Post on 08-Oct-2020
Hurricane Harvey Alert !Understanding insurance coverage and
the immediate steps Risk Managers must take to mitigate a loss and
prepare a claim.!
FrankL.RussoFounder/Execu3veVicePresidentof
ProcorSolu3ons+Consul3ng
GregoryD.PodolakManagingPartnerSDVSoutheast
2HurricaneHarveyAlert
HurricaneHarveywilltestmanyriskmanagers’insuranceprogramsandresponseplansasit’sbeenover10yearssinceamajorhurricanemadelandfallintheU.S.Manyriskmanagershaveyettoexperienceahurricanecausedareawidedisasterthatcandevastatemul3pleproper3esacrossmanymiles.SuchdisastersareoNencomplexandrequiredecisivedecisionmakingthatcouldmeanthedifferenceofcon3nua3onorcessa3onofyourbusiness.Whenpropertyandbusinessinterrup3oninsuranceisinplace,suchlossesrequiresignificantdocumenta3onanddatatosubstan3atethelossandprovecovereddamages.
I. Review your policies closelyManybusinesseshavecoveragegapsthatleavethemwithexposuretocatastrophiclosses.Tomakema=ersworse,insurerso?enrestrictthecoverageavailableforcatastrophicdamages,parBcularlythosecausedbynaturaldisasters,throughtheuseofexclusionsandsublimits.InaddiBon,whentherearelarge-scalelosses,insurersmaytrytoliberallyapplyexclusionsandsublimits,orcategorizethelossesinwaysthatreducetheavailablecoverage.
3HurricaneHarveyAlert
TheBusinessInterrup.onCoverageGrant
DisrupBontobusinessoperaBonscancauseenormouslossesasacompanystrugglestogetbackonitsfeet.BusinessinterrupBoninsurance,alsoknownasbusinessincomeinsuranceor“Bmeelement”coverage,generallycoverslostearningsthatresultfromdisrupBontotheinsured’sbusiness.BusinessinterrupBonpolicieshavemanymorevariaBonsincoveragetermsandcondiBonsrelaBvetoothertypesofinsurancepolicies.SinceonebusinessinterrupBonpolicycandiffersignificantlyfromanother,policyholdersshouldalwaysreviewthespecificlanguageoftheirpoliciesatbothrenewalandattheonsetofanypotenBalinsuranceclaim.
DespitethevarietyinbusinessinterrupBonpolicies,thefollowingcoveragegrantiso?enBmespartofacommercialpropertypolicy:
WewillpayfortheactuallossofBusinessIncomeyousustainduetothenecessarysuspensionofyouropera.ons...causedbydirectphysicallossofordamagetoproperty.
SuchcoveragecanbeextremelyvaluabletocompaniessufferingasuspensionofoperaBonsa?eracatastrophicloss.However,ambiguouspolicylanguageandalackofuniformpolicyinterpretaBonbythecourtscanleadtootherwiseavoidabledenialsofclaims.
4HurricaneHarveyAlert
TheShi'ingIden,tyof“DirectPhysicalLoss”
Businessinterrup3oncoverageoNenrequiresthattheinsuredsuffer“physicalloss,”“physicaldamage,”or“directphysicallossordamage,”butlacksdefini3onsfortheseterms.Abusinessmightsufferinterrup3onwithoutanydirectphysicallosstoitsproductsinatradi3onalsense.Forexample,ifanoilrefinerysuffersapoweroutageduringahurricane,theremaynotbeanydirectphysicaldamagetotheoilorpetroleumproductswithintheplant,butthereisalmostcertainlyacessa3onofbusinessduetothelossofpower.Theissuethenbecomeswhetherlossofpowerattheplantcons3tutesadirectphysicalloss.
Over3me,somecourtshavebeenexpandingtheirinterpreta3onof“directphysicalloss”toincludeeventssuchaspoweroutagesthatrendertheinsuredphysicallyincapableofcon3nuingitsbusinessopera3ons.Theoutcomeofthisissuevariesbyjurisdic3on.
HurricaneHarveyAlert
Furthermore,somebusinessinterrupBonpoliciesrequireonly“directphysicallosstoCoveredProperty,”asopposedto“directphysicallosstoCoveredPropertyatanInsuredLocaBon.”Theformerlanguagemayprovidebe=ercoverageininstancessuchaspoweroutages,sincethepolicydoesnotspecifywherethepropertymustbelocated.Forexample,ifinsuredbusinesspersonalpropertysuchasmachineryorequipmentislocatedoff-premises,coverageforanybusinessinterrupBonresulBngfromdamagetosuchmachineryisunlikelyifthepolicyrequiresthatthelossoccur“atanInsuredLocaBon.”
PlacingaValueonLostBusinessIncome
A?erHurricaneKatrina,manyrefinerieswereforcedtosuspendtheiroperaBons,someforextendedperiodsofBme.Gaspriceswentupasmuchasfi?ypercent,butanout-of-operaBonsrefinerywouldobviouslybeunabletoprofitfromtheincreaseinpricesthesamewayanunaffectedrefinerywouldprofit.ThisraisestheissueofcompensaBonunderbusinessinterrupBoninsurance.Shouldtherefinerybecompensatedintheamountitwouldhaveearnedhadtherebeennohurricaneatall?OrshouldthemeasureofdamagesbetheamountthatwouldhavebeenearnedifthehurricaneoccurredandthisparBcularcompanywasunaffected?
HurricaneHarveyAlert
ThevaluaBonclauseofbusinessinterrupBonpoliciestypicallysetsforththemannerforcalculaBngtheamountofreimbursementforaclaim.InvaluingclaimswherethepolicyissilentastochangesinprofitopportuniBesfollowingacatastrophicloss,courtso?enholdthatthepolicyholdermustbecompensatedasthoughthelossneveroccurred.
MonitorCon.ngentBusinessInterrup.onexposures
SomeBmes,asinglecatastrophiceventcanimpacttheenBresupplychain.WhenadisrupBontothesupplychainoccurs,conBngentbusinessinterrupBoninsurance,alsoknownasdependentpropertyinsurance,cancoverearningslostbecauseofdamagetofaciliBesthatarenotowned,operatedorcontrolledbytheinsured,butuponwhichtheinsureddependstoconductitsownbusiness.DependentproperBesincludeproperBestheinsureddependsupontodelivermaterialsorservices,acceptproductsorservices,manufactureproductsfordeliverytotheinsured’scustomers,ora=ractcustomerstotheinsured’sbusiness.
HurricaneHarveyAlert
II. Takeimmediateac3ontomi3gate,documentandsetthetoneforaclaimsubmission
AsthestormmovesonanddamagesareiniBallyinvesBgated,thefirsthoursanddaysa?eralossareparamounttose[ngatoneintheinsuranceadjustmentprocessthatwillhelptherecoverygoassmoothaspossible.Belowarefivekeystepstofollowwhenbeginningtherecoveryandclaimprocessonalargeloss:
Documentallthedamage
Photographsandvideofootageofthelossarekeytomemorializingthedamages.Atsomepoint,thesedocumentswillhelpyouse=lepotenBaldisagreementsonitemssuchasscope,quanBty,andpricing.BesuretoincludepicturesofanyidenBfyinginformaBonsuchasserialnumbersofdamagedequipment.
Mi.gatethelossandini.ateyourrecovery
A?erthedamagehasbeenmemorialized,itisimportanttofocusondecisionsthatgetyourbusinessupandrunningasquicklyaspossible.SomeBmesthereisconfusiononwhetherornottoacttomiBgatethelosspriortothefirstadjustersiteinspecBon.Whileyoudon’tneedtoaskforpermissionfromyouradjusterbeforeyouact,ithelpstokeephimorherintheloopasyoumovetomiBgateyourloss.Moreo?enthannot,anydecisionmadebyaprudentbusinesspersontomiBgatealossisconsideredfavorablybytheinsurancecommunity.Bedecisive.
HurricaneHarveyAlert
Surveythedamagewithyourinsuranceadjuster
Whenyouhaveadatesetfortheadjustertoviewthedamage,makeeveryefforttobethereinperson.Riskmanagerso?enrelyonfacilitystaffforthisinspecBon.BeingtheresetsthetoneandworkingrelaBonshipfortheenBreadjustmentprocess.Inalarge,area-widedisaster,adjustersaretypicallyspreadthinandlikelydonothaveunlimitedBmetospendatyourloss.BepreparedtowalktheadjusterthroughthelossandfocusthediscussiononyourbusinessoperaBons.ExplainyourrecoveryeffortsandyourBmelinetodocumenttheloss
Provideapreliminarylosses.mate/orderofmagnitude
Asyouradjusterbeginstoreviewtheparametersofyourloss,heorshewilllooktorecommendalossreservetotheinsurer(s)foraccounBngpurposes.PrepareashortsummaryidenBfyingallareasofyourlosswithassociatedesBmatedcosts.Forexample,ifthereisbuildingdamage,obtainesBmatesforrepairtodemonstratetheulBmatecosts.IfclaimitemsaretooearlytoquanBfy,suchasbusinessinterrupBon,includetheitemas“tobedetermined”or“TBD.”Thiswillhelptheadjusterconsidertheworst-casescenarioincludingpotenBalfutureclaimitemsasheorshesetsthereserve.
HurricaneHarveyAlert
Requestpar.alpayments
Rememberthattheclaimdoesn’thavetobepaidonlyattheendoftheprocess.Theadjustercanreleasefundsasitemsareagreedtoandsupported.Asyouprovedamagesthroughtheadjustmentprocess,askforparBalpayments.Thiswillhelpyoumaintaincashflowforyourbusinessduringtherecovery.
Assembleyourteam,bepreparedandvigilant
RiskmanagersshouldworkwithagoodteamofsophisBcatedclaimpreparers,brokersandlegalcounseltoincreasethelikelihoodofmiBgaBngcatastrophiclosses.Theyshouldestablisha)properbusinessinterrupBonvalues,b)favorablepolicylanguage,andc)adequatecoveragelimits,allinadvanceofaloss.Policyholderscanalsoincreaserecoveriesfrominsurerspost-lossby(a)assemblingtheclaimpreparaBonteamearly,(b)thoroughlyreviewingtherelevantcoverage,sub-limitsandexclusionsbeforepresenBngtheclaim,and(c)beingrealisBc,yetzealousinpursuitofinsurancerecoveries.
HurricaneHarveyAlert 10
For further information please contact:
FrankL.Russo,Founder/ExecuBveVicePresidentofProcorSoluBons+ConsulBngatfrusso@procorllc.comor646.220.0991
GregoryD.PodolakinSDV’sSoutheastofficeatgdp@sdvlaw.comor239.315.4215
SDVLawisanaBonallawfirmexclusivelyrepresenBngpolicyholdersininsurancerecoveryma=ers,withregionalofficesaroundthecountry.