2020 and the forgiveness of the PPP loan does not happen in 2021, the taxpayer using the safe harbor may be able to deduct the $500,000 in eligible expenses in either his 2020 income tax return or alternatively in his year 2021’s income tax return.

A taxpayer making use of the safe harbor must attach a statement to their tax return on which the deduction is claimed, which must be titled “Revenue Procedure 2020-51 Statement”. The statement must include the taxpayer’s name, address and identification number, a statement specifying the taxpayer is eligible under Revenue Procedure 2020-51 and is applying the safe harbor rules, the amount and date of the taxpayer’s PPP loan, the total amount of forgiveness that was denied or abandoned, the date such denial or abandonment occurred, and the total amount of eligible expenses and nondeductible eligible expenses that are reported on the tax return.

PPP loan administration, forgiveness applications, and tax compliance remain challenging and changing. Please contact your professional tax advisors for additional assistance with maximizing the benefits available to your business and maintaining compliance with your tax obligations.

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Extension of Covered Periods

Through the Flexibility Act, borrowers can elect to extend the PPP’s eight-week covered period for loan forgiveness purposes to 24 weeks. This will give borrowers more time to strategically use loan proceeds to maximize forgiveness. However, because PPP guidance continues to evolve and change, borrowers should avoid using the extended period on the loan forgiveness application if full loan forgiveness can be achieved during the original eight-week covered period.

Use of Loan Proceeds

Previously, in order to obtain full loan forgiveness, a borrower had to spend at least 75% of loan proceeds on payroll costs and no more than 25% on non-payroll costs. If a borrower was unable to meet that 75% threshold for payroll costs, loan forgiveness would be proportionately reduced based on the actual percentage spent on payroll. Under the Flexibility Act, the 75% threshold has been lowered to 60%. The SBA and Department of the Treasury issued a joint statement that clarified borrower’s will still be eligible for partial loan forgiveness if less than 60% of loan proceeds are not allocated to payroll costs, as was the case with the previously higher threshold. While this provides flexibility in terms of spending loan proceeds on non-payroll costs, the lower threshold represents such a significant departure from the prior rule that borrowers should expect further guidance.

Rehiring Deadline Extension

Under the original text of the PPP, the forgivable portion of a loan was proportionately reduced if a borrower did not rehire laid off employees by June 30, 2020 to the level that existed February 15, 2020. Under the Flexibility Act, the “rehire date” has been extended to December 31, 2020.

Workforce Reduction Safe Harbor

In the event a borrower attempts to rehire employees but is unsuccessful, the Flexibility Act provides an exemption from a reduction in loan forgiveness if, during the period beginning February 15, 2020 and ending December 31, 2020, the borrower is able to document, in good faith, one of the following: (1) it could not find qualified employees to hire; or (2) it could not restore its business to a comparable level of activity because of federal health guidance such as social distancing.

Loan Repayment Extension

Prior to the enactment of the Flexibility Act, the period for repaying any loan amount not forgiven was two years. That repayment window has been extended to five years, with the interest rate remaining at 1%.

Payroll Tax Deferral

Regardless of whether a borrower receives loan forgiveness, the Flexibility Act has made clear that borrowers are eligible to defer their employer’s share of payroll taxes. If a borrower elects to defer such taxes, 50% of the deferred amount must be paid in 2021, with the remaining 50% due in 2022.

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A PPP loan is forgivable to the extent that borrowers carefully follow certain requirements implemented by the SBA. In order for a loan to be completely forgiven, borrowers must use at least 75% of the loan proceeds on payroll costs during the eight-week period after receiving the loan, while the remainder can be used for certain specific nonpayroll costs: rent payments, utility expenses, and mortgage interest payments. The intention of the program is for small businesses to maintain employment and compensation levels during this period of economic uncertainty due to the coronavirus pandemic. The attorneys at McCarthy Lebit have written extensively about the PPP in The More Report.

The PPP Loan Forgiveness Application and its instructions include measures to reduce compliance burdens and simplify the process for borrowers. Step-by-step instructions explain how to perform the forgiveness calculations required by the CARES Act and confirm eligibility for loan forgiveness. Notably, the 75% requirement is not an “all-or-nothing” requirement and a borrower who spends less than 75% on payroll costs is still eligible for forgiveness.  The application makes clear that in such a scenario, “eligible nonpayroll costs cannot exceed 25% of the total forgiveness amount.”

The application also includes the option for borrowers to calculate payroll costs using an “alternative payroll covered period” which is an eight-week (56-day) period that begins on the first day of the borrower’s first pay period following the PPP loan disbursement date. Further, the application includes the addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined. A copy of the application and its instructions can be found on SBA’s website. Borrowers also have the option to complete the application electronically through their lenders.

Additional guidance on the application is expected to be released soon. Given the potential complexity of the loan forgiveness calculations and the numerous requirements of the PPP, borrowers are advised to contact their professional advisors for help in completing the loan forgiveness application.

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The availability of coverage for business losses will vary among policy forms, exclusions and jurisdictions. Each policy must be examined for specific coverage and exclusions, while paying particular attention to the losses for which recovery is being sought.

There are several policies and exclusions to consider.

Commercial Property Insurance (Business Interruption)

Companies often purchase business interruption coverage as part of traditional “all-risk” commercial property policies. Business interruption coverage is designed to cover lost income arising from disruptions to an insured’s business operations. Under most policies, insureds will have to prove that a “Covered Cause of Loss” caused direct physical loss of damage to the property, at the described premises, resulting in a suspension or interruption of business operations and the resulting loss of business income.

Business interruption coverage is generally tied to a suspension of an insured business caused by direct physical loss of, or damage to, the insured property.

Some policy holders will argue that the presence of a virus in a structure qualifies as physical damage. Further, business interruption coverage often only extends coverage to losses caused by specific perils, such as fires, earthquakes, storms, and other expressly designated causes.

In addition, many business interruption policy forms frequently exclude “loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”

Contingent Business Interruption

A policy may provide “contingent business interruption” coverage, which typically provides coverage for economic loss caused by damage to the property of a key supplier. Policy terms may limit coverage to damage to the property of a direct supplier or may include damage to the property of suppliers of suppliers.

Civil Authority Coverage

Many property insurance policies also include “Civil Authority” coverage, which covers similar business income losses that result from a public authority restricting the use of or access to an insured’s premises. However, as with business interruption coverage, “Civil Authority” coverage often requires the underlying civil order or restriction to directly result from physical loss or damage to the property.

Event Cancellation Insurance

An event cancellation policy may protect an insured from financial losses such as lost ticket sales, out-of-pocket expenses, contractual guarantees, and perhaps reimbursement to attendees. Most often, event cancellation policies are crafted to kick-in when events become either legally or physically impossible to hold.

General Liability Insurance

Typically, commercial general liability policies provide liability coverage for third party claims for “bodily injury” and/or “property damage” resulting from an “occurrence.” Riders for communicable disease coverage tend to have specific limitations in the form of specified trigger events and other limitations on the amount of recovery.

Pollution Policies

First party pollution policies may provide business interruption coverage for “releases” and “exposures” to “toxics.” However, many pollution policies have limitations on communicable diseases.

Recent Legislative and Executive Developments

Recently, states like Ohio have drafted proposed legislation seeking to provide business interruption coverage for the Covid losses even if the business interruption insurance policies in issue have exclusions which apply. In Ohio, HB 589 currently proposes providing coverage to businesses with less than 100 employees who have sustained a Covid-related business loss up to the policy limits set forth in the policy. As proposed currently, the insurance company would administer and pay the claim and the insurance company could then apply to The State of Ohio for reimbursement. Although this Bill is in its early discussion stage, if passed it would provide much needed protection. Each Ohio business should immediately contact their respective state representatives and lobbyists with their stated support of this bill and encourage other similarly situated businesses to do the same.

Recently, President Trump has also supported insurance companies paying business interruption claims due to Covid-caused damage since it is the right thing to do.

Thus, there is an evolving school of thought that such claims should be paid even though there may exist arguable policy defenses. It is expected the insurance industry and their lobbyists will strongly oppose such efforts arguing that claims such as this were not actuarily foreseen nor planned for and such claims would pose an undue burden on insurance companies.

What To Do To Preserve Your Rights Today

Many business owners believe they can wait and see how the Covid upheaval all plays out. Damages may still be evolving, they may believe they have no claim, they may have applied for the PPP or other loan or grant. However, that is simply not the case. Time is of the essence even if all damage is not complete and is ongoing or some of the damage is offset by grants or loans. Most insurance policies require an insured to submit a formal claim in order to timely place the insurance company on notice. Failure to do so will likely result in a policy defense to a valid claim down the road should the claim not be made NOW. Simply calling your agent is arguably not sufficient. Further, many agents have advised no coverage exists even if that is not necessarily the case. Agents do not make this determination. Claims personnel and eventually trial courts if needed, do. You therefore must submit the claim immediately to the claim department of the insurance company and obtain an official claim number. You can do this through the agent but must verify an official claim has been set up.

Your insurance policy likely has a time period listed within it where suit must be filed. Submitting an early claim provides you with the best chance for avoiding the need to file suit due to time limits. Submitting a claim does not mean you will eventually file suit. However, it will protect your rights should you need to do so later.

If after submitting the claim, the insurance company requests evidence of damages or otherwise as required by the policy, you need to reasonably comply. Failure to do so may result in the insurance company raising a second defense of failure to cooperate as required by the policy.

McCarthy Lebit offers to Help Businesses in Assessing COVID Business Interruption Insurance Claims

No cost for the initial assessment, pursued claims to be done on a contingency fee basis

At this time, McCarthy Lebit is offering any business which has a business interruption policy and has/will incur at least $250,000 in damages due in any way to COVID-19 to submit their policy, declaration sheet, contact person and information, and a short paragraph statement identifying nature of damage and amount. Send the information to Christian Patno crp@mccarthylebit.com with a copy to his assistant Amy Thorne adt@mccarthylebit.com.

Once a conflict check is cleared, the policy will be assessed along with the evolving legal, executive and legislative law in order to determine the potential validity of a claim. Communication will then take place with the submitting person to assess what further steps, if any should take place, and if the claim is one that if denied, suit should be filed. There will be no cost for the initial assessment and if a claim is pursued thereafter it will be done on a contingency fee basis where there will be no cost to the client unless MLCL is successful in prosecution.

The time to act is NOW.

The attorneys at McCarthy Lebit are continuing to stay apprised of COVID-19 developments and remain available to discuss any needs that your business may have during these uncertain times.

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Although FAQs #31 and #46 are specific to the required necessity certification, all PPP borrowers should carefully consider all the certifications contained in the PPP application. Keep in mind that a borrower who knowingly makes a false statement to obtain a loan may face imprisonment up to 30 years and/or a fine up to $1 million.  Given the possibility of steep penalties, if a borrower feels it received a PPP loan that it was not entitled to, for whatever reason, now is the time to act within the extended safe harbor deadline. If there is any doubt regarding one’s eligibility for an already disbursed PPP loan, do not hesitate to contact a trusted legal advisor at McCarthy Lebit that can inform you of all the SBA safe harbor guidelines.

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FAQ #46 asks, “How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?”

The SBA’s response establishes a safe harbor for borrowers with loans less than $2 million and provides borrowers with the option to repay their loans if they are deemed to be ineligible for the program by the SBA.

The SBA reiterates in FAQ #46 that all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The SBA determined, in consultation with the Department of the Treasury, that any borrower that received PPP loans with an original principal amount of less than $2 million will be deemed to have made the certification concerning the necessity of the loan request in good faith. Given the large volume of PPP loans, this safe harbor will allow the SBA to conserve its audit resources and focus its reviews on larger loans.

Additionally, borrowers with loans greater than $2 million may still have an adequate basis for making the good faith certification, based on their individual facts and circumstances. The SBA has previously stated in FAQ #39 that all PPP loans in excess of $2 million will be reviewed for compliance with the program’s requirements. FAQ #46 provides that if the SBA determines during the course of its review that the borrower lacked the adequate basis to make the certification concerning the necessity of the loan request, the SBA will seek repayment of the outstanding loan balance and inform the lender that the borrower will not be eligible for loan forgiveness. If the borrower repays the loan after receiving this notification from the SBA, the SBA will not pursue administration action or referrals to other agencies.

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