Hurricane Irma was one of the most devastating storms in United States history, with sustained winds of over 190 miles per hour. Insurance industry experts have estimated the insured damages arising from this storm may reach $50 billion. These losses include both direct property damage as well as business interruption losses. In addition, many businesses outside of the areas of storm damage may experience lost revenue as a result of damage suffered by suppliers or customers whose operations were damaged by the storms.
As businesses begin the process of cleanup and recovery in the aftermath of these hurricanes, insurance must be a priority. The following are key steps that businesses should take to ensure that they take full advantage of the insurance they purchased to protect them from catastrophic losses.
1. Review all potentially applicable insurance policies and assess the potential for coverage. An important first step is to collect and analyze your policies to assess the scope of coverage available. The most common policies providing coverage will be first-party property policies, including commercial property, marine property and event cancellation policies. Most property policies are sold on an all-risk basis, meaning that the policy provides coverage for all risks of loss unless the loss is specifically excluded. The key step in evaluating coverage for a hurricane loss under an all-risk policy is to evaluate the policy exclusions.
2. Consider coverage for contingent business interruption losses. Many businesses outside of the storm’s direct impact will experience lost income caused by damage to the operations of suppliers to and customers of the firm. These losses may be covered under your property policy as a contingent business interruption loss.
3. Provide notice of the loss to all insurance companies. Prompt notice to all carriers is essential.
4. Once it is safe to do so, visit the damaged property and record the extent of damage. Photographs and video are crucial.
5. Take steps to mitigate losses and protect property from further loss or damage. Standard property policies require the insured to mitigate the physical damage and business interruption arising from a catastrophic storm. Ensure that your firm takes these steps.
6. Form a claim team. It is essential to form a team involving company employees and outside experts, including outside counsel, independent adjusters and forensic accountants. Claims from catastrophic storms often raise significant coverage issues, and it is important to retain counsel early in the process. Forensic accountants also can be essential in developing and presenting a business interruption claim to a carrier.
7. Document carefully your communications with insurers and their agents. Resolution of catastrophe claims can be slow, and the Wall Street Journal reported last week that there is an acute shortage of qualified insurance adjusters in Florida. This shortage is caused in part by the high demand for adjusters in Texas following Hurricane Harvey. It is essential to keep timely, detailed records of all communications with insurance companies and their representatives in order to discourage delays and to position the company to make a bad faith claim later if necessary.
8. Be cautious about internal and external communications about your claim. Policyholders should be careful with both internal communications and with communications to third parties, including brokers, about your losses and claims. These communications may be discoverable by the insurance company in litigation, and the way the company characterizes its loss may be used by the carrier against the insured. An important principle is for the company to have one point of contact with the broker and with the insurer.
9. Collect and maintain accounting records and documents related to property damage and business interruption. Key documents to include are: (a) production and sales records; (b) records of cost of goods sold; (c) business forecasts and budgets; (d) inventory records; (e) cost accounting records; and (f) payroll records.
10. Collect and maintain records of costs incurred to avoid or reduce the loss. Key documents to include are: (a) overtime records related to maintaining production at pre-loss levels; (b) price premiums and extra shipping charges to expedite delivery of machinery or inventory; (c) relocation costs; (d) costs incurred in the purchase of generator or replacement power; and (e) costs of notifying customers of a relocation or to maintain customer relationships during down-time.
11. Seek partial payments. Carriers often seek to delay full payment of the loss by making a minimal “good faith” payment and claiming that it cannot make full payment until all coverage and claim value issues are resolved. Challenge this approach by insisting that the insurer provide a coverage position in writing, by submitting partial proofs of loss when portions of the claim are quantified, and by demanding payment for the undisputed portion of the claim.
12. Comply with policy requirements. Standard property policies impose a number of requirements on the policyholder, including deadlines for submitting proofs of claim and for filing suit if there is a dispute regarding the claim. It is essential to comply strictly with all policy requirements unless the insurer agrees to an extension in writing.