Flood waters eventually recede; fires are extinguished; and earthquake-damaged buildings are shored. It is only then that the financial toll of a natural disaster can begin to be tallied.
Natural disasters are expensive. The 2017 California wildfires are estimated to resulted in $180 billion in damages. Hurricanes Harvey and Maria are estimated to have caused $200 billion in damages. Massive storms and their massive resulting price tags have become commonplace. Those impacted must then evaluate the magnitude of their damages, their potential liabilities and the extent to which insurance will indemnify their losses.
Types of Policies that May Respond
Insurance for losses caused by disasters such as Sandy can be provided under several different types of insurance policies. This coverage is not only provided under the ordinary “property” policy. It also may be provided under other policies, such as those providing coverage for “environmental” losses, “maritime” losses, and “warehouse” losses. Thus, it is important for an insured to review all of its policies in order to determine the extent of its coverage. Many property insurance policies cover losses to real property caused by all perils. Some policies cover all causes of loss not expressly excluded. Because of the breadth of coverage afforded by an “all risk” policy, the burden of proof shifts to the insurer to show that the loss is not covered, once the insured demonstrates it has suffered a loss.
Coverage for Real and Personal Property
First-party property policies generally provide insurance for “direct physical loss of or damage to property.” Traditional losses under first-party property policies involve tangible property, including buildings, permanently installed machinery or equipment, inventory, and fixtures. They may also involve personal property owned by the insured that is used to service and maintain buildings and premises, such as fire extinguishing equipment. Most property insurance policies also insure personal property. This coverage usually is provided under an “unscheduled personal property” provision and typically provides coverage for unscheduled personal property that is “usual or incidental to the occupancy of the premises” or “used by an insured while on the described premises.”
There are many possible causes of loss stemming from a natural disaster such as a hurricane: wind, wind-driven rain, storm surge, flooding, power outages, orders by civil authority, and looting—just to name a few. In some cases, more than one cause may have contributed to an insured’s losses. An insured needs to carefully assess its policies and the precise cause(s) of its particular loss before it characterizes that cause. Different characterizations can have significant impacts on the deductibles and sub-limits of liability. Casually labeling a storm as a “hurricane” or a “flood,” either internally or externally may be inaccurate in the context of specific losses and negatively impact coverage, particularly because damage may have taken place before or after the storm was designated as a “hurricane” and because “flood” definitions vary.
Making a Claim
Insurance policies typically impose on an insured obligations that must be satisfied to collect insurance. In seeking coverage, many businesses may overlook, or not be aware of, their duties.
To preserve coverage, insureds should recognize and perform these duties. While an insurer may waive its right to insist on performance, insureds should proactively seek to comply with
coverage obligations. They may include: (i) providing prompt notice (often “as soon as possible”); (ii) cooperating with the insurer’s investigation; (iii) submitting a sworn statement in proof of loss; and (iv) giving testimony at an examination under oath.
Many property insurance policies contain a contractual limitations period (that is, a contractual statute of limitations). It is thus extremely important that insureds take all appropriate steps to ensure that suits, if necessary, are filed in a timely fashion. Unfortunately, insureds may not find clear answers and may have to initiate litigation to preserve their rights given possible disputes over which law controls (e.g., the law of the jurisdiction where the insured is headquartered and the policy was brokered, or the law of the jurisdiction where the loss was suffered).