The property damages, business interruption losses, environmental impacts, and supply chain losses from “superstorm” Sandy continue to be tallied; but it is clear that the effects of the storm will be wide ranging. Even businesses with no direct property damages from the storm are experiencing supply chain disruptions and other losses caused by the storm.
Property insurance coverage policies often provide coverage not only for direct damages to real and/or personal property, but also for business losses caused by supply chain disruptions, service interruptions, orders from civil authorities, environmental impacts, and blockage of ingress/egress, among other things. Analyzing insurance coverage for natural catastrophes and storms like Sandy, however, can be complex and confusing. At times, just determining whether coverage exists can be an exercise.
Disputes often arise between businesses and their insurance companies over the meaning and extent of insurance coverage for natural disasters, and over the manner in which damages should be calculated and property damages remediated. Insurance companies may be motivated to reduce their losses by interpreting policy language in ways that limit or exclude coverage for various types of losses, or by refusing to pay for certain remediation activities. Courts, however, generally hold that insurance policy language should be interpreted to favor the reasonable expectations of the policyholder and the purposes of the policy to indemnify against the perils that purport to be insured by the policy. Regulators also may step in to protect businesses; for example, the insurance regulators in at least five states have announced that they will not permit insurance companies to apply special “hurricane deductibles” for insurance claims related to Sandy. Thus, businesses faced with insurance company positions that would limit or exclude their losses should consult not only the language of their policies, but also the court decisions and regulations applying to the language in question.