Over the weekend, Hurricane Florence caused substantial damage in many
communities in North and South Carolina. Early estimates put the damages
from Florence in the billions of dollars. These losses include both direct
property damage as well as business interruption losses. In addition, many
businesses outside of the areas of storm damage may experience lost revenue
as a result of damage suffered by suppliers or customers whose operations
were damaged by the storms.
As businesses begin the process of cleanup and recovery in the aftermath of
Florence, insurance must be a priority. The following are key steps that
businesses should take to ensure that they take full advantage of the
insurance they purchased to protect them from catastrophic losses.
Review all potentially applicable insurance policies and assess the
potential for coverage. An important first step is to collect and
analyze your policies to assess the scope of coverage available. The
most common policies providing coverage will be first-party property
policies, including commercial property, marine property and event
cancellation policies. Most property policies are sold on an all-risk
basis, meaning that the policy provides coverage for all risks of loss
unless the loss is specifically excluded. The key step in evaluating
coverage for a hurricane loss under an all-risk policy is to evaluate
the policy exclusions.
Consider coverage for contingent business interruption losses. Many
businesses outside of the storm’s direct impact will experience lost
income caused by damage to the operations of suppliers to and customers
of the firm. These losses may be covered under your property policy as
a contingent business interruption loss.
Provide notice of the loss to all insurance companies. Prompt notice to
all carriers is essential.
Once it is safe to do so, visit the damaged property and record the
extent of damage. Photographs and video are crucial.
Take steps to mitigate losses and protect property from further loss or
damage. Standard property policies require the insured to mitigate the
physical damage and business interruption arising from a catastrophic
storm. Ensure that your firm takes these steps.
Form a claim team. It is essential to form a team involving company
employees and outside experts, including outside counsel, independent
adjusters and forensic accountants. Claims from catastrophic storms
often raise significant coverage issues, and it is important to retain
counsel early in the process. Forensic accountants also can be
essential in developing and presenting a business interruption claim to
Document carefully your communications with insurers and their agents.
Resolution of catastrophe claims can be slow. This shortage is caused
in part by the high demand for adjusters following any hurricane. It is
essential to keep timely, detailed records of all communications with
insurance companies and their representatives in order to discourage
delays and to position the company to make a bad faith claim later if
Be cautious about internal and external communications about your
claim. Policyholders should be careful with both internal
communications and with communications to third parties, including
brokers, about your losses and claims. These communications may be
discoverable by the insurance company in litigation, and the way the
company characterizes its loss may be used by the carrier against the
insured. An important principle is for the company to have one point of
contact with the broker and with the insurer.
Collect and maintain accounting records and documents related to
property damage and business interruption. Key documents to include
are: (a) production and sales records; (b) records of cost of goods
sold; (c) business forecasts and budgets; (d) inventory records; (e)
cost accounting records; and (f) payroll records.
Collect and maintain records of costs incurred to avoid or reduce the
loss. Key documents to include are: (a) overtime records related to
maintaining production at pre-loss levels; (b) price premiums and extra
shipping charges to expedite delivery of machinery or inventory; (c)
relocation costs; (d) costs incurred in the purchase of generator or
replacement power; and (e) costs of notifying customers of a relocation
or to maintain customer relationships during down-time.
Seek partial payments. Carriers often seek to delay full payment of the
loss by making a minimal “good faith” payment and claiming that it
cannot make full payment until all coverage and claim value issues are
resolved. Challenge this approach by insisting that the insurer provide
a coverage position in writing, by submitting partial proofs of loss
when portions of the claim are quantified, and by demanding payment for
the undisputed portion of the claim.
Comply with policy requirements. Standard property policies impose a
number of requirements on the policyholder, including deadlines for
submitting proofs of claim and for filing suit if there is a dispute
regarding the claim. It is essential to comply strictly with all policy
requirements unless the insurer agrees to an extension in writing.
Our insurance recovery team at McGuireWoods has extensive experience in
advising our business clients regarding disputes with insurers
regarding property damage and business interruption losses arising from
hurricanes. We have secured over $1.5 billion in recoveries for our
clients since 2009 and welcome the opportunity to work with you to
secure the maximum recovery for your insured losses following Hurricane