Fall is known for splendid colors, football, Halloween and unfortunately—at least in the Southern part of the United States and the Caribbean—hurricanes. The Fall of 2017 will likely be remembered for a proliferation of these horrific and tragic events on an historic scale, with Irma having a singularly devastating impact on our Florida clients, as well as our business clients elsewhere indirectly affected due to their reliance on Florida suppliers and vendors. The legal and financial needs arising from this tragedy are many; certainly securing insurance to the greatest extent possible is high on the list.
Both businesses and individuals 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 Irma, or any other claim.
Causation: Flood, Wind or Something Else?
Of the various weather related forces at work during a hurricane—rain, flooding, wind—what exactly causes damage to structures and property? The answer may be important. If its deemed to be a flood, the insurance picture becomes complicated, because many businesses and individuals 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. The limitations in this coverage often lead to disputes concerning the cause of the loss
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). 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 a 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 Florida Homeowners
In the event Hurricane Irma caused a total loss of your home, you may be faced with the question of whether your policy provides coverage at replacement cost or actual cash value. Replacement cost is typically much better. One level of protection to homeowners is provided by Florida Statute § 627.7011, which requires an insurer, prior to issuing any policy, to offer the cost to replace your home, not exceeding policy limits, rather than the actual value of the destroyed dwelling. Another, and potentially far more valuable, right exists in Florida Statute § 627.702, which states that in the event of a total loss the insurer’s liability will be the full policy limits. While the above provisions offer significant protection to homeowners, the concern remains as to whether the total loss was caused by a covered peril (i.e. Hurricane, fire, flood, etc.). The policy will define covered perils. In situations where the total loss is caused by both covered and non-covered perils, the amount recoverable by the insured is limited to that caused by the covered peril. However, the amount caused by the covered peril versus the non-covered peril is often in dispute and can be litigated.
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 Irma, 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 Irma 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 prevents 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 areas devastated by Irma, this coverage may be critical to businesses that rely on supply chains. In fact, this coverage may well be in play for insureds located far from Florida.
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 damage in densely populated cities like Naples 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., 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.
What to Do?
Dealing with these events can, of course, seem overwhelming. The loss and devastation is bad enough. Putting together the insurance claim that follows only makes the process more difficult. But it is necessary. And it needs to be done relatively quickly. Most policies have provisions with specific, and often expedited, requirements for notice, proof of loss, and even the bringing of any lawsuit seeking coverage, that make timing an important part of the coverage equation. Pursuant to Florida Statute § 627.70132, an insured must make a claim to their insurer for hurricane or windstorm damage within three years after the hurricane first made landfall. A lawsuit seeking coverage must be filed within five years of the date of loss pursuant to Florida Statute § 95.11. It should be noted that if you are one of our Wisconsin clients seeking coverage because of, say, a contingent business interruption claim caused by an inability to obtain supplies due to hurricane damage to a vendor, you may only have a year to sue on that claim under Wis. Stat. § 631.83(1)(a), which imposes a strict 12 month statute of limitations, running from the "inception of the loss", on property insurance claims.
Insureds need to read and understand these provisions, or at the very least retain professionals experienced in this area. Working with an adjuster, broker, attorney, or some combination of all three is usually a smart move that will pay off in a major way. And you can be sure that the insurance company has involved these personnel and they are there to protect the interests of the insurance company that hired them, not yours.