Hurricane Irene wreaked substantial damage to property up and down the eastern seaboard of the United States and into Canada. Preparations for the storm caused governmental authorities to order evacuations and business shutdowns, impinged access to business premises, and interrupted operations, utility services, and other supply chains. Although the storm has passed, its aftermath remains in the form of flooding and widespread power outages. According to The Wall Street Journal, insurance industry sources estimate that there have been $3–5 billion in insured losses. Other estimates range higher. In the wake of the storm, businesses must act to identify all losses potentially covered by insurance and to obtain all available insurance benefits. The lessons of Hurricanes Katrina, Ike and Andrew before them are that securing coverage requires preparation and diligence.
Quick Action Is Essential to Secure Insurance Coverage
Commercial property insurance generally provides coverage for physical damage caused to business premises and other property, and it often also covers the loss of profits due to business interruption. Coverage may also extend under commercial property forms or more specialized insurance for supply-chain disruptions, loss of markets, and even liabilities arising from inabilities to meet commercial obligations. To secure the benefits of coverage, it is critical to take prompt action:
- To identify all available coverage and comply promptly with notice and proof of loss obligations. Commercial insurance typically requires the policyholder to provide notice to the insurer of a loss “as soon as practicable.” Thereafter, the policyholder is required to file a sworn, detailed “proof of loss,” often as soon as 60 days after the loss-causing event. Any failure to meet these deadlines can lead to disputes with insurers that may compromise your ability to recover or even result in a forfeiture of coverage.
- To document and quantify all losses. Insurers require that all claimed losses be quantified in the policyholder’s proof of loss. Depending on your policies, coverage may be available not just for destruction or damage to real property, equipment, inventory, furniture, data and records, but also various categories of business interruption, including interruptions continuing days after the storm from lost work days, civil authority closures, and delays in deliveries. It is critical to begin documenting and quantifying such losses promptly while information is still fresh, ideally with the help of experienced coverage counsel and forensic accountants. The early retention of experts helps to avoid missteps.
Various Categories of Insurance Should Be Reviewed for Potential Coverage
Your coverage may not be limited to tangible property damage. While—at its most basic level—commercial insurance covers the lost value of property, equipment and inventory, other categories of loss should not be overlooked:
Special categories of property loss. In addition to lost or damaged tangible property, you should not overlook the intangibles. Check electronic records to make sure data is intact. Determine whether inventory is safe. In recording any losses, be sure to recognize the value of any salvage.
Business interruption. Many commercial policies provide so-called “time-element” coverage for lost profits due to business interruption. Typically direct loss or damage to property is required before this additional coverage is triggered. There may also be coverage (either in a property policy or on a stand-alone basis) for “contingent business interruption”—impairments to a company’s supply chain or markets, even in the absence of direct property damage. In some policies, there is a discrete trigger of business interruption coverage when a civil authority, such as a state or municipal government, has ordered closure. For example, such “civil authority” coverage may be available for businesses in areas ordered evacuated due to the risk of flooding.
Loss mitigation, prevention and documentation expenses. Be sure to check whether your policies cover costs of salvage, loss mitigation, and coverage of “extra expenses” incurred in limiting, documenting and repairing losses. Some business interruption policies require you to take steps to expedite restoration; the expense of complying with these requirements may be covered expressly under the policy or mandated by law.
Supply-chain interruptions. You should check to see whether your coverage extends to supply-chain interruptions or trade disruptions. Specialized coverage exists for these risks on a stand-alone basis or by endorsement. Likewise, there may be coverage for losses resulting from the disruption of utility services, which of course were widespread in the storm’s aftermath. These coverages do not necessarily require proof of direct damage to the policyholder’s property.