Hurricane Barry breached the Gulf Coast west of New Orleans on Saturday and was soon downgraded to a tropical storm. Nevertheless, Barry is likely to have a significant impact on businesses, property, and supply chains throughout the region.
Prudent businesses have taken the necessary steps to prepare for the storm and must now prepare to recover. The first step, as always, is to see to the safety of your personnel. Right behind it, however, should be taking stock of the impacts and communicating losses to your insurance companies. The key questions as you plan your recovery are: What insurance covers your losses? Have you identified all the policies that may respond? How do you measure and document your losses to the insurers’ satisfaction—including your lost profits? Will your coverage for business interruption include disruptions experienced in anticipation of the storm’s arrival, or only after it hit? Is there coverage for supply chain disruptions? And are there any government funds, such as FEMA assistance, available to aid your recovery?
To help address some inevitable issues and to assist with the initial insurance claim process, we offer the following reminders.
1. Obtain and Review Your Insurance Policies.
Step One, ideally, is one you’ll have prepared for before the storm. Before landfall, it is crucial to ensure that all potentially applicable insurance policies and binders will be available. Arrange to have the policies at your fingertips even if you cannot get into your office. Cloud storage is a good solution for when you cannot get to physical files or your servers are down. Review and evaluate all potentially applicable insurance policies for potential coverage. While property coverage is obviously the first place to look, do not overlook auto, marine cargo, throughput and supply chain, pollution, and boiler and machinery policies and—for those facing potential third-party claims—liability insurance.
Calendar any deadlines for securing coverage under each policy—including when you must give notice, file a sworn proof of loss, and—if the insurer makes an adverse coverage determination—file suit to vindicate your rights. Many of these tasks are time-intensive, so also set calendar reminders several weeks before each deadline to get them started. Any tasks the policies required to be done in a “reasonable” time should be completed as soon as practicable. Insurance companies frequently claim that a policyholder’s missing of a deadline is fatal to its claim.
If the policy specifies a deadline for filing proof of loss, make an early assessment whether it will be possible to meet the deadline. If necessary, ask your insurer for more time. Insurers will normally honor reasonable requests for an extension.
2. Assess All Possible Coverages.
“First-party” policies such as commercial property policies typically provide coverage for business or property owners’ own losses. The terms and scope of coverage may differ in the event of a “Named Storm” such as Hurricane Barry, so be alert for such provisions and exclusions. And, although residential policies frequently exclude flood loss, floods are more likely to be covered under commercial policies. But if there is no flood coverage, you need not throw up your hands. Depending on applicable law, there may still be coverage for wind-driven water, or when another, covered peril, such as fire or power outage, results from the storm, or contributes to or ensues from the loss. There may also be separate coverage under a National Flood Insurance Program policy, if it has been obtained.
Many commercial property policies are also endorsed or extended to cover losses due to the interruption of the insured’s normal business activity because of damage to suppliers (sometimes specially including utilities), customers, infrastructure and other critical, or dependent, properties. In some instances, such coverage applies even if the insured has suffered no physical damage to its own property. You should review your policies to look for “contingent business interruption” coverage when suppliers or customers suffer damage that disrupts your own supply chain. Depending on the coverage you purchased, there may even be coverage when closures of roads, rail, ports facilities, and other conveyances disrupt supply chains.
Similarly, losses you sustain because of disruptions of power supply, telecommunications and other utility services may be covered under service interruption provisions of your insurance. Likewise, government orders closing roads, rail or access to your facilities may trigger “civil authority” or “ingress/egress” coverage under your policies. You should review for such coverage in case you suffer such disruptions.
3. Place All Insurers on Notice as Soon as Practicable.
Don’t wait to complete the inventory of your losses before placing your insurers on notice. You will have time to do that in your sworn proof of loss. As soon as possible, place all your insurers on notice, even if you are not yet sure your loss will affect the particular coverage. Do not assume you do not have coverage or that a particular policy will not be called upon to respond. As you tote up your losses, you may discover—well after the fact—that you had losses you did not initially expect, so give notice anyway. Notice is just that: advice to your insurance company that you might have a claim. It need not be too detailed at first, and generally does not need to state a cause of loss, so there is no need to delay.
In giving notice, be sure to follow the directions given in each insurance policy precisely, always bearing in mind that different policies have different notice requirements. Pay close attention to your notice deadline, the person or organization you have to notify, and the required form of notice. Insurance brokers may be best positioned to provide the notice, so be sure to consult with your broker. But always remember that the insured will be held responsible for noncompliance with the notice condition, so take it upon yourself to ensure that notice is actually provided.
4. Engage Experts Early.
Especially when you may have a business interruption loss, it is usually prudent to engage professional claim consultants early. (In fact, it is a good idea to have a relationship with a forensic accounting firm that knows your company’s business even before a storm hits.) Additional experts may be needed to model the unique financial aspects of your business. Their professional fees and other mitigation expenses are frequently covered under property policies, subject to certain limits.
It is also a good idea to retain an experienced insurance coverage lawyer, not just for when you need an advocate, but also to help you in the first instance to present your claim in the best way to maximize your opportunity to recover. Coverage counsel can help protect privileged communications and avoid many of the traps for the unwary in presenting your insurance claim and in responding to the insurer’s information requests. They can also identify when an insurer has engaged in any improper claims handling practices under applicable law.
You must cooperate with the insurance company’s adjuster. At the same time, remember: the adjuster works for the insurance company—not for you. If you need an advocate, don’t expect one in the adjuster. Hire your own.
5. Document and Mitigate Your Losses.
Carefully documenting losses, especially before you undertake any cleanup efforts, is critically important for evaluating the loss. This includes not only property that was damaged during the storm, but also any property rendered unusable in its aftermath. Check buildings, equipment, supplies and inventory. Make a detailed record of any damage, including photographs and videos, and ensure they are backed up somewhere. Remember that your smartphone can be an excellent tool for photos and videos. Also make a record of what you do to address or mitigate losses. Track expenses repair, replacement, mitigation, cleanup and salvage, as well as the costs of professionals you engage to perform these tasks and fees incurred with forensic accountants and others to prepare your insurance claim. Establish unique accounts in your accounting system to track all losses and expenses. Retain all receipts for expenses made necessary by storm-related damage.
You may also be obligated to preserve and protect your property from further losses, including mitigating additional damage. Because such steps are required, mitigation expenses are usually covered under property insurance policies. For example, if a building is flooded, policies likely require the insured to take necessary steps to dry out flooded areas, and therefore provide reimbursement of that mitigation expense, subject to certain limits. The insurer may also have salvage rights to damaged property and stock, so it is important to preserve any salvageable property to the extent possible.
6. Detail Your Business Interruption and Contingent Business Interruption Claims.
Business interruption coverage reimburses insureds for earnings lost because of disruptions caused by a covered event. A special category of insurance, contingent business interruption, covers business interruption losses resulting from damage to parties other than the insured, such as customers or suppliers. For contingent business interruption to apply, the damage to the suppliers or customers must be caused by a covered event under your policy. These types of coverage often involve complex loss issues such as pre-storm preparation costs, extra expenses, and expenses to reduce loss, mitigation requirements, and waiting period calculations. The biggest challenge in securing coverage under either of these types of insurance is valuing and documenting the loss. The quantification of losses often depends on a sophisticated analysis of the business revenue that would have been expected if the storm had not occurred, taking into account seasonal business cycles and other facts. This is an exercise that requires the assistance of experienced forensic accountants. (See above.) And beware of provisions—inserted in some post-Katrina policies—that purport to give insurers credit for “an increased volume of business due to favorable business conditions” created by the storm.
It is crucial to keep detailed records documenting when and how your business was interrupted. This typically requires close communication with your suppliers and customers, so you can document what happened and how it has affected your supply chain and markets.
7. Follow the Policy to Preserve the Claim.
After notice of loss, most property policies also require that the insured later submit a sworn proof of loss to catalogue the damages. Although this is usually done after reaching agreement with the insurer on the amount of the insured claim, policies sometimes require the insured submit a proof of loss within a fairly short time after the event. As noted, insurers are usually willing to extend these deadlines, but make sure you ask for such extensions in a timely manner, and memorialize the request, and any agreement, in writing. State governments might also extend deadlines after a major disaster, so it is important to stay up to date on those developments as well.
8. Consider Government Funds for Nonprofits Providing Critical Infrastructure and Essential Services.
Most people know that FEMA frequently provides funds to state and local governments and individuals. But FEMA and other government-based programs are also potentially available for certain not-for-profit organizations that provide critical infrastructure and essential services. Critical infrastructure and services include hospitals and other medical-treatment facilities, fire, police and other emergency services, power, water and sewer utilities, educational institutions, libraries, museums and zoos, community centers, senior citizen centers, and day-care centers. The program and application process can be daunting—and strict time limits apply. But a successful applicant can see FEMA reimburse no less than 75 percent of the eligible costs for emergency protective measures and permanent restoration costs, including debris removal and infrastructure repair or replacement. FEMA does not, however, pay for business interruption losses, and grant recipients must reimburse FEMA for any benefits that are duplicated by other sources, such as private insurance.
Even with Barry’s destructive potential, by following these tips, business and property owners should be well positioned to maximize their recoveries.
Pillsbury’s Insurance Recovery & Advisory Group is a nationally acclaimed, market-leading policyholder-side insurance group within one of the most respected global law firms headquartered in the United States. Pillsbury stands ready to assist with recovery efforts stemming from Hurricane Barry and other storms that hit the U.S. coasts.