In a phenomenon unusual for many residents of the northeastern United States, dense clouds of smoke from wildfires in Canada passed through several major cities, including New York, the week of June 5, 2023. As air quality dropped to hazardous levels, offices closed early, schools cancelled sports events and after-school activities, parades and festivals were cancelled, and many construction sites ordered workers to leave early. Even some indoor events, such as Broadway plays, were cancelled. Although the air quality soon improved, many fires continue to burn, threatening to carry more smoke into major U.S. cities throughout the summer. Scientists have also been warning for decades that wildfires are becoming more frequent occurrences in regions not accustomed to dealing with them.
As with virtually any catastrophic event, insurance coverage is a crucial concern for businesses. A standard business owner’s property policy provides coverage for “direct physical loss of or damage to” covered property. The policy will also cover loss of business income due to a “necessary suspension” of business operations during a period of time, usually starting 48 to 72 hours after the damage-causing event and ending when the property “should be repaired, rebuilt or replaced with reasonable speed or similar quality” or “when business is resumed at a new permanent location.” A standard policy also provides coverage for income lost as a result of orders from a governmental authority to shut down the business.
Policyholders should consider whether they sustained covered business interruption or other loss or damage from these events and be mindful of coverage for similar events. Wildfires can cause property damage, for example that by virtue of fire, smoke, or ash. Businesses also may incur expenses associated with responding to the events, such as the costs to move property to avoid the fire or ash, supply chain disruptions, and business interruption losses arising from property damage.
In considering coverage, policyholders need be aware of their policy’s terms and conditions, including waiting periods. They also should be mindful of potential coverage challenges that carriers might raise. For example, some policies purport to exclude coverage for loss or damage caused by “pollutants,” which they define to include smoke. These exclusions commonly contain an exception, however, for “specified causes of loss,” which the policies often define to include loss or damage from fire and/or smoke. Given that policy exclusions are to be construed narrowly, an exclusion for “smoke” should not allow a carrier to escape its coverage obligations – particularly if a policy has contradictory or unclear coverage provisions, which must be construed in the policyholder’s favor. A policyholder that sustains direct loss of or damage to covered property from smoke and/or fire should review its policy carefully, contact its insurers to make a claim, and begin collecting documentation needed to support the claim.
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