The recent wildfires in California have clearly had a catastrophic impact, destroying a vast number of homes and business premises across the region. Homeowners and businesses may have limited means to protect against nature’s forces, but, in this alert, we provide tips on steps that can be taken to protect against denials of coverage by insurers. Careful and proactive attention to insurance coverage considerations could be the key to restoring homes and business operations and weathering the financial storms that follow from such disastrous events.

Potentially Relevant Insurance Policies

It is vital for affected homeowners and businesses to review all relevant or potentially relevant insurance policies promptly, including excess-layer policies, and to comply with loss notification procedures. The most common source of coverage for most individuals and businesses is likely to be first-party property coverage insuring the damaged premises and other assets, including against the risk of fire, smoke, and related damage. In many cases, this insurance will be supplemented by specialty coverages that apply to specific situations.

For businesses, the coverage will typically include the following:

• Property damage where losses are caused to the business premises and assets, including computers and machinery. 
• Business interruption (BI) where the business experiences loss of earnings or revenue due to property damage or loss of use caused by an insured peril, for a specified period of time after the insured event or until normal business operations have been resumed.
• Contingent BI which generally covers loss of revenue arising from damage to the property of a supplier, customer, or other business partner.
• Denial of access, where use or access to the insured property is prevented or restricted for a specific period of time, for example, if roads or bridges leading to the property have been blocked or destroyed. 
• Civil authority coverage, which covers losses arising from an order made by a civil or government authority that interferes with normal business operations.
• Service interruption coverage, which typically covers the insured for losses related to electricity or interruption of other utilities or supplies.
• Extra expense incurred to enable business operations to be resumed or to mitigate other losses.

When presenting an insurance claim, it is important that policy provisions are considered against the backdrop of potentially applicable insurance coverage law to ensure that the policyholder is taking the steps necessary to maximize coverage. Many property policies are written on an “all risks” basis, but there will typically be exclusions, sublimits, or restrictions applicable to certain perils or circumstances. Some coverages may be subject to different policy limits and policy deductibles that impact the amount of coverage available. A proper analysis of the policy wording is vital to enable the insured to take full advantage of the coverage provided. 

Practical Tips to Maximize Coverage

There are several steps policyholders should consider when making an insurance claim arising from natural disasters like the California fires:

Be Proactive in Notifying Insurers

Most policies identify specific procedures to be followed in presenting a claim, and there are likely to be timing deadlines associated with them. Failure to comply may result in insurers seeking to restrict or deny coverage for a claim otherwise covered by the policy. Policyholders should carefully consider any notice requirements, including any clause allowing for notice of a loss or an event that may or is likely to give rise to a claim. Prompt notification may assist policyholders in securing early access to loss mitigation resources and related coverages.

Early Assessment of Coverage

There are significant benefits in evaluating coverage at an early stage to understand any issues that may impact the way in which the claim is presented. Consultation with experienced coverage lawyers will assist in identifying and analyzing responsive policies as well as anticipating coverage issues or exclusions insurers might seek to rely upon.

Collate and Preserve Relevant Documents

Insurers typically require proof of loss and damage along with extensive supporting documentation. It is critical to take steps early on to ensure that potentially relevant documents and electronic records are located and preserved. In particular, insurers may argue that some part of the revenue loss is attributable to other causes, such as poor business decisions or economic downturn, such that historical records often must be examined and relied upon.

Preparation of Proof of Loss

The preparation of a detailed inventory and proof of loss is a time-consuming and challenging process but can prove invaluable in seeking to challenge any settlement offers made by the insurers or any loss adjustors appointed on their behalf. Many commercial policies include claim preparation coverage, which covers costs associated with compiling a detailed claim submission. The appointment of independent loss assessors or forensic accountants can prove particularly beneficial for collating BI losses, which are often challenged by insurers. For example, insurers may adopt a narrow view of what constitutes “interruption” to the business, particularly where certain business activities are ongoing.

Advance Payments

Any delays by insurers in making appropriate and periodic payments will delay the rebuilding of premises and the resumption of business operations. Insureds should consider requests for interim or advance payments, prior to completion of the loss adjustment process, particularly if the policy expressly provides for this.

Evaluating and Challenging Insurer Positions

The validity of any coverage defenses or limitations raised by insurers will be impacted by the precise wording of the insurance contract and by the applicable governing law. Experienced coverage counsel will be able to assist an insured in assessing the merit and viability of any coverage issues raised by insurers, or by their appointed loss adjusters, and in maximizing the insured’s potential recovery.