As a result of Superstorm Sandy last October, businesses were shuttered and entire segments of the local economies in New York, New Jersey and Connecticut ground to a halt. Some businesses were forced to relocate temporarily to maintain what they could of their revenue. In all, between property damage and lost income, businesses lost billions.

In the wake of the storm, policyholders turned to their insurers for coverage for property damage, business interruption losses and more. Insurance policies provide for a period of claims adjustment – claims are made and investigated. That process generally is running its course, and in many instances insurers now are refusing to pay the full extent of an insured’s losses or even denying coverage altogether. As a result, we are at the crest of a wave of Sandy-related insurance coverage lawsuits.

Most litigation likely will focus on the application of policy exclusions, both as a factual and legal matter, and proof of loss. For example, if flood insurance was not purchased, insurers may argue that there is no coverage, even though certain coverage may well apply. Also, proof of lost income can be difficult and disputed, because the issue is to some extent inherently speculative: what income would have been received but for Sandy. Both policy interpretation and proof of loss challenges can be addressed, but strategy must be carefully evaluated in the pre-litigation period in view of each insured’s particular facts and policy language.

Policyholders also need to be keenly aware of the time limitations imposed by their policy, including by when a lawsuit must be filed. These time limits generally are substantially less than the statute of limitations for a breach of contract action, which varies from state to state. If an insurer offers to extend the policy’s time periods, the policyholder must get the promise clearly and in writing. Time limitation clauses can be challenged, but that issue can be won or lost – better to comply with the limits in the first instance and focus the litigation on the core issues.

Why it matters: How a policyholder handles its coverage claim and what it says to its insurer during the adjustment process can have a substantial impact on the recovery. Communications should be written to the extent possible, and oral communications should be witnessed. As claims make their way to courts, insurers will look for technical arguments to avoid coverage, based both on policy language and the facts, including a policyholder’s statements during the claim adjustment process. If litigation proves necessary, the policyholder then will be in the best possible position.