Hurricane Irma approaches with historic winds not before seen on the East Coast; it has already devastated islands in the Caribbean. Many areas of the East Coast will be inaccessible, or without water or power services. Evacuation and curfew orders are likely to limit travel and restart plans. A key early step in the recovery process for businesses and other organizations is communicating losses to their insurance companies. As you take stock of your losses, plan your response and examine your insurance policies and your recovery options, you are going to face many questions: What insurance covers our losses? Have we identified all the policies that may respond? How do we measure or document our losses, including lost profits? Can we recover for our business interruption before the storm hit or if only our suppliers were impacted? Are there any government funds, such as FEMA assistance, available to aid our recovery?
Securing insurance proceeds is crucial to the recovery process. To help address some inevitable issues, and to assist with the initial insurance claim processes, we provide the following guidance.
1. Obtain and Review Your Insurance Policies.
To begin with, it is crucial to have at hand all policies and binders before landfall and arrange access to these critical documents if you cannot be physically in your office. Your team should obtain, review and evaluate all potentially applicable insurance policies for coverage. Understanding your rights and obligations requires a thorough review of the policies to determine what coverages may apply. Property insurance is the most obvious source of coverage, but do not overlook auto policies, marine cargo policies, throughput and supply chain policies, pollution policies and—for those facing potential third-party claims—liability policies. Also know that your policies may be subject to other requirements, such as statutory requirements, that could impact the terms of your coverage.
When reviewing your insurance policies, note any deadlines and calendar those dates with reminders set several weeks before the deadline. First, calendar the policy deadlines for you to give notice, file a sworn proof of loss, and file suit if you disagree with the insurance company’s coverage determination (note the deadline to file suit might be years in the future). Any tasks that must be completed within a “reasonable” amount of time should be done as soon as practicable. Insurance companies frequently claim that a policyholder’s missing of a deadline is fatal to its claim.
2. Assess All Possible Coverages.
In the aftermath of a hurricane, “first-party” policies such as commercial property policies are most likely to provide coverage for business or property owners’ own losses. Although residential policies frequently exclude flood loss, flood may be covered under commercial policies (and in some cases under National Flood Insurance Program policies). Even when flood is not an insured peril, there may be coverage when another, covered cause (such as fire or power outage) contributes to or ensues from the loss.
In addition to providing coverage for physical damage to an insured’s property, many commercial property policies also include coverage by extension or endorsement for losses due to the interruption of the insured’s normal business activity due to damage to utilities, customers, suppliers, infrastructure and other critical, or dependent, properties. These additive coverages may apply even if the insured’s own property was not physically damaged. For example, depending on policy wording, damage to certain first- or second-tier suppliers or customers may result in covered “contingent business interruption” losses. This coverage may be critical to businesses whose supply and customer chains are disrupted as a result of damage to and closure of infrastructure, including roads, barges, railroads, ports, and even intercoastal waterways.
Similarly, disruption of electrical power and other utilities (e.g. telecommunications) may trigger losses insured by service interruption coverage. As well, governmental curfews, prohibitions against entry and physical obstructions to roads may trigger civil authority or loss of ingress/egress coverage. A thorough review of the insuring provisions is critical to determine whether, and the extent to which, such coverage may apply.
3. Place All Insurers on Notice.
Even if you have not yet identified all of your losses, or determined that a policy might apply, provide notice as soon as possible to any insurance company under whose policy you might seek coverage. Do not assume you do not have coverage. Give notice anyway. Notice is just that: notice to your insurance company that you might have a claim. It does not need to be too detailed at first (and generally does not need to state a cause of loss), so there is no reason to delay in providing notice. Be sure to precisely follow the directions in each insurance policy regarding notice, and be aware that different policies may 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 consider consulting with your broker for assistance. But always ensure for yourself that notice was actually provided.
4. 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 the days following the storm—for example, inventory exposed to moisture. Take notes and photographs. Keep a log of all actions taken. Track expenses for professional fees, mitigation and clean-up costs. Establish separate accounts to track losses. Save all repair receipts and other records of additional expenses made necessary by storm-related damage. Remember: Most cell phones have pretty good cameras in them; take pictures and otherwise document your losses. (But also remember: If you rely on your phone, make appropriate copies—make a backup of your records. Those photos won’t do any good if you lose them.)
You may also have an obligation 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 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.
5. Detail Your Business Interruption and Contingent Business Interruption Claims.
Business interruption coverage reimburses insureds for lost earnings during the time that the business was interrupted because of a covered event. Contingent business interruption provides coverage for business interruption losses due to damage to others, such as your customers or suppliers. This distinction often raises 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 for either of these types of insurance is valuing and documenting the loss. It is crucial to keep detailed records documenting when and how your business was interrupted. Note too that for contingent business interruption to apply, the damage to the suppliers or customers must be caused by a covered event under your policy.
6. Engage Experts.
It is usually prudent to engage professional claim consultants, such as forensic accountants, particularly where you have business interruption loss. 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 protect the privileged nature of your communications and to avoid many of the traps for the unwary in presenting your insurance claim and in responding to requests. Counsel may work in the background, without revealing their involvement to insurers. Insurers typically do the same thing. Cooperate with the insurance company’s adjuster, but don’t forget that the adjuster works for the insurer—not for you. If you need an advocate, hire your own.
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. Insurers are usually amenable to extending these deadlines if requested, but make sure that any extensions are memorialized in writing. In addition, insureds must also preserve and protect the property from further losses, taking steps necessary to mitigate (or minimize) additional damage, including business interruption.
8. Government Funds May Be Available for Non-Profits 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 complicated and 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 insurance.
With Irma’s destructive potential, by following these tips, business and property owners should be well-placed to recover.
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 Hurricane Irma and Harvey recovery efforts from its Miami, Houston and other offices nationwide.