It is estimated that Superstorm Sandy could cause up to $50 billion in losses, and up to $20 billion in insured losses. Businesses should review their commercial property insurance policies and submit claims for Sandy-related losses, if warranted.
When Superstorm Sandy struck the Northeast on October 29–30, 2012, it caused extensive losses that experts estimate in the range of $30 billion to $50 billion, with insured losses of up to $20 billion expected. Property damage, related costs and lost business revenue all are potentially covered under commercial property insurance policies. Businesses should review their policies and, if warranted, submit claims for Sandy-related losses.
The successful submission of a valid claim starts almost immediately after discovery of the loss. Here are some key steps in the claim process.
- Notice of claim: The insured should notify promptly the insurer of any physical damage or other loss potentially covered by the policy. To the extent possible, basic facts concerning what was damaged or destroyed, and when this took place, should be provided.
- Mitigate damages: Take reasonable steps to secure the property and prevent further damage. Extra expense incurred for this purpose may be covered under the policy.
- Document/photograph evidence of the damage: Doing so carries the dual benefits of creating and preserving evidence that will support the proof of loss that is submitted eventually, while fulfilling the duty to cooperate with the insurer.
- Communication: Open a clear line of communication with the insurer’s claim examiner to speed the process. Establish internal responsibilities so that your company speaks with one voice. Focus on sharing facts and avoid characterizing the claim until completing an investigation of the storm loss and a review of all potentially relevant policies with your insurance advisors.
- Proof of loss: Policies require submission of a sworn proof of loss within a fixed time period, typically 60 days. Try to complete your investigation and evidence gathering in that time frame, but if it is not reasonably possible, request an extension from the insurer. Most insurers are willing to grant at least a short extension if circumstances warrant.
Common Property Insurance Coverage Issues
While commercial property policies often start with industry-standard forms, individual policies can vary greatly. Review your policy to identify how it treats issues likely to arise in a storm-related claim, including the following.
- “All Risk” versus “Covered Cause of Loss”: Property policies typically cover “all risks,” subject to specified exclusions, or a list of expressly identified risks. Coverage for storm-related damages potentially is available under both forms, although the latter may provide the insured with a more favorable burden of proof. In general, the insured bears the burden of proving that loss falls within the policy’s insuring agreement, while the insurer bears the burden of proving that an otherwise covered loss is excluded.
- Wind and flood coverage: The roles of wind and flooding in a Sandy-related loss are likely to have significant ramifications. Virtually all property policies cover wind damage, and many cover flood damage, but policy deductibles, sub-limits and exclusions all can turn on how the loss is characterized. In particular, “anti-concurrent causation clauses” may be cited as a basis for denial of coverage where a covered peril (such as wind) and a non-covered peril (flood, in some policies) concurrently or sequentially cause a loss. Court decisions arising out of Hurricane Katrina restricted the scope of such clauses, but those decisions are not binding on courts in the Northeast. The courts once again may play a prominent role in resolving disputed claims that involve both wind and flooding.
- Hurricane deductibles: The wind versus flood issue is distinguishable from a “hurricane deductible,” predominantly a homeowners policy feature not found in commercial property policies. In any event, applicability of a hurricane deductible to Sandy-related claims may be moot now that officials in several affected states have proclaimed Sandy did not meet hurricane criteria once the storm made landfall.
- Other exclusions: Policies often contain exclusions for such causes of loss as mold, subsidence, collapse, pollution, etc. But the insurer generally will bear the burden of proving that such an exclusion applies to the particular damage at issue.
- Subsequent storms: A nor’easter storm struck parts of the Northeast on November 7, 2012, potentially exacerbating existing damage or causing fresh damage as businesses were still attempting to recover from Sandy. Policyholders and insurers must assess whether any newly discovered damage stems from one occurrence or two separate occurrences; applicability of coverage limits and deductibles may turn on this distinction.
Common Business Interruption Insurance Coverage Issues
Most commercial property policies cover losses due to the insured’s business interruption, often referred to as “time element” coverage. This coverage typically reimburses the insured for lost profits and extra expenses incurred to stem the loss. Common issues include the following.
- Physical property damage: Policies generally require that the insured’s business interruption be caused by direct physical loss or damage to the insured’s premises as a condition precedent to coverage. But limited exceptions do exist, such as “ingress/egress” coverage, covering business interruptions when access to the insured’s place of business is rendered impossible and “civil authority” provisions, where a civil authority orders an evacuation or otherwise prevents the insured from conducting business at its undamaged premises. Policies can vary greatly on this issue, and require careful analysis on a case-by-case basis.
- Utility outages: Superstorm Sandy caused widespread utility outages across the Northeast, many of which continued for a week or longer. Business interruption caused by a power, water, communication or other utility outage attributable to damage to the insured’s premises likely is covered under standard policies, but a so-called “off premises” service interruption (such as a power station failure) likely is not. Some policies carry special endorsements covering business interruption due to off-premises service interruptions, subject to a short waiting period of up to 72 hours.
- Contingent business interruption: Some policies cover the insured’s business interruption that is due solely to physical damage at another party’s premises, such as that of a supplier or customer. For example, a manufacturer in California whose business is interrupted due to lack of supply from a damaged Long Island supplier may be entitled to insurance proceeds if it purchased contingent business interruption coverage.
Consult Your Insurance Advisor
While common issues likely to arise in Sandy-related claims are highlighted above, coverage could turn on still other issues depending upon the specific facts of the claim and the language of the policy (or policies) at issue. Property insurance and business interruption claims can be surprisingly complex. Consult your company’s insurance broker and counsel to obtain a review of your particular circumstances and ensure the best possible claim resolution.