Reed Smith In-depth

The Buffalo, New York, and Erie and Niagara county areas have been devastated by record-setting levels of snowfall in a storm now known as Winter Storm Elliott. In just a few days, the areas were bombarded with blizzards dumping a year’s worth of snow that reached almost five feet in some places. The heavy snow has led to several building collapses and numerous fatalities. Now, as the snow has tapered off, there are forecasts for rapid warming and rains that could cause flooding with the potential for even more building collapses because of the heavy, water-laden snow. The Buffalo area can expect flooding as a result of the rains, blocked storm drains, and overflowing local waterways. Winter Storm Elliott is estimated to have so far caused $5.4 billion in insured losses.

Because of the damage sustained, commercial policyholders may have significant insurance claims for property damage, loss of business income, and extra expenses incurred to continue or resume operations. Businesses should immediately determine whether they have an insurance policy that would provide coverage for business losses and property damage caused by the snowstorm. Businesses should look to their property insurance policies as well as any business income/interruption insurance they may have. The following is a short summary of some of the coverages provided under business income insurance and the coverage issues that can arise.

Business income (or business interruption) insurance

Business income insurance is designed to cover a policyholder for profits lost, and unavoidable expenses incurred, during a hypothetical “period of restoration” needed to repair or replace damaged or destroyed property used in the policyholder’s operations. Most policies provide little guidance as to how the amount of a business income loss is to be calculated: Essentially, they state that business income is to be calculated from historical figures. This leads to many sources of potential conflict, including determining the appropriate benchmark to measure the profits that were lost, particularly whether the wider effects of the catastrophe should be considered; when the period of restoration begins and ends; and what constitutes a sufficient “interruption” of the policyholder’s operations.