John A. Gibbons, Jared Zola and Erin L. Webb
This week, winter snowstorms swept through the East Coast of the United States and several surrounding areas, leaving snowfall of up to two to three feet in a 36-hour period. In the bustle to get the snow cleared and get back to work, companies and individuals should be sure to maximize all available insurance coverage.
Winter storm losses can be serious and expensive. At least one source estimates that the cost of the recent East Coast storm could range from $585 to $850 million. While not all costs will be covered by insurance, insurance policies can protect against a variety of losses relating to winter storms. For example, damaged buildings and property may be covered under a first-party property policy, as can business interruption losses that are caused by property damage. Snow and ice can also potentially expose a company to third party claims for bodily injury or property damage relating to conditions on their property, which may be covered by liability insurance.
The following five tips will help insureds maximize their coverage for winter storm losses and get back on their feet quickly.
- Talk to Your Insurance Company
Prompt notice and frequent communication with your insurance company are critical whenever you are facing a major loss. Provide notice right away, and make sure to include every insurer that could potentially be implicated (see tip 4). Talk to your insurer about your action plan to prevent damage before it happens or replace any damaged property. As you begin to assess the damage, the economic impact to your business, and the costs of potential replacement, continue to communicate with your insurer frequently.
- Protect Yourself
Get snow cleared, replace any damaged property, and start to assess if you need to address any longer-term replacement. Some policies provide a certain amount of coverage for emergency work or damage prevention, but this coverage may be limited. Make sure that you’ve discussed your plans with your insurer, as part of giving notice, to protect yourself as you return to business.
- Document and Add It Up
Once work has begun, it is very important to document as much as possible. Photographs and videos of damage are useful in proving the extent, and even timing, of damage. Invoices, bids, or receipts relating to damage replacement or prevention should be kept as well. Corporate records are also important to maintain for the insurance claim because they can potentially prove labor costs, lost profits, and other actual loss sustained. It is important from an insurance perspective to take the extra time to document everything. Concrete records of payments and losses will enhance your likelihood of recovering all of the insurance funds to which you’re entitled.
Any documentation received in connection with a liability claim, like a letter or email alleging that your actions (or failure to act) led to damages or a complaint filed in court that names you or your business as a party, should be preserved and immediately forwarded to the insurer.
Assessing larger or more complicated losses can be complex and require outside assistance. Professional advisory or consulting firms, such as forensic accountants, can be useful in evaluating large-scale losses. Deciding whether to hire such a firm requires a cost/benefit analysis. While your company best knows the value of its operations and buildings, company employees may be overwhelmed trying to get the business back up and running. Outsourcing the quantum of loss may be the most efficient manner to complete a written proof of loss, which most property insurance policies require. Policies may have complicated instructions for valuation calculations as well, which an outside firm may have handled before and be best equipped to understand quickly. Property insurance policies frequently provide coverage for the costs to prepare your claim, including a forensic accountant’s fees, but “Claim Preparation” coverage may be subject to a sublimit.
- Know Which Coverage Applies
Most companies have several lines of insurance in place at any given time. The policies are typically written and sold by a variety of different insurance companies. A detailed review of your policies by experienced coverage counsel can help maximize the insurance assets you purchased. Carefully reviewing all your policies—even the ones that don’t seem to be implicated by your loss at first glance —can find valuable coverage in unexpected places. Provide notice (see tip 1) liberally to all applicable insurers, and err on the side of giving notice to an insurer if there is any question whether its policies might apply.
Your company’s first-party property policy is the most likely place to find coverage for winter storm property and business losses. This policy will likely cover physical damage to your buildings and personal property, such as inventory, as well as business interruption coverage. First-party property policies may also provide contingent business interruption (CBI) coverage, which protects against the insured’s business interruption losses caused by property damage to the insured’s business partners. For example, you may be entitled to insurance proceeds for any incremental costs paid if your supplier sustained damages and is unable to fill your orders—even if your business is located nowhere near the areas that the storm impacted.
Winter storm losses can also impact a variety of other available types of coverage in a first-party property policy. “Civil authority” coverage can protect an insured against losses it suffered because a government authority prevented access needed to conduct its business. Several cities and towns, for example, issued travel bans during and after the storm that prevented access to businesses along the East Coast. Similarly, “ingress/egress” coverage can provide for losses from lack of access to your business that is not necessarily ordered by a government authority. “Utility service interruption,” also known as “off-premises power coverage,” can protect against losses caused by a lack of power or other utilities.
In addition, most companies have commercial general liability (CGL) coverage that will protect against bodily injury or property damage claims from third parties relating to winter storm conditions. After Superstorm Sandy in 2012, New York City residents filed lawsuits against several building owners and management companies alleging property damage because of a failure to properly maintain the buildings. CGL policies may provide coverage to defend such allegations, even if they are groundless.
Insureds should also review any cyberinsurance policies they have purchased in the event of any weather-related network interruption. These policies are still not standardized, and the wording in different policies from different insurers can vary greatly.
- Be Wary of Coverage Traps
Insurers may resist paying claims, especially when they are large. Insureds should carefully evaluate their coverage and be reluctant to take “no” for an answer. Winter storms in particular can give rise to specific coverage issues that may provide areas for dispute.
Prompt notice should always be a first priority for an insured. It removes an insurer’s argument that it was prejudiced by not being timely alerted of damage or a claim. In addition to notice requirements, insurance policies will likely contain specific timetables for various communications from the insured. For example, many policies provide a specific deadline by which the insured must submit a proof of loss, expressed in days or months. Policies may also state that any lawsuit against the insurer to recover insurance proceeds must be brought within a certain time period after the date of the property damage. Such contractual limitations may be shorter than statutes of limitations. Insureds should closely review their policies and make note of all such time limits.
Under a first-party insurance policy, proper valuation of loss will be a critical issue. Valuation clauses in these policies can present complexities. Property damage can be subject to co-insurance, where the insured must pay for a certain percentage of the damage. Sublimits or deductibles may apply differently depending on the cause of loss or the events that surround the event that caused the loss. Causation is a complex issue that varies by state and may not be obvious at first glance. Additionally, the policy may require the parties to resolve valuation disputes through an appraisal process.
Damage caused by “the weight of ice, snow, or sleet” can be specifically provided for, or specifically excluded, depending on the insurance policy wording. In addition, many policies have exclusions or different limits and deductibles for losses caused by “flood.” Disputes may arise over whether your loss was caused by “flood” as that term is used in the insurance policy, which may significantly impact the coverage available for your loss. Losses arising during and after the recent winter storms may have several contributing factors and a careful analysis is warranted before accepting an insurer’s position that coverage is not available or is otherwise limited.
“Named storm” provisions in some insurance policies state that higher deductibles apply if your loss is caused by a “named storm,” or that coverage may be limited by a “named storm” sublimit. While such provisions are frequently worded to apply only to losses caused by “named windstorms,” the specific policy language is important. In recent years, The Weather Channel has used a naming convention for winter storms, though the National Weather Service and the National Oceanic and Atmospheric Administration have resisted this practice.
Insureds should carefully read their policies to determine whether these issues have any effect on their coverage. It is critical to properly present your claim in a way that minimizes the risk that an insurer will assert coverage deductions or exclusions that should not apply to your claim. You should obtain the full benefit of the insurance you purchased.
Pursuing an insurance claim following winter storms often is a complex and challenging process, especially when management and employees are faced with post-disaster challenges at work and home. Having an advocate on your side can help you get the most out of your insurance policies and focus your energy on restoring your business.