As is the case after any natural catastrophe, businesses affected by storms turn to their insurance carriers for help. Many insurance policyholders are taken aback by the obstacles insurers placed before them in responding to their property and business interruption insurance claims. Given that NOAA has predicted “extreme activity in the Atlantic” this hurricane season, with “more and stronger hurricanes” expected, there is no better time to review your property insurance coverage.
Below are some of the insurance coverage-related issues facing commercial policyholders after a catastrophic storm.
Review Sub-limits and Deductibles for “Named Storm” and “Flood” Coverage
Commercial policyholders should be aware of the distinction between coverage for “Flood” perils and “Named Storm” perils.
For example, Sandy hit businesses with a both hurricane force winds and resulting flooding. Many insurers asserted applicability of the lower sub-limits and higher deductibles tied to Flood perils, instead of the more policyholder-friendly “Named Storm” sub-limits and deductibles. This has led to a significant number of disputes, and in cases in which policyholders are not aware of this distinction, loss of potentially significant coverage.
Beware of Language for Losses Involving Both Covered and Non-Covered Perils
Businesses and insurers scrutinize policy language and case law for guidance on the extent to which a loss is covered when caused concurrently or sequentially by perils that are covered (such as Named Storm, fire, or wind-driven rain) and also by perils that are expressly excluded or sub-limited (such as flood or pollution). Whether coverage exists for a loss in such a situation varies.
“Concurrent causation” means coverage will be available if any one of the multiple causes of loss is a covered peril. “Efficient proximate cause” is when the circumstances of the loss are looked at to determine which cause was the dominant or efficient cause. The analysis of causation in each case requires a careful and searching inquiry into the circumstances of the loss, and is highly fact-specific.
The cause may also depend on whether a policy includes “anti-concurrent causation” (“ACC”) wording. Insurance companies have attempted to eliminate the need to search for the efficient proximate cause, or even to consider multiple causes, by incorporating ACC clauses into certain exclusions in property policies.
Identify Challenges of Proving Contingent Business Interruption Loss
Many companies have experienced loss due to “Contingent Business Interruption” which is the economic impact resulting from damage to the property of its customers and suppliers.
Policies usually offer little guidance on the proof required to establish that a loss of business is attributable to the impact of a covered peril on a policyholder’s customers or suppliers.
Review Civil Authority, Ingress/Egress, and Service Interruption Coverage Language
After a catastrophic storm, commercial policyholders may benefit from having Civil Authority, Ingress/Egress and Service Interruption insurance coverage. It is important to review these coverages and understand their potential limitations and restrictions.
Civil Authority provisions provide coverage for an insured’s business interruption losses resulting from orders of civil authority, such as evacuation orders, curfews, highway closures, and the like, which prevent or impair access to the insured’s property. However, many Civil Authority coverage provisions contain limitations and restrictions that can make it challenging to establish when Civil Authority coverage begins.
In addition storm-related physical damage may limit a business’s ability, or the ability of its customers or employees, to enter or exit its property. Ingress/Egress coverage typically insures business interruption losses incurred when access to or from an insured’s premises is “physically prevented” by the loss or damage.
When utility services to insured premises are interrupted, Service Interruption coverage may be available to cover damage to property and loss of income or extra expense. The coverage for such interruption can be substantial, including payroll incurred when the company is closed, loss from event cancellation, extra expense, contractual penalties and lost profits.
A review of your policy before the next storm arrives will provide the opportunity to ensure that you understand the coverage you purchased before a loss occurs. For more information, contact TriState Business Insurance.
Property Casualty 360