Reed Smith Client Alerts

Vermont and other areas of New England have been devastated by record-setting levels of rainfall. In just a few days, the areas were drenched with over two months’ worth of rain – nearly nine inches in some areas – causing extensive property damage and numerous fatalities across the region. Thousands of area residents lost their homes and businesses to the storms in what some officials have called the worst natural disaster to hit Vermont in nearly a century. Vermont area farmers were particularly hard hit, with the impact of flooding considered to be worse than 2011’s Tropical Storm Irene. The rainstorms have also resulted in devastating flooding that has caused rivers to overflow and shut down major roads and highways, as well as entire districts in cities such as Montpelier, the Vermont state capital. Given the widespread damage, policyholders should be prepared for pushback from their insurance companies.

Commercial policyholders may have significant insurance claims for property damage, loss of business income, and extra expenses incurred to continue or resume operations due to the damage sustained in the rainstorms and resulting floods. Because of the significant flooding that occurred, businesses must take extra precautions in assessing their coverage. Although storm rainwater damage is usually covered by property insurance policies, these same policies often do not cover damage due to flooding. Businesses should be cautioned that insurance companies will inevitably try to attribute as much damage as possible to being caused by the flooding instead of the rainstorms in order to minimize any payments they must make toward claims. Coverage for losses, however, will ultimately come down to the language found in the insurance policy itself.

In order to assert and protect their rights under their insurance policies, businesses should move quickly to determine whether they have an insurance policy that provides coverage for business losses and property damage caused by the rainfall and the resulting floods. Many business property insurance policies exclude damage from flooding, but other policies, such as business income insurance policies, may provide coverage for some or all of a business’ damages. The language of the policy is key and the language can vary from policy to policy. Businesses should seek input from an experienced professional who is qualified to assist them in making that assessment.

Be aware of other available coverages

In addition to coverage for direct damage to the property of a business and any business income losses as a result of that damage, policies will often include coverage arising from loss of income caused by damage to or destruction of property owned by others, such as suppliers and customers. This contingent business income coverage varies widely, with some provisions limiting coverage to “direct” customers or suppliers and other provisions covering customers or suppliers “of any tier” (e.g., customers of customers). With ongoing global supply chain issues still impacting numerous industries, it is important that policyholders afford themselves this coverage if available.

Service interruption coverage is another type of coverage that policyholders should take advantage of if available. Service interruption coverage is designed to provide coverage for business income losses attributable to the dislocation of utility or telecommunications services. Losses as a result of service interruptions may be particularly prevalent owing to the rainstorms because they caused widespread power and communication outages.