Hurricane Harvey: Insurance Implications [Updated]

by Pillsbury Winthrop Shaw Pittman LLP
Contact

Pillsbury Winthrop Shaw Pittman LLP

In the aftermath of Hurricane Harvey’s historic rainfall, businesses and other organizations should take immediate and continuing action to maximize insurance recovery.

Takeaways

  • Determine which policies may apply to losses—property insurance may not be the only coverage available—and pay close attention to deadlines set out in insurance policies.
  • Evaluate all possible coverages for various sources of loss or disruption, such as damage to third-party suppliers and civil authority orders.
  • Assemble an expert team to navigate and maximize loss recovery.

Hurricane Harvey and its associated rainfall have simply devastated much of southeastern Texas. Many areas were left inaccessible, or without water or power services. Evacuation and curfew orders limited travel and operations. The aftermath of Harvey continues with insurance claims for damage and business interruption. A key early step in the recovery process for business and other organizations is communicating the losses they have suffered 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 insurances cover our losses? 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 and FEMA assistance is crucial to the recovery process. To help address some inevitable issues, and to assist with the initial insurance claim and FEMA application processes, we provide the following guidance.

1. Obtain and Review Your Insurance Policies.

To begin with, 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 auto policies, marine cargo policies, pollution policies and, for those facing potential third-party claims, liability policies. Also that your policies may also 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. Missing deadlines can be fatal to an insurance claim.

2. Assess All Possible Coverages.

With respect to storm-related damages, “first-party” policies such as commercial property policies are the ones 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. Even when flood is not an insured peril, there may be coverage when another, covered cause contributes to or ensues from the loss, such as wind, power outage, storm surge or area-wide impacts.

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 extended coverages may apply even if the insured’s 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 are disrupted as a result of damage to and closure of transportation infrastructure, including roads, railroads and even intercoastal waterways.

Similarly, disruption of power and other utilities may trigger losses insured by service interruption coverage. As well, 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, 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 might 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.

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 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 “back up” of your records. Those photos won’t do any good if you lose them.)

You might 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. 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 such mitigation expense, subject to certain limits. 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.

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 rain and flood). Contingent business interruption provides coverage for business interruption losses due to damage to 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 indemnity 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.

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 sub-limits. Usually, public adjuster fees are not covered.

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. 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, 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.

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.

As destructive and disruptive as Hurricane Harvey has been, by following these tips, business and property owners should be well-placed to recover.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pillsbury Winthrop Shaw Pittman LLP | Attorney Advertising

Written by:

Pillsbury Winthrop Shaw Pittman LLP
Contact
more
less

Pillsbury Winthrop Shaw Pittman LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.