We are attorneys and don't sell or broker insurance. Yet, we're writing to alert business owners of a direct threat posed by a "set it and forget it" approach to insurance coverage. Why? Because we see firsthand the damage this approach can cause as we litigate claims that business owners bring and defend against their insurers.
Don't "Set it and Forget It"
During the last five years, government shutdowns, supply
chain disruptions, material price increases, and substantial and
costly property losses resulting from natural disasters like
Hurricanes Florence, Dorian, Isaias, and, most recently, Helene
have highlighted for business owners the importance of making it a
routine business practice to take stock of the types and extent of
insurance coverages their businesses have in place.
The hot topic during the height of COVID-19, and for quite some time thereafter, was how businesses could recoup their losses when mandatory government shutdowns required them to shutter their doors for a period of time.
Business owners also sought possible relief through insurance as business income/interruption loss claims. A valuable lesson coming out of COVID for any business that owns property is the importance of how market and supply chain disruptions impact pricing relevant to commercial property insurance policies, particularly those with replacement cost coverages and those with co-insurance penalties.
Increased market costs for labor and material translate to increased repair and rebuild costs, which may mean your once appropriately insured-to-value commercial property is now underinsured.
This isn't just an important consideration for your business, though; it should also factor into your thought process when considering businesses you are contracting with and how, through contract terms, you can further protect and mitigate risks for your company.
Recouping Covered Losses
Turning back to the search for a way to recoup the losses
that many businesses sustained during the suspension of operations
due to government orders during COVID, there was a wave of claims
and litigation across the country sorting through whether such
orders and their resulting impact were covered losses.
These issues were still on our courts' dockets even late last year. The North Carolina Supreme Court took up and issued opinions in two cases last December.
In one case, the Court determined that the language of the policy at issue was not clear in defining "direct physical loss" to exclude circumstances in which the insureds could not use their insured property due to government orders or threatened viral contamination.
In a companion case, the Court determined that there was no coverage where the policy at issue expressly excluded viral contamination as a covered cause of loss.
Both of these cases illustrate the importance ascribed by North Carolina's courts to the language in insurance contracts and, for business owners, the value that can come from having a basic understanding of how the courts read and apply those contracts to reach an answer.
We read insurance contracts not to sell them but to help business owners fully understand both the risks mitigated by and left unattended to in their current coverage portfolios. In the event of a significant loss, that type of counsel can be tremendously helpful and can be the difference between receiving the claimed benefit or being left holding the bill.
Gaps in Insurance
Another lesson, and for a significant portion of the
State, a heartbreaking one, came last September when Hurricane
Helene exposed a significant gap in insurance, impacting many
businesses. These businesses either did not have any flood
insurance, perhaps because they were not in an area mapped as a
flood zone, or the coverage they carried through the National Flood
Insurance Program (NFIP) was insufficient to cover the extent of
their losses. Currently, NFIP commercial policy limits are capped
at $500,000 for buildings and $500,000 for contents.
Hurricane Helene proved to be a stark reminder that even areas in the State thought to be unlikely to or not prone to flooding are not immune from the dangers and damage of flood waters. It confirmed for all businesses having commercial properties the importance of giving due consideration to whether they need flood insurance and, if so, whether the NFIP's offerings are likely to prove sufficient in the event a flood loss occurs.
Suffice it to say, insurance is not a risk management tool that North Carolina business owners can afford to relegate to the bottom shelf only to be pulled out when the need to use it arises. Thankfully, failing to take a policy and terms inventory on a routine basis is a mistake that all businesses can easily avoid.
Keep in mind, though, that regularly assessing your business's insurance portfolio is the bare minimum a company should undertake in this area of its risk management efforts. Further assessments are warranted when changes occur to or within the business or when new risks in the market and industry are reasonably expected to impact the business.
Originally published by Business North Carolina, 31 March 2025
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
