Hurricane Beryl has caused destruction in the Caribbean, Mexico and Texas. Continuing issues include power outages, both rolling and continuous, issues regarding access to clean water, severed communications, roads that remain impassable and issues accessing necessities like food and fuel.
Hurricanes cause dramatic damage to businesses and commercial properties every year, totaling some $9 billion according to the Congressional Budget Losses, and hurricanes are increasing in both frequency and severity. The 2024 hurricane season is expected to be more severe—including between 8 and 13 hurricanes, 4 to 7 of which are expected to be severe—due to La Nina and warmer ocean temperatures. Beryl was just the second of the Atlantic Tropical Cyclone storm names, so more damage can be expected.
Several Policies May Provide Coverage
While there is no stand-alone hurricane policy, riders to commercial property or business owners' policies for named perils may be purchased, and several coverage types can address damages caused by hurricanes.
Most "all risk" policies cover damage caused by wind and wind-driven rain, but typically exclude flood damage. Flood insurance can be purchased as a rider or stand-alone policy, and covers losses from flooding, including buildings and their contents. For named peril policies, both wind and flood may be excluded. In this case, wind insurance, sometimes called named storm or named peril coverage, can help cover damage caused by gales, winds and hail if wind is excluded.
Business Income and Extra Expense
Lost business income coverage is vital. It generally is subject to a waiting period of 24-72 hours before coverage kicks in. Since it is subject to the exclusions in the policy, businesses may need to ensure business income coverage is covered by their flood insurance. If your business depends on third parties to operate, contingent business interruption coverage is important. If you rely on suppliers or distributors, contingent business interruption coverage may help cover losses caused by property damage to contingent businesses. Similarly, if your business relies on component parts, suppliers, or distributors, specialized supply chain coverage (whether as a rider to a commercial policy or standalone) may cover hurricane-related supply chain interruptions that result in lost business income.
Extra expense coverage may help defray costs to continue operating and mitigate damages, including continuing production at the current site, moving to a temporary location, using other facilities, paying contractors, overtime, and bonuses.
Other Important Coverages
Sewer backup cover also is vital, as hurricanes frequently wreak havoc on sewer systems. Sewer backup insurance can cover losses caused by water or waterborne material discharged by a sewer, drain or sump. Offsite utility interruption coverage also is important, and frequently is excluded.
Other policies also may provide cover following a hurricane:
- General liability can protect against injury to customers or damage to their property.
- Workers' compensation can help if an employee is injured by a hurricane while on the job.
- Finished stock insurance may help cover lost inventory damaged by a hurricane.
A few years ago, a new law in Texas went into effect limiting policyholder remedies for improper insurance claims handling and added several requirements for submissions for claims arising from "damage to or loss of covered property caused, wholly or partly, by forces of nature" including hurricane, tornado, flood, wind or rainstorm. Texas policyholders also must provide a high level of detail when disputing a carrier's coverage determination and they must consent to inspection by the carrier. Failure to meet either the detail or consent requirement can lead to dismissal of a suit. It requires a policyholder's attorney to provide notice to a carrier that if the claim issues are not resolved within 60 days, the policyholder will file suit. Currently, policyholders are only able to get a 10% interest rate from a late-paying carrier, and there also are limits on the attorneys' fees a policyholder can recover if they are forced to file suit.
Tips for Policyholders Following a Hurricane
- Notify the insurer and the broker of any property damage and business interruption.
- Preserve evidence of the damage.
- Obtain approval from your carriers before replacing or removing damaged property.
- Get the proper Proof of Loss form and fill it out within the requisite time.
- Communicate with your carrier regarding the need to submit a partial proof of loss due to the nature of continuing investigations into losses caused by hurricanes.
- Gather all documentation relating to any business interruption or extra expenses.
- Consider retaining an accounting firm. Some policies provide coverage for loss preparation costs.
- Communicate with the insurer, being sure to provide all necessary and relevant documentation, and be sure to log those communications.
Conclusion
Hurricane losses raise complex issues including those relating to causation and overlapping coverage provisions. Hire experienced coverage counsel to review all insurance policies for potential coverage and to evaluate potential coverage issues before submitting any claim.
For additional thoughts from Reed Smith's Insurance Recovery Group on natural disaster coverage, we recommend listening to the recent Insured Success podcast episode titled Navigating Insurance Claims After Natural Disasters. An upcoming episode of Insured Success will focus specifically on hurricane recovery and expand on the thoughts discussed in this blog.
This article is presented for informational purposes only and is not intended to constitute legal advice.