Superstorm Sandy has left a wide wake of destruction spanning several states. While the total cost of property damage and business loss will not be known for some time, early estimates are between $10 and $20 billion, and those figures are likely to rise as public transportation remains closed and power outages continue.
Most businesses purchase property policies that insure against “all risk” of direct physical loss of or damage to property occurring during the policy term. These policies often cover real and personal property, including property owned, used, leased or intended for use by the insured; property of others in the insured’s care, custody or control; and property which the insured is responsible for or has agreed to insure. Property policies contain numerous exclusions, as well as sublimits and deductibles specific to the cause of the loss. As with all coverage claims, the policy language is key, and it varies by insurer and policyholder. Knowing the law in your jurisdiction is also critical since courts interpret coverage provisions differently. Below are several key provisions that policyholders should look at before submitting claims for damage caused by Sandy.
When a loss is caused by multiple perils, such as wind, flood, storm surge and negligence, a policy may cover some causes but exclude others. Some policies anticipate this situation and include “anti-concurrent causation” provisions or “concurrent causation exclusions” that explicitly exclude coverage where both covered and uncovered causes contribute to a loss. Other policies do not explicitly address this situation but may include widely divergent deductibles depending on the covered peril (e.g., flood deductibles may be several times larger than windstorm deductibles). How courts treat and enforce these provisions varies by jurisdiction – some states prohibit enforcement of concurrent causation exclusions if a covered peril is the efficient proximate cause of a loss, while others permit parties to freely contract around the effect of the efficient proximate cause doctrine. For businesses whose policies include concurrent causation exclusionary language, they will need to show that at least some damage was caused exclusively by a covered peril. While the final decision as to causation is a question of fact that will be left for judge or jury to decide, determining the sequence of events and the cause of specific damage is critical. Businesses need to keep these issues in mind when submitting insurance claims for Sandy.
This optional coverage typically covers loss resulting from necessary interruption of business, whether total or partial, caused by covered loss, damage or destruction to real and personal property. This coverage is policy-specific and will vary between policyholder and insurer. There has been extensive litigation over what is meant by “partial” and “total” loss, and knowing the law in your jurisdiction is critical to this analysis. With storms like Sandy, lost business income may far exceed real and personal property damage.
Civil or Military Authority
This covers loss sustained during the period of time when access to real or personal property is impaired by order or action of civil or military authority issued in connection with or following a peril insured against, such as a windstorm or flood. In the event businesses are prevented from accessing their real or personal property in areas affected by Sandy by order of civil or military authority, this provision will be key to recovering for their resulting losses. Most policies provide this coverage for a specific amount of time, typically capped at four weeks or 30 days.
Contingent Time Element/Extra Expense
This covers loss resulting from damage or destruction by covered causes of loss to property that wholly or partially prevent any direct or indirect supplier of goods or services to the insured from rendering their goods or services. This also provides coverage when any direct or indirect receiver of goods or services is prevented from accepting the insured’s goods or services. Given the extent of damage to the infrastructure in and surrounding the areas devastated by Sandy, this coverage may be critical to businesses that rely on supply chains.
This covers the cost of removal of debris of both covered property and non-covered property on the premises of the insured, provided the debris resulted from a covered loss.
Most policies cover additional reasonable and necessary expenses incurred in an effort to continue normal operation that is interrupted due to direct physical loss or damage from covered perils. Extra expense covers the excess of the total cost chargeable to the operation of the insured’s business over and above the total cost that would normally have been incurred had no loss or damage occurred.
Unlike other coverages discussed above that require physical damage to a business’s real or personal property, ingress/egress covers loss sustained during the period of time when, in connection with or following a peril insured against, access to or egress from real or personal property is impaired due to physical loss or damage within a defined geographic area (e.g., one mile) of the insured’s property. Given the extensive mass transit closures following Sandy in densely populated cities like New York and the large numbers of people who are unable to get to their places of work, businesses may be able to get coverage under this provision if there is damage to property (e.g., subway tunnels, bridges, roads) within the defined geographic area of their insured property.
This covers loss resulting from damage or destruction by covered causes of loss to electrical, steam, gas, water, sewer, telephone or other utility services. Most of these provisions contain specific limitations, such as only providing coverage for losses incurred during hours which the insured would or could have used the services had they been available.
National Flood Insurance Program
Many businesses cannot obtain private flood insurance and instead purchase coverage through the National Flood Insurance Program (“NFIP”), which is administered by the Federal Emergency Relief Agency (“FEMA”). As with any policy, businesses need to carefully review their coverage under their NFIP policy before submitting their claim to FEMA, understanding that coverage is often capped at a certain amount for each building or property insured.