01.29.2015
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Updates
As the northeastern United States digs out from Winter Storm Juno, it is time for businesses and property owners to assess any damage suffered from the storm and analyze their property insurance policies in order to properly submit their claims and maximize their insurance recovery.
We are sending this alert to our valued clients with operations, properties and homes in the Northeast that may be affected by this disruptive winter storm. Our experience from other significant weather events, including Hurricane Katrina and Superstorm Sandy and the Japanese tsunami, shows that getting a head start on preparing insurance claims will help maximize any potential recovery.
If your business suffered physical damage, your property insurance policy should indemnify you for that loss. Even greater than any such property loss, however, may be the loss of income that your business may experience. If your business does, in fact, experience a loss of income due to the recent winter storm, the business interruption, contingent business interruption, extra expense, or ingress or egress coverage provisions of your property policy may reimburse you for such losses.
You should also keep in mind that your business may be entitled to additional coverage if it is named as an “additional insured” of a company affected by the recent events.
Summarized below are some key issues for businesses to consider in assessing their insurance claims for property damage or loss of income due to Winter Storm Juno and its aftermath.
Notice, Proof of Loss and Filing a Claim
Virtually all property insurance policies require the policyholder to perform certain duties within a specific period of time following a loss. For example, most policies require the policyholder to take the following actions:
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- Give a notice of claim as soon as practicable;
- Submit a proof of loss within 60-90 days of the loss; and
- File suit, if necessary, against the insurance company within 12-24 months of the loss.
Failure to comply with these requirements may operate as a complete bar to coverage. If your business intends to submit a claim for damage to real or personal property or business interruption but is unable to meet the deadlines specified in the policy, you should contact your insurer immediately and ask for a written extension.
Real and Personal Property Damage
Most property insurance policies provide coverage for “all risks,” unless certain risks are expressly excluded. In that regard, a property policy may exclude coverage for certain types of damage resulting from a storm, such as the flood damage experienced in certain coastal communities in New England. Thus, it is crucial to review your property policies thoroughly to ascertain the extent to which your company is covered for property damage that Winter Storm Juno may cause.
Business Interruption Insurance Coverage
If the storm physically damaged your business’s facilities or equipment, any revenue that was lost due to an interruption of your business may be covered under the business interruption provision of your property policy. Business interruption coverage, also known as business income insurance, reimburses the policyholder for the amount of revenue that it would have received during the period of interruption had the covered event and the ensuing physical damage never occurred.
To recover a business interruption loss, the policyholder must show these events:
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- It sustained damage to its property due to a covered loss;
- There was an interruption of business (suspension of operations) caused by the property damage;
- There was an actual loss of business income during the period of interruption; and
- The loss of income was caused by the interruption of business and not some other factor(s).
In many instances, business interruption may be the most significant element of loss from a weather event, so businesses are well advised to review this coverage provision in their property insurance policies.
Contingent Business Interruption Insurance Coverage
If your business does not suffer any property damage because of Winter Storm Juno but still experiences an interruption of its operations because a supplier’s facilities or equipment is damaged by the storm, you may be entitled to reimbursement of lost profits under your policy’s contingent business interruption coverage. Contingent business interruption coverage compensates the policyholder for lost revenue resulting from an interruption of its business that stems from damage not to its own property, but from damage to a customer’s or supplier’s property. For example, if your business depends upon goods produced by a manufacturer that had its operations interrupted by damage to its factory, any loss of income that you experience due to the failure of that manufacturer to supply you with the necessary goods may be covered under your contingent business interruption coverage.
However, in order for contingent business interruption to be covered, the type of peril and type of physical damage that the supplier suffered must be the same type of peril and damage covered under your property insurance policy. In other words, your business’s property policy must provide coverage for storms as well as for damage to property.
Extra Expense and Contingent Extra Expense Insurance Coverage
A property policy’s business interruption provision may also provide coverage for extra expenses. Extra expense insurance indemnifies the policyholder for costs in excess of normal operating expenses that the business incurs in order to continue operations while its damaged property is repaired or replaced. Such expenses typically include the cost to rent substitute facilities and to move equipment and personal property, as well as overtime wages. Similarly, contingent extra expense insurance reimburses the insured for expenses that result from a contingent loss, such as a contingent business interruption loss.
Ingress or Egress Coverage
If your business does not suffer any property damage, but it loses income because either customers cannot access your business premises or your business cannot ship or receive its products, then your property policy may provide insurance coverage for losses your business suffers on account of an order of civil authority prohibiting or limiting ingress or egress to your premises. The numerous governmental orders closing down roads, highways and mass transit in the Northeast likely qualify as orders of civil authority warranting a close review of your property policy for ingress or egress coverage protection.
Potential Coverage as an Additional Insured
Finally, your business may be able to seek a separate avenue of coverage if it is named as an “additional insured” of a company affected by Winter Storm Juno. An additional insured is an entity that is added to another company’s policy by means of an endorsement. The endorsement section of an affected company’s policy will either specifically name your business as an additional insured or provide a general blanket description that pertains to your company. If your company requires additional insured coverage from other entities with which it does business, do not overlook this potential source of insurance coverage.
Conclusion
Businesses with operations in the path of Winter Storm Juno may suffer significant property damage and loss of income due to an interruption of their business. To secure coverage, it is important that your company submit a timely notice of claim and proof of loss and, if necessary, initiate legal action against your insurer within the specified period of time. If your company experiences a loss in revenue, it may be entitled to indemnification under the business interruption, contingent business interruption, extra expense, or ingress or egress coverage provisions of its property insurance policy.
Your business should also explore whether it is an “additional insured” of another entity with which it does business. Depending on the scope of “additional insured” coverage provided, your company may be entitled to further indemnification.
Please see our checklist of steps that a policyholder should take to ensure maximum coverage under its property insurance policy. This update provides a general summary of issues related to insurance coverage for property damage or loss of income due to Winter Storm Juno. For additional information on recent developments, cases, laws, regulations and rule proposals of interest to businesses, check the Perkins Coie website or consult with experienced counsel.
© 2015 Perkins Coie LLP
