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.
Employ a systematic, documented approach to preparing insurance claims
In the aftermath of a loss, there are often a number of immediate measures that businesses may have to take, including looking towards the safety of their employees, preventing further damage, or simply taking a collective breath just to process the loss. Although it may be difficult, at the same time, businesses should take steps to put themselves in the best position for a successful insurance claim. Documentation of the loss will be key. A picture is worth a thousand words, and a video is even better. Most importantly, policyholders should know what their policies say, and what they require, before incurring unnecessary costs.
Claims preparation can be challenging, especially while trying re-establish business operations in the wake of a disaster. If policyholders can employ a systematic approach, however, it will go a long way toward ensuring the success of their insurance claims. Commercial policyholders should consider the guidelines outlined in our previous client alert while assessing the impact of the rainstorms and resulting flooding and preparing an insurance claim.
Be aware of disaster relief/emergency mitigation companies
Policyholders should be wary of companies that offer disaster relief services and offer to only bill if the insurance companies pay the claim. While these companies do often provide vital emergency mitigation services, it is important that policyholders understand how employment of these companies interplay with insurance. First and foremost, the contractual relationship is usually between the policyholder and the disaster relief company not between the disaster relief company and the insurance company. This means that the policyholder is ultimately responsible for charges for the work done by these companies. Often these companies bill regardless of insurance company reimbursement and can charge exorbitant prices for work frequently done by unskilled laborers.
Second, while it is often true that the work performed by these companies is usually covered under the insurance policy, policyholders should be aware that these charges will be submitted as part of the overall claim. This has a couple of implications. First, the insurance company will often adjust the claim for work performed by these companies, which will inevitably lead to the insurance company valuing its work at a lesser value than billed. Policyholders may be responsible for the difference. Second, because this work is a part of the claim, it will erode the total limits of the policy. This is important because the emergency mitigation is just the beginning. The policyholder will still have to repair and restore the property. Exorbitant emergency mitigation charges can severely reduce the available limits for actual repairs to the property.
Contact Reed Smith for assistance with your claim
If you have experienced damage or loss as a result of the recent rainstorms and flooding, Reed Smith’s insurance recovery lawyers can help evaluate applicable coverage for damage to property, loss of business income, and extra expense caused either directly by the rainstorms and flooding or because the properties of their customers and suppliers have been damaged.
Reed Smith represents many clients affected by rainstorms and other extreme weather events, such as extreme heat, hurricanes, and tornadoes. We are familiar with the applicable insurance policies and notice obligations. Even if you have not suffered losses as a result of the rainstorms, now may be the time to evaluate your existing coverages to see whether you are adequately protected for future events that might affect your business.
Client Alert 2023-160
