This is the second part of a two-part blog post discussing steps to take and relevant issues if your business is damaged by a hurricane or tropical storm. While this part of the blog can be read without reviewing Part I, you are invited to read the first installment, which discusses early steps to take to preserve your claim for property damage and business interruption loss.
Exercise Caution When Cooperating with Investigation of a Claim
While businesses are required to cooperate with an insurance company that is investigating and assessing a claim, this is a potentially dicey proposition. The adjuster will need to collect information to process the claim, but you should be careful when communicating with the insurance adjuster. His primary loyalty is to his employer, so information you provide also can be used to minimize the amount paid on your claim. Some of the ways the adjuster might use the information you provide against you includes:
- Shifting blame to an insured for failing to mitigate damages
- Establishing damage as pre-existing
- Deflecting liability for the claim to the federal flood program
- Minimizing the scope of work by obtaining admissions about what does not need to be repaired or replaced
The bottom line is that businesses should have a designated person to deal with insurance adjusters who understands the importance of exercising caution in providing information.
Handling Business Interruption Type Losses
While property damage may be a significant aspect of your claim following a hurricane, business interruption losses also will constitute a key component of many claims. All policies should be carefully reviewed to determine the best approach to maximize coverage. Business owners will need to carefully assess the amount of their business losses, so this component of a claim can be submitted to the insurer.
Another form of loss that needs to be assessed is contingent business interruption losses. These claims do not cover direct business losses, such as lost profits and temporary relocation costs, rather this type of loss involves damage to a supplier or business partner.
Other types of coverage that might be relevant include civil authority coverage and extra expense coverage. Civil authority coverage compensates a business for losses associated with evacuations or mass transit shutdowns. Extra expense coverage mitigates the necessary and reasonable increase in expenses incurred to operate the business following a loss. The business might need to obtain backup generators for power, for example, so the business can continue to operate following a hurricane.
Post-Hurricane Claims: Water Damage vs. Wind Damage
If your business is damaged by a tropical storm or hurricane, the insurance company will typically try to claim that your damage is a product of water rather than wind damage. This contention is designed to shift the financial burden of paying for damage caused by flooding to the national flood program. A fair amount of damage that occurs in a severe storm is the result of a combination of wind and water damage, private insurance companies typically work diligently to shift the responsibility for repair or replacement of such losses to the federal government. The causation issue will be critically important if a business does not carry flood insurance or has flood coverage with lower limits. The causation issue will also impact coverage for business interruption losses.
Tropical Storm vs. Hurricane Deductibles
Many insurance policies include high deductibles when damage is caused by a hurricane. These deductibles can be as high as five percent of the loss. While this special form of deductible cannot be applied if a wind storm is not classified as a hurricane when it makes landfall in Florida, some insurance carriers might try this tactic. Further, some policies now have similar deductibles for “wind storms”, so you should carefully review your policy to determine that the deductible being requested is justified by the terms of the policy.
Although a severe storm or other peril can cause significant harm to a business, some businesses that operate prudently in the aftermath of a crippling storm and that fully utilize their insurance benefits can actually emerge stronger after such a catastrophe. If you have questions about a commercial insurance claim arising from damage to your business or business interruption, we offer a free consultation, so we can answer your questions. My law firm represents policyholders in claims disputes in Miami and throughout Florida. The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations. No Recovery, No Lawyer Fees. Call 305-461-1095 or Toll Free 1-866-71-CLAIM.