Category 4 Hurricane Laura strikes Louisiana coast, causing significant damage. Those in the affected area should prepare for insurance recovery.
The world is witnessing yet another dramatic weather event, this time in the southern states, especially Texas. The severe winter conditions in Texas have caused unprecedented hardship for Texans and devastating damage for nearly every industry sector. The extended and episodic power outages, cell phone and internet service disruption, water crisis, frozen roads, disruption of transportation and supply chains, shuttered industrial facilities and damage to public and private infrastructure will have a lasting impact on the region. While the current focus rightfully is on restoring critical systems and services to ensure the safety and well-being of Texans, as the crisis subsides there will be wide ranging legal and commercial considerations that require immediate and informed decision making.
This Alert is the first in a series discussing the emerging insurance recovery, legal, commercial, regulatory and, in some respects, operational considerations that industries across a wide range of sectors should be prepared to address in the wake of this Texas winter event.
Over the last week, freezing temperatures and winter weather have caused widespread failures of the Texas power grid, knocking out electricity and heat across the state. Natural gas production was hit particularly hard as pipelines and productions froze. The power outages led to cascading effects, including burst pipes, water shut-offs, loss of connectivity to internet and cell service, and supply shortages. The human and economic tolls have been staggering and are continuing.
As business and property owners begin to recover, they should also prepare for the aftermath of bringing these losses to their insurance companies. While taking stock of their losses, planning their response, and examining their insurance policies and recovery options, they are going to face many questions:
Securing insurance proceeds may be critical to the recovery process. Immediate action and careful presentation of your insurance claim are crucial for maximizing insurance coverage. To help address some inevitable issues, and to assist with initial stages of insurance claims, we provide the following guidance.
1. Obtain and Review Your Insurance Policies.
After taking care of your immediate family and business needs first, it is crucial to 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 pollution policies, marine cargo policies, and for those facing potential third-party claims, liability policies.
While insurance brokers are a tremendous resource, in times of crisis, it’s important that you understand the coverages and obligations in your homeowner’s and business’s policies. No one knows your business better than you. This is truer than ever now, as you know what you’ve been doing to move your business forward during the pandemic and what impact that has on your losses. But it’s also important to get advice from qualified coverage lawyers on the law and legal interpretations surrounding insurance policies’ terms and the claims process.
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 a lawsuit if you disagree with the insurance company’s coverage determination. Note that, while Texas has a minimum two-year deadline to file suit, if your business has its headquarters or principal operations outside of the state, another law may apply to the policies and they may require filing suit in as little as one year. Any tasks that must be completed within a “reasonable” amount of time should be done as soon as practicable. Missing deadlines can be fatal to an insurance claim. Request and obtain deadline extensions when needed—better to be safe than sorry—as most insurers will gladly provide them especially in emergency situations.
2. Assess All Possible Coverages.
For damages from the winter storm, “first-party” policies such as homeowners and commercial property policies are the ones most likely to provide coverage for losses suffered by property owners and businesses. Many commercial policies extend coverage for interruption of incoming utility services due to a covered cause of loss or sometimes any accidental event. Even when failure of off-premises utility services is excluded, there may be coverage when another covered cause (such as ice or explosion) contributes to or ensues from the loss. Carefully review your coverage with qualified counsel.
In addition to providing coverage for physical damage to an insured’s property, many commercial property policies also include coverage 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 coverage extensions may apply even if your own property was not physically damaged. For example, depending on policy wording, damage to certain suppliers or customers may result in covered “contingent business interruption” losses. This may be critical to businesses whose supply and customer chains were disrupted as a result of the power grid failures. A thorough review of the insuring provisions is critical to determine whether, and the extent to which, such coverage may apply.
If you or your family were displaced due to storm damage, your homeowner’s policy might cover your costs. The key to recovery for this type of loss may depend on the cause of your displacement. For example, if you had to relocate to a hotel or temporary housing because of damage to your home, such as a burst pipe or a fallen tree, your policy may well cover those costs. However, if you moved out to escape the power outages, those costs may not be covered. Whatever the reason, check your policy, contact your insurance agent and document your losses.
3. Place All Insurance Companies on Notice.
Even if you have not yet identified all of your losses, or determined that a particular insurance policy applies, 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 and do not assume that your insurance agent has provided notice to the carriers. Give notice anyway. Notice is just that: notice to your insurance company that you may have a claim. It does not need to be too detailed at first, so there is no reason to delay in providing notice. Be sure to precisely follow the directions listed in each insurance policy regarding notice and be aware that different policies might have different notice requirements. Pay close attention to your notice deadline, the person or organization you have to notify, the information and documentation required, and the particular form of notice. Pollution coverage in particular often had strict, short deadlines to provide notice after discovery of a release. Insurance brokers may be best positioned to provide the notice, but coverage counsel should be consulted to ensure that the wording legally complies with the contractual requirements and doesn’t inadvertently walk you headlong into an exclusion or argument for the insurer to deny coverage. Brokers and coverage counsel should work hand-in-hand with you on your claim.
4. Document and Mitigate Your Losses.
Carefully documenting losses is critically important for evaluating the loss. If you haven’t already done so, you should start a recovery diary by taking notes on who you spoke with, the number you called, the dates and times of the calls and what you discussed. Document everything, including not only property that was damaged, but also any property rendered unusable in the days following the storm—for example, inventory exposed to freezing temperatures.
Remember: Most phones have pretty good cameras; 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.) When in doubt, take a picture of damaged property in place before throwing it out.
You may also have an obligation to preserve and protect the property from further losses, including mitigating additional damage. Because such steps are required, mitigation expenses are covered under property insurance policies. Lastly, the insurer may have salvage rights to damaged property and stock, so it is important to preserve any salvageable property to the extent possible. Open lines of communication regarding the disposition of any property—particularly valuable property—with your insurer is better. But in some cases, life safety and protection of property requires the property be thrown out. That’s usually ok as long as you document the damage and the reasons it had to be discarded.
5. Detail Your Business Interruption and Contingent Business Interruption Claims.
Business interruption coverage reimburses insureds for lost profits during the time that the business was interrupted because of an event (like a storm). Contingent business interruption provides coverage for business interruption losses due to damage to customers or suppliers. The biggest challenge in securing coverage for either of these types of insurance is valuing and documenting the loss, especially given the recent upheavals in most businesses’ operations due to the pandemic. For example, if your business had recently reopened or was planning to reopen, insurers are likelier to challenge projected profits.
Business interruption is the most highly disputed aspect of insurance coverage following a major catastrophic event even in the otherwise best of times. It’s crucial to keep detailed records documenting when and how your business was interrupted. And it’s usually necessary to get a qualified forensic accounting firm involved alongside coverage counsel to ensure the loss is properly measured and documented, particularly now with complications due to the pandemic. Having coverage counsel involved early on in the process helps to not only ensure you’re getting the right legal advice, but it helps to protect communications under the attorney-client privilege and work product doctrines.
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, especially now. Their professional fees and other mitigation expenses are frequently covered under property policies, subject to sub-limits. Usually, public adjuster fees are not covered. Some policies cover your internal costs for preparing the loss so read the policy carefully and track your own time which, as claims drag on, can become very significant.
An experienced insurance coverage lawyer can serve as an advocate, while also protecting the privileged nature of your communications, helping you avoid many of the traps for the unwary in presenting your insurance claim. Counsel may work in the background, without revealing their involvement to insurers. Insurers 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. To get an advocate, you need to 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 signed sworn “proof of loss” to catalog the damages. Although this is usually done after reaching agreement with the insurer on the amount of the insured claim, policies sometimes require that the insured submit a signed sworn proof of loss within a fairly short time after the loss, such as within 90 days. 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, including taking steps necessary to mitigate (or minimize) additional damage, including business interruption.
8. Government Funds Might Be Available for Non-Profits Providing Critical Infrastructure and Essential Services.
On February 20, 201, President Joe Biden partially approved the state’s request for a Major Disaster Declaration (MDD), approving the request for individual assistance in 77 counties and for public assistance in all 254 counties. The funds provided under the MDD may provide crucial assistance for Texans impacted by the storms. The two main sources of such assistance are the Federal Emergency Management Agency (FEMA) and the U.S. Small Business Administration (SBA).
Most people know that FEMA frequently provides funds to state, 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.
Individuals usually have 60 days from the date of the disaster to apply for FEMA assistance, although the date may be extended. If you were impacted by the storms you should immediately file and register for aid. You should also be aware that FEMA assistance is generally not available if any other funding source is available, including insurance, an SBA loan, or private or other charitable donations. However, FEMA will advance immediate funds to individuals that may need to be paid back if those costs are ultimately covered by insurance or paid by another source.
The Small Business Administration provides low-interest disaster loans to help small businesses and homeowners recover from declared disasters. Most people and businesses can qualify for these loams if they can demonstrate the ability to repay the loan. Collateral is not necessary to qualify for an SBA disaster loan. All impacted individuals and businesses should go through the SBA loan process because it may impact the ability to obtain FEMA assistance that, unlike an SBA loan, does not need to be repaid.
People in the 77 covered counties can start the FEMA assistance process by going to https://www.disasterassistance.gov/ and clicking on the “Find Assistance” link and you can start the SBA loan process by calling (800) 659-2955 or emailing [email protected]
As destructive and disruptive as this disastrous winter storm has been for Texas, by following these tips, businesses should be well-positioned 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, most recently winner of Law360’s 2020 Practice Group of the Year award for Insurance. Pillsbury lawyers in Texas and across the country have extensive experience with property damage and business interruption claims in the wake of disasters, and they stand ready to assist with efforts to recover from the Texas winter storm crisis.