Texas and Louisiana have yet to dry out from Hurricane Harvey, and Hurricane Irma, a Category 5 storm, is barreling toward Puerto Rico and the U.S. mainland, followed in short order by Hurricane Jose. According to the United Nations, such weather-related disasters have increased sharply over the last decade.
While many insurance policies don’t afford coverage for natural disasters such as floods or earthquakes, there are ways to recoup some of the costs from these disasters, both before and after the catastrophe hits. Now is the time for savvy business people to strategize about such recovery or renew your existing policies.
Creative Coverage Interpretation
Policyholders should take a broad view of what caused the damage to the business, and look to existing policies for coverage. For example, a grocery store damaged by an earthquake or flood may not be able to recover the cost of damaged or soggy stock, it may be successful in recovering if a tree next door falls and damages its roof. It may also be able to argue that the contents of a walk-in freezer were lost not because of rising water, but because a cooling unit or back-up generator malfunctioned.
Similarly, one could argue that a storm-related fire was caused not by the natural disaster itself, but by downed electrical wires.
So while there may be standard language barring coverage due to natural disaster in your policy, experienced insurance counsel can carefully analyze your scenario and may be able to help recoup some losses.
Business Interruption Insurance
A surprising number of companies do not purchase business interruption insurance. This is a costly error. Such insurance can provide significant protection for lost business revenue and some ancillary costs, such the expense of moving to and renting temporary business space, leasing and training staff on replacement equipment, and even the cost of potential litigation from customers who didn’t receive your product and suffered their own losses.
These policies cover not just closures due to natural disasters, but also those due to civil unrest, demonstrations, and the like. One could argue that any time a business is involuntarily shut down, a business interruption insurance policy is triggered. These policies are a powerful adjunct to the standard insurance offerings.
Again, experienced counsel will be able to help companies get the most from the investment in these policies.
The U.N. Office for Disaster Risk Reduction (UNISDR) estimates that natural disasters of all types cause losses of $250 billion-$300 billion globally each year. According to a 2015 report, the countries hit by the highest number of weather-related disasters over the past decade were the United States, China, and India.
“While scientists cannot calculate what percentage of this rise is due to climate change, predictions of more extreme weather in future almost certainly mean that we will witness a continued upward trend in weather-related disasters in the decades ahead,” the report said.
Whether it is floods, droughts, heat waves, fires, hurricanes or earthquakes, businesses are increasingly vulnerable. The proper insurance policies, and the proper insurance counsel, will make the difference between which businesses weather the storms, and which don't.