The recent outbreak of storms from the Great Lakes to the Gulf Coast resulting in a series of epic tornados serves as a reminder of how severe weather can disrupt lives and businesses. The damage that can be caused by tornados, megastorms and other severe weather events is widespread and devastating, including death and bodily injuries, property damage, the loss of necessary utility and telecommunication infrastructures, the loss of business, the inability of employees to get to and from work, and long-term business interruption. Every year, billions of dollars in losses are suffered as a result of these natural disasters. As the arduous process of recovery begins, businesses and individuals should remember to look to their insurance companies for coverage of the losses suffered. Although the language of a particular policy will determine the extent to which insurance covers the losses suffered, a brief summary of some steps that may assist a policyholder in obtaining maximum coverage is discussed below.
Step One: Locate all potentially applicable insurance policies.
First, policyholders should attempt to locate copies of all insurance policies that may provide coverage for the losses. Even if places where the original policies are maintained have been destroyed or seriously damaged, copies of policies and other information may be found in other facilities or in electronic form on alternate servers. In addition, policyholders can usually obtain copies of policies or reconstruct their coverage through alternative sources. For example, brokers who placed the policies may have copies or at least a record of the sale and terms of the policy. Policyholders can also request copies of their policies directly from insurers.
Policyholders also can look to other secondary sources such as accounting and bank records or tax records. Some businesses may be required to give proof of insurance to third parties with whom they do business, or in connection with new ventures such as construction projects, and this area is another potential source of policy information.
In addition to obtaining copies of policies that were purchased directly by a business, policyholders should also consider whether their company is entitled to insurance coverage pursuant to policies issued to other persons or companies. Some contracts require that other entities or individuals be added to their insurance policies as insureds and it may be productive for businesses to review their contracts with others to identify any potential coverage from additional, alternative sources.
Step Two: Analyze the types of losses to determine whether they are covered under the policies.
Because of the widespread destruction typically caused by severe weather disasters, there are numerous types of losses that may be covered under various types of insurance policies. Types of insurance potentially impacted by weather-related events are life, health and disability, property, business interruption, general liability, and, to a certain extent, homeowners’, renters’ and automobile insurance. The extent of coverage for the losses that have resulted is often a complicated question and will be determined by the language of the relevant policies and applicable law which varies from jurisdiction to jurisdiction.
Most claims arising from the recent outbreak of tornados likely will be first-party property damage claims. Property insurance policies generally provide coverage for damage to the policyholder’s real property that is identified in the policy. The losses covered by property insurance policies are often weather related. Some policies, such as “all risk” policies, will cover all causes of loss not expressly excluded. Typical “all risk” policies provide that the policy “insures against All Risks of Direct Physical Loss or Damage to Property . . . except as hereinafter excluded.” Because of prior tornados in some of the affected regions, there may be exclusions for acts of nature such as tornados in certain polices. However, because exclusions typically must be construed narrowly, policyholders should consider discussing any such exclusions with a lawyer.
Other policies such as “multi-peril” and “named peril” policies generally provide coverage only from those causes of loss specifically identified. Because these policies may explicitly include or exclude perils, or a peril arguably may fall within another, broader peril that is itself either included or excluded, the language of each policy should be reviewed by an insurance professional to determine what losses each policy covers. Notably, while one peril may be excluded, another may not be. Accordingly, in general policyholders should be extremely cautious about attributing cause before the facts are fully investigated, since this could have an impact on insurance coverage issues and any ultimate recovery.
Damage to personal property
Many property insurance policies also provide coverage for personal property pursuant to an “unscheduled personal property” provision. In general, this provision provides coverage for personal property that is “usual or incidental to the occupancy of the premises” or “used by an insured while on the described premises.” Types of property that are easily movable usually will be covered only under “floater” policies or “floater” endorsements to the property policy. These policies or endorsements usually cover business personal property, including furniture, machinery, and stock, at least to the extent that these items are found within a specified distance of the insured premises.
Business interruption losses
“Business interruption insurance” is often included within first-party property policies and can more broadly reflect a variety of specific types of insurance coverage that an insured can purchase as part of, in conjunction with, or separate from property policies in order to protect itself from economic losses. In brief, these types of insurance, among other things: (1) provide coverage for an insured’s economic losses caused by its inability to operate its business due to damage to its property or surrounding property; (2) provide coverage for an insured’s economic losses caused by a loss suffered by another, such as the inability of an insured to get delivery of a supplier’s goods, thereby preventing the insured from producing and then selling its product to the marketplace (“Contingent Business Interruption” coverage); (3) reimburse the insured for the amount of gross earnings minus normal expenses that the insured would have earned but for the interruption of the insured’s business (i.e., lost profits) (“Gross Earnings” coverage); (4) provide coverage where the insured’s inventory has been destroyed or damaged and, therefore, the insured has been deprived of the opportunity to sell that inventory to the public (“Profit and Commission” coverage); (5) indemnify the insured for any increased costs of business operations above the norm because of a peril insured against (“Extra Expense” coverage); and (6) provide coverage when an insured loses business income as a result of the issuance of an order of a civil authority, such as a public health authority, that prohibits or results in the prohibition of access to the insured’s property (“Civil Authority” coverage).
Under the present circumstances, potential business interruption claims could be extensive and far reaching. Insurers often raise numerous issues regarding what constitutes a covered loss under business interruption insurance and for what period of time. Thus, even if an insurer initially asserts that a business interruption claim is not covered, insureds that have suffered business losses should consider having an attorney examine their policies, as well as applicable law, to determine whether any of such expenses may in fact be covered.
Costs incurred for preventative measures to avoid loss
Standard property policies typically contain so-called “sue and labor” provisions that not only pay for preventative measures taken by the insured to avoid loss or prevent further loss, but that also may require such measures. Generally, this type of coverage is a separate contract of insurance and, thus, is not subject to the exclusions or limitations, which may prevent payment for other property loss. Further, the “sue and labor” benefits under the policy are available whether or not the loss occurs, as long as the property and the threat averted were for covered property and a covered peril.
Step Three: Tender the claims to insurers.
In general, insurance policies contain a number of conditions to coverage, some of which may purport to impose obligations upon an insured prior to any payment being issued by the insurer. The nature and extent of such conditions vary dramatically depending upon actual policy language. Although many jurisdictions will not impose a complete forfeiture of all coverage under a policy for failure to satisfy certain of these conditions absent a showing of actual prejudice to the insurer, in order to avoid later conflicts, where possible, policyholders should gain an understanding of the terms of their policies and, where applicable, comply with these conditions to the fullest extent possible.
Most significantly, policyholders should consider providing written notice of their claims to their insurers as “soon as possible” or as “soon as practicable.” Although policy language may specify what should be included in any notice of a claim, in general notice should include the identity of the insured and information about the time, place and circumstances of the loss. If there is any doubt about whether a loss is covered, the insured should discuss with coverage counsel whether to give notice to the insurer to avoid issues that may be created by overlooking something creating a right to coverage.
Further, a policy may require that an insured provide a “proof of loss, signed and sworn to by the insured.” Although the actual language of the policy will be determinative, as a general matter, proofs of loss usually must be submitted within 60 days after the loss incepts or within 60 days after the insurance carrier requests such documentation. Many insurance policies also contain a prescribed period of time within which the insured is required to bring any lawsuit over coverage (typically one or two years after inception of the loss). Policies may contain numerous other requirements so; again, understanding what is required pursuant to the language of the policy is necessary to ensure compliance with any applicable requirements to the fullest extent possible.
Step Four: Document the loss.
In order to preserve their rights to insurance payments and facilitate the claims handling process, policyholders should document their damage and loss. As a practical matter, receipts, estimates, photographs, videotapes, and documents relating to the loss may assist the insured in proving the amount of the loss and obtaining insurance benefits. Depending upon the nature and magnitude of the loss, and the applicable terms of the policy, policyholders may need to provide a significant amount of information supporting the value of their loss. Accordingly, policyholders should obtain and maintain proper documentation in conjunction with their losses and should consider whether they need to update their claim information, including any increases in the value of the loss.
Step Five: Continue to pursue coverage rights.
Insurers should acknowledge claims and provide coverage positions promptly. Policyholders should monitor insurer responses and ensure that their claim has not somehow been lost in the administrative process. Furthermore, interpreting policy language can be difficult. Insurers are knowledgeable about their policy language and will likely be aggressive about narrowly interpreting coverage grants and broadly interpreting exclusions. Generally, insurers will not simply pay claims if they can find a loophole to get out of coverage. Accordingly, policyholders should consider having someone knowledgeable about insurance coverage help guide them through the claims process and ensure that they are obtaining the benefits that they purchased.
Although this is not intended to render any legal advice and is not an exhaustive analysis of the myriad coverage issues that could arise, the foregoing should provide an effective starting point for considering whether insurance coverage is available for losses resulting from the recent tragic events. Of course, whether a loss is covered ultimately will depend upon the terms of the policy, including whether any exclusion may apply to eliminate coverage, and whether the loss exceeds the amount of the deductible or any self-retained limit. However, where appropriate coverage is in place, policyholders should be able to find substantial shelter from the destruction caused by this catastrophe by receiving broad and valuable insurance benefits to which they are entitled. Insurance is bought to lessen the impact of unforeseen catastrophes, such as these, when they strike. When disasters strike, as it did here, a policyholder can reasonably expect its insurer to help it recover.