The peak of the Atlantic hurricane season – September 10th – is fast approaching. When a hurricane or storm physically damages a business, companies rely on insurance payments to make necessary repairs and fully recover. However, in the wake of a major storm, insurance companies typically face significant financial responsibility and often look to limit their liability by unfairly denying or delaying claims or disputing the value of a company’s losses. Understanding where disputes commonly occur can help your business prepare a more complete claim.
The Cause of the Damage
Storm-related insurance disputes commonly center around what caused the damage. Hurricanes often produce wind, wind-driven rain, flooding, storm surge and other conditions simultaneously. Commercial property policies and business owner policy (BOP) insurance typically provide coverage for damage caused by wind or wind-driven rain, while excluding coverage for flooding or storm surge. (Damage from flooding is generally only covered under a specific flood insurance policy.) Whether damage was caused by a covered or excluded peril can therefore become central to the claim. For instance, an insurer may deny coverage for particular losses that it claims were caused by flooding, but the insured may contend that wind damaged the structure first, allowing water to enter. Establishing the sequence of events can require photographs, engineering evidence, weather data and expert analysis.
Insurers may also argue that some damage existed before the storm and is therefore not eligible for coverage.
The Scope or Cost of Property Damage
Even when agreeing that a covered peril caused the damage, the insurer may disagree about the extent of the damage and what repairs are necessary. For instance, the policyholder may believe an entire roof or façade must be replaced, while the insurer may estimate the damage as limited to a smaller area. Similar disputes can arise over structural damage, electrical systems, inventory, equipment and personal property.
Insurers also commonly challenge the policyholder’s repair or replacement cost assertions. The insurer’s estimate, for instance, may fail to take into account the impacts of supply and demand on labor costs and materials in the wake of a regional disaster. The dollar value of damaged or destroyed contents, such as furniture, technology systems, equipment, artwork, books and other materials, may also be disputed.
Replacement Cost versus Actual Cash Value
The amount of your ultimate payout will also depend on the policy terms regarding “replacement cost” versus “actual cash value.” If reimbursement is based on the replacement cost, it will be calculated as the dollar amount needed to replace a damaged item with one of similar quality. If it is based on actual cash value, depreciation will be taken into account to arrive at the reimbursement amount. For instance, if you have an actual cash value policy and need to replace 10-year-old furniture due to storm damage, you will be reimbursed for what the furniture was worth just before the storm, not what you would have to pay for new items. Standard commercial property policies typically provide replacement cost coverage for the physical structure while covering personal items at actual cash value.
Business Interruption and Lost Income
For many businesses, a storm’s financial consequences extend beyond physical damage to lost revenue. For instance, a restaurant may need to close temporarily while repairs are completed, or a manufacturer may be unable to produce products until it restores critical equipment. If you have business interruption coverage, you may be able to receive compensation for lost income and continuing expenses when a covered event causes a suspension of operations. Rather than standalone insurance, business interruption coverage is typically bundled with commercial property or BOP insurance. But business interruption claims frequently involve disputes, including over the value of the business’ lost income or the length of time a reasonable restoration takes. The parties may also disagree about whether expenses incurred to continue operations were reasonable and necessary.
Filing and Documentation Issues
For a hurricane claim, policyholders are often asked to submit onerous amounts of information, such as inventories, repair estimates, financial records, receipts and other proof of losses. Insurers sometimes deny or limit claims based on alleged failures to comply with policy requirements, including missing deadlines to provide notice or submit documentation. Insurers may also argue that the business failed to take reasonable steps to protect property from further damage after the storm occurred, allowing more damage to occur.
Protecting Your Company’s Interests
In the wake of damage from a hurricane or major storm, it’s important to act quickly. Carefully review your policy, paying particular attention to covered perils, exclusions, deductibles, valuation provisions and your obligations under the policy. Provide proper notice of the claim to your insurer as soon as possible. Where applicable, take reasonable steps to protect covered property from further damage, and set aside damaged property to allow for its inspection by the insurance company’s adjuster. Take photos and/or video of damaged property as soon as it is safe and practical to do so. Prepare an inventory of damaged or destroyed items, complete with a description of the items and their value, supported by receipts or other documentation. Don’t rely on the insurance company’s estimate of how much it will cost to repair or replace damaged property; secure independent estimates from contractors and compare them.
In addition, retain receipts for all extra expenses that you incur as a result of your losses and the interruption to your business operations. To document lost business income, you will need to present documents that provide a detailed picture of your company’s finances, such as profit and loss (P&L) statements, tax returns, balance sheets, payroll records, mortgage statements or lease agreements, and more. Your claim should also include a compelling argument, supported by documentation, demonstrating why lost business income should be valued at the amount you say.
If the insurer denies coverage or offers less than you believe you are entitled to recover, you have options. You can appeal directly to the insurance company or hire an experienced insurance law attorney to present a compelling legal argument and negotiate with the insurance company on your behalf. Depending on the circumstances, mediation, arbitration or litigation may also be a viable option to enforce your rights.
If your business insurance company has denied or is challenging your claim, contact Schwartz Conroy & Hack, PC. We have the expertise, experience and tenacity to make insurance companies keep their promises to you and your business.