Hurricane Sandy, Arctic winds, and an early winter storm are bearing down on the East Coast and are expected to pummel the region with gale-force winds, heavy rain, flooding, and winter weather. Businesses that conduct operations in the storms’ path—or with operations that depend on suppliers or customers in the storms’ path—should assess the extent to which property insurance may cover expenses, property damage, or loss due to business interruption resulting from the storms. Property insurance policies typically cover a wide range of such expenses, damages, and loss. These coverages typically include expenses that a business incurs before severe weather strikes to minimize its weather-related loss or damage; weather-related property damage that the business nevertheless sustains; operational loss that the business sustains due to weather-related damage to either its property or the property of a customer or supplier; and expenses that the business incurs after severe weather strikes to mitigate such loss.
This alert provides an overview of property insurance coverages typically available to businesses for expenses, damage, or loss resulting from severe weather. This alert also provides an overview of the steps that businesses should take, both before and after severe weather strikes, to maximize the likelihood of recovering under property insurance policies for weather-related expenses, damage, or loss.
- Protect important insurance documents. Ensure that your insurance policies are stored securely. Consider keeping one copy electronically and one copy off-site.
- Maintain an up-to-date inventory of your property/assets. Doing so will minimize the likelihood of disputes post-loss over the existence, number, or pre-loss condition of assets that a natural disaster damages, obliterates, or blows away.
- Take reasonable steps to avoid or minimize impending loss. Most property insurance policies cover costs that you incur to avoid or minimize an impending property loss, such as costs to move equipment out of harm’s way or to secure a facility before a storm hits.
- Take reasonable steps to mitigate your loss. Property policies may require you to mitigate covered loss but typically cover mitigation expenses that you incur.
- Document your loss. Gather and preserve documentation of your loss, including property loss, related financial loss, and expenses incurred to mitigate your loss. Such documentation should include photographs and/or videotapes, as well as purchase orders, invoices, receipts, and other accounting records. Also remember to track expenses incurred in preparing your insurance claim and in responding to an insurer’s requests for documents and information.
Assess your insurance coverage. Carefully review all potentially applicable policies to determine what types of loss they cover and to what extent. Many policyholders are familiar with some of the basic coverages that tend to apply in the context of disasters, including:
- Property Damage Coverage. This covers the cost to repair or replace damaged or destroyed property.
- Debris Removal Coverage. This covers reasonable and necessary expenses incurred to remove, clean up, and dispose of debris on your property resulting from a covered cause of loss.
- Business Interruption Coverage. This covers lost profits resulting when your business sustains property damage caused by a covered cause of loss. The lost profits generally must relate to the event that caused the property damage, and the measure of the loss generally is the difference between expected profits during the recovery period after the event and actual profits during that period, less any unrelated loss.
- Contingent Business Interruption Coverage. This covers lost profits resulting when a customer or supplier sustains property damage “of the type” covered by your policy, which prevents the customer or supplier from accepting goods from or supplying goods to you, thereby interrupting your business.
- Extra Expense Coverage. This covers certain additional costs that you incur to avoid or minimize the interruption of business caused by property damage to your business resulting from a covered cause of loss. Examples include costs incurred to relocate operations to temporary facilities and to temporarily repair or replace property. Many property policies also contain Expense to Reduce Loss coverage, which covers costs incurred to mitigate otherwise covered loss.
- Contingent Extra Expense Coverage. This covers certain additional costs that you incur to avoid or minimize the interruption of business when a customer or supplier sustains property damage “of the type” covered by your policy, which prevents the customer or supplier from accepting goods from or supplying goods to you.
Property policies typically also contain a variety of other, less frequently discussed coverages that should not be overlooked. For example, ingress/egress coverage and civil authority coverage may provide coverage for loss resulting from certain types of third-party property damage not outlined above.
- Notify your insurer(s) as soon as possible. If you sustain any potentially covered loss, notify your insurers, in writing, as soon as possible. Policies typically specify when and to whom notice must be provided. They also may purport to require “immediate” notice or notice within as little as 30 days of loss. In some jurisdictions, failure to provide timely notice can jeopardize your coverage.
- Identify and calendar all policy deadlines, and request extensions when necessary. Property policies often impose deadlines for complying with certain conditions, such as submitting a proof of loss; filing a lawsuit against the insurer regarding coverage disputes; and repairing/replacing damaged property in order to recover the replacement cost value, rather than an actual cash value, of the property. The proof of loss deadline can be as short as 30 or 60 days; the others can be one or two years. Failure timely to satisfy these requirements can jeopardize your coverage and can result in protracted and costly disputes. Stay on top of these deadlines and request extensions when necessary.
Navigating the Claim Adjustment Process
- Communicate with others carefully! All employees with knowledge of the loss and/or the insurance claim should be advised that communications regarding the loss, including internal communications that do not involve, or do not take place at the direction of, counsel, as well as communications with third parties, such as insurance brokers, accountants and engineers, may not be privileged. It is best to limit communications to objective facts and to avoid speculation and legal conclusions.
- Cooperate with your insurer(s). Policies typically require policyholders to cooperate in the claim adjustment process. It is prudent to communicate with your insurer(s) to keep them apprised of relevant developments and to comply with an insurer’s reasonable requests for information.
- Consider requesting advances and/or interim payments. The claim adjustment process can be lengthy—particularly where losses are large, complex or ongoing. For such losses, it can take several months, if not years, to obtain a final resolution regarding the amount of coverage owed. Under these circumstances, consider requesting advances or interim partial payments for undisputed amounts.
Finally, do not take no for an answer! A denial letter from your insurer does not necessarily mean your loss is not covered. Do not allow yourself to be shortchanged.