/>iHurricane season is upon us and, once again, NOAA, the National Oceanic and Atmospheric Administration, predicts an above-normal Atlantic hurricane season. According to NOAA, the season—which runs through November—could bring as many as 19 named storms, 10 hurricanes and 5 major hurricanes. For any business that might be affected, even worse than the storm itself is the thought that your insurance may be inadequate or that you (or someone you rely on) failed to comply with the policy and properly document the insurance claim.
Now is the time to ensure appropriate hurricane protection and confirm that those responsible understand all essential conditions for coverage and have a clear plan in place to ensure that all necessary steps are taken in the event of a loss. Below are 10 key tips to ensure your business is positioned to maximize recovery after a storm.
Before a storm, make sure you know what your policy covers.
1. Know what type of damage is covered, and what is not.
Most commercial property policies provide coverage for all risks of physical loss or damage to property unless a risk is excluded. In hurricane-prone areas, commercial property insurance policies may exclude hurricane and windstorm damage, contain a much higher-deductible for these risks or reduce coverage by use of a sublimit. The first time that a business considers these issues should not be after a catastrophic event. Analyze your policy to determine whether and how much coverage is afforded for your central risks, including:
- Flood damage, even if caused by a storm surge or wind-driven rain.
- Physical loss or damage to insured property, including whether the policy includes replacement cost coverage (to cover costs to replace or rebuild damaged property) rather than actual cash value coverage (which covers only the depreciated value of your damaged property).
- Spoilage coverage for perishable goods—particularly important for businesses in food service or grocery.
- Debris removal, which is typically subject to a sublimit.
- Business interruption and extra expense coverage, which covers loss of income and increased temporary operating expenses incurred while repairs are being made. Determine if your policy provides extended period of indemnity coverage for costs incurred in ramping back to normal operating levels after repairs are complete.
- Ingress and egress coverage to cover lost business income when entry or exit from the property is not possible because of property damage, such as blocked roads or broken bridges.
- Contingent business interruption coverage, to cover lost business income because of disruptions in supply chain caused by physical damage at other locations in your supply chain or physical damage to customers or attraction properties.
- Civil authority coverage to cover lost business income due to governmental orders, including curfews or other prohibitions.
- Damage to improvements such as signage, fencing, landscaping and trees.
2. Know what assests are covered.
Policyholders should consider whether all relevant property is identified on the appropriate schedule of insured locations. For example, are newly acquired locations included? Does your policy require that they be “scheduled” or does the policy contain a provision that captures these “after-acquired” locations without the need for a schedule? If the policy requires a schedule, be sure it is as up-to-date as possible before a storm.
3. Understand the policy’s causation language.
Businesses might presume that losses caused by hurricane are covered so long as they purchased hurricane coverage. This is not always the case, and the coverage question can be far more nuanced. Most policies include an “anti-concurrent causation” provision that removes coverage for damage caused directly or indirectly by an excluded peril regardless of whether any other cause contributed to the loss. These provisions are enforceable and must be taken seriously. Accordingly, expect the insurer to scrutinize whether an excluded peril caused or contributed to the damage, which may include flooding. When a covered peril and an excluded peril both contribute to damaged property, some policy language will yield coverage; some will not. Knowing the difference ahead of time—and how a given state’s law may dictate the outcome—is vital.
4. Consider whether additional lines of coverage are needed.
Once you have reviewed your policy, consider if any additional lines of coverage are needed to ensure full protection for your business. For example, property insurers often limit coverage for flood damage, either by a sublimit or through exclusions. If your business is susceptible to flooding, consider whether a separate policy is needed. Do not assume that “hurricane coverage” means coverage for anything and everything that could be associated with a hurricane.
5. Make sure you are aware of any deadlines in the policy.
Generally, property insurance policies require prompt notice to the insurer and detail how that notice is to be provided and to whom. Further, statutory law in certain jurisdictions provides additional deadlines for notice.
For example, in Florida, property damage must be reported within one year of the date of the loss or the claim will be barred. Additionally, notice of a supplemental claim must be given within 18 months of the loss. Note that the “date of loss” for hurricanes is the date that the hurricane made landfall. See Florida Statute § 627.70132.
6. Make note of your duties under the policy.
Most policies have a section entitled “Duties in the Event of Loss” which details any duties an insured has under the policy in the event of a loss. Compliance is essential. These duties might include taking reasonable steps to prevent further damage to property and providing the insurer an opportunity to review any damage before it is remediated. The failure to carry out these duties may provide the insurer a basis to deny or limit coverage.
7. Be aware of any appraisal provisions.
Not all policies allow an insured to resort to litigation to resolve coverage disputes. Some policies include a dispute resolution method known as appraisal—an alternative to traditional litigation that can be equally (if not more) costly. In other instances, statute may require arbitration to determine disputes over valuation as a condition precedent to litigation. Generally, these contractual or statutory provisions can be invoked by either an insured or insurer and typically include a timeline to follow (addressing things such as the appointment of arbitrators). Be sure to note this timeline so you are prepared if the insurer invokes arbitration.
After a storm, ensure a coordinated response and claims process.
8. Document your mitigation efforts.
Property insurance policies typically include a duty to mitigate losses. This can be generally understood as any prompt effort required to avoid further damage to property. These efforts, however, must also be balanced against an insurer’s desire to evaluate the damage before it is remediated. Taking photos before and after a storm and prior to any mitigation efforts can avoid disputes over what damage was actually caused by the storm. Be sure to retain invoices for any mitigation efforts as these costs could be covered by insurance. Documenting the condition of post-loss property and your mitigation efforts is critical during the formal claims process and can be pivotal to preserving coverage.
9. Prepare a proof of loss.
Verify if your insurer requires you to submit a proof of loss, outlining the amount being claimed as storm-related loss, and what the timeframe is for when it must be submitted. Some policies require that a proof of loss be submitted relatively quickly (often within 60 days). If your insurer requires a proof of loss, ensure that the document is reviewed by coverage counsel before submitting it because it can be used to limit your recovery. Depending on the jurisdiction and policy language, a failure to provide a proof of loss in the policy’s timeline could jeopardize coverage.
10. Consider retaining an expert.
If your business has shut down and you believe you will need to submit a claim for business interruption, consider whether a forensic accountant will be needed for the claim. Similarly, if your business sustained extensive property damage, consider whether an engineer might be needed to fully assess the damage. These experts can also help assess the cause of damage and assist if you need to argue for coverage. Coverage counsel can assist in making a determination regarding experts.
Navigating the insurance claims process can be overwhelming, but experienced coverage counsel can assist with recovering losses and getting your business back on track after a storm.
