Hurricane Florence's rapid track toward Virginia and the Carolinas is marking a somber anniversary, with September 2017 capping the costliest hurricane season ever recorded. The tail end of Harvey and the full brunt of Irma and Maria combined for thousands of deaths and over $200 billion in property damage.
The lasting impact of massive hurricanes can be seen in the photographs coming out of Puerto Rico a full year after landfall. Those images serve as a stark reminder that, when Mother Nature strikes, catastrophic damage is inevitable and enduring.
As of this writing, Florence is a Category 4 storm with the potential to intensify. Thus, now is the time for business owners to act. Comprehensive insurance coverage is the best hedge against economic loss occasioned by natural disasters. And luck favors the prepared.
There are a wide variety of insurance lines that potentially respond to storm-related losses, including general liability, marine cargo, and inland marine. But first-party property insurance – sometimes referred to as "all-risk" coverage – is the policy most likely to apply. With that in mind, here are six common-sense measures that every corporate policyholder should take before, during, and after a major weather event.
First: Review and Understand Your Insurance Policies. Most business owners know that first party property policies cover damage to their entity's physical plant. What they may not realize, however, is that the coverage scope is much broader than that. By way of example, a typical all-risk policy includes coverage for: pre-storm preparations; business interruption; contingent business interruption (i.e., losses caused by damage to your key suppliers); debris removal; broadly defined "extra expenses"; and even blocked access to your facilities.
It is equally important for policyholders to understand what their insurance contracts do not cover. By way of illustration, many all-risk policies exclude coverage for damage related to flooding and "storm surge." As a result, even with a policy that purports to cover hurricane-related losses, insurers may attempt to exclude losses which take the form of rising water. Similarly, first party property polices often contain "anti-concurrent causation" provisions, which are specifically designed to broaden the reach of policy exclusions. Insurers often urge that, if multiple causes contribute to a given loss -- and one such cause is excluded from coverage -- then the entire loss is excluded. Applying that argument to the hurricane scenario, if wind-related damage is covered and storm surge is excluded, an insurer may seek to completely deny any loss resulting from a combination of wind and rising water.
Second: Establish A Disaster Preparedness Plan. Comprehensive contingency plans are essential tools for maximizing subsequent insurance recoveries. Such plans should include: contact information for all personnel; detailed inventories of all property; a list of key suppliers; and up-to-date insurance policy files. Best practices also call for the establishment of a disaster response team. Ideally, that team should be comprised of company leadership, risk management personnel, outside insurance brokers, insurance coverage counsel, and forensic accounting experts. It is the combined expertise of these individuals that will ultimately ensure no available insurance dollars slip through the cracks.
Third: Proactively Protect Your Property. When a hurricane is bearing down, it is essential to be proactive. Boarding up windows and doors is a good first step, but it is not enough. Wherever possible, corporate policyholders should also relocate portable equipment and stock-- ideally outside of the storm's path, but, at the very least, to higher ground. Taking such steps will hedge against an insurance carrier's later attempts to invoke the rising water and anti-concurrent causation exclusions.
Fourth: Promptly Notify Your Insurance Carriers. Timely notice of claims is essential. Many policies contain specific instructions regarding how and when notice should be delivered. Unfortunately, the chaos which inevitably follows a catastrophic event can trip up even the most conscientious policyholder. When steps are missed, insurance dollars may be lost. To avoid this situation, the disaster preparedness plan should pre-assign to a specific individual (who is fully familiar with the applicable policy) the responsibility for tendering notice. Such an arrangement will ensure that the insurance claim is quickly and correctly initiated as soon as the storm clouds break.
Fifth: Carefully Document Your Losses. A thorough accounting of physical damage and resulting economic loss is an essential prerequisite to the maximization of insurance recoveries. Here again, a keen understanding of the governing policy is crucial, because a failure to comprehend the scope of applicable coverage could leave substantial insurance proceeds on the table.
Sixth: Rely On Insurance Professionals. As noted above, mistakes made in the immediate aftermath of a storm can severely undercut the ultimate insurance recovery. For that reason, it is critical for corporate policyholders to enlist the aid of insurance professionals from the very outset. Coverage counsel and forensic accountants are highly specialized practitioners who understand applicable policy provisions and know how to comprehensively document a given loss. Insurance carriers rely heavily on such experts in dealing with catastrophic claims. It is imperative for policyholders to do the same.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.