June 1 brings the beginning of the 2016 hurricane season. These storms have the potential to cause devastating damage for companies who own property such as apartment buildings, hotels, factories, retail outlets, warehouses and office buildings. In addition to any physical damage companies may face, they must also deal with the interruption of business resulting from that devastation. This alert provides proactive steps a company can take before the hurricane season arrives to ensure they are adequately covered should they face any damage or disruption as a result of a storm.
June 1 brings the beginning of the 2016 hurricane season. For the past several years, hurricane activity has been relatively calm, as a result of the effect of El Niño; but the 2016 season may bring an end to this trend. El Niño and its hurricane-suppressing effect are waning as the 2016 season approaches. Although the National Oceanic and Atmospheric Administration will not issue predictions of 2016 hurricane season activity until late May, other weather sources are forecasting an uptick in activity. Generally, these commercial sources predict the season will bring 14 to 17 tropical storms. Of those, eight to nine are predicted to reach hurricane force, with three to four constituting “major hurricanes,” likely to be at least Category 3 packing winds of up to 130 m.p.h. Predictions vary, but it is likely that three to four of these 2016 storms will make U.S. landfall.
A single hurricane can create horrible devastation, and massive damage, disruption, and dislocation. While the storm may be relatively short-lived, the lingering effects have the potential to cripple or ruin a property, and any business operating from or depending on it. While the damage and destruction that storms cause may be severe and the disruption of business may be significant, the situation can be far worse if insurance protection is inadequate.
The advent of the hurricane season should serve as a reminder to review the adequacy of property insurance protection to avoid getting caught short when you need coverage most. It is reasonable to wait until the weather forecasters say the hurricane is definitely headed your way before you physically prepare your property against the coming storm; however, by then it is too late to make certain that your insurance protection is adequate. It is highly unlikely that you will be able to obtain new insurance or correct deficiencies in existing coverages when the storm is already bearing down on your property.
Reed Smith's Insurance Recovery Group can help clients review their coverages to ensure they are protected from destructive hurricanes and storms. To confirm their insurance coverage is up to the task, clients with property or important business partners in the possible path of these storms should, at a minimum:
- Review the physical property valuations in their insurance policies to make certain they reflect the current value necessary to protect fully against damage, and to meet any coinsurance provisions in their policies in order to avoid costly penalties.
- Review their policies to make sure that they have replacement cost coverage, or that they can live with the potentially vastly reduced recovery that an actual cash value or other lesser valuation would entail, even in the event of total destruction.
- Review the limits of liability of business interruption coverages to make sure they are sufficient to cover anticipated economic losses from business suspension resulting from physical damage to or destruction of the premises.
- Make sure the deductibles are reasonable and that the provisions explaining how to calculate the deductibles are clear and understandable.
- Similarly, determine whether any critical business partners on which their business depends to keep operating, have property exposed to hurricane damage. If so, contingent business interruption coverage with proper limits of liability should be explored, so damage to the partner's property, causing idleness of their assets, does not result in significant uninsured economic losses.
This by no means is an exhaustive list, but by making the relatively small effort necessary to evaluate these and other potential hot-button items before a storm hits, property owners can: (1) protect against major uninsured expense of reconstruction of damaged property after the storm passes through; and (2) ensure that enough money will be flowing in to cover overhead and fixed costs to keep the business going even in the event the storm damage causes suspension of business.