As another busy hurricane season gets underway, insurance companies stand ready. But what they are ready for -- unfortunately for many policyholders – is either limiting their obligations or walking away from geographic markets altogether.
Ever since Hurricane Andrew hit Florida and Louisiana in 1992, insurance companies have focused on ensuring that they minimize their hurricane losses. This, of course, is a contradiction in terms. Insurance companies are supposed to have losses at times of catastrophe. Their reason for existing is to bear the losses that the catastrophes inflicted on their policyholders. That is the purpose of insurance.
In the past year, insurance companies have escalated this tactic to a new level. They have started curtailing or completely abandoning geographic markets they deem high-risk due to the likelihood of natural disasters such as hurricanes and wildfires. These markets include certain southern states, like Florida and Louisiana, and now California as well.
According to the National Association of Insurance Commissioners, several major property insurers recently took steps either to exit these areas, to revise their policies to exclude weather-related coverage, and/or to hike rates and deductibles. State Farm and Allstate, for example, announced recently that they will stop issuing homeowners insurance policies altogether in the state of California.
Fortunately, the Baltimore area is not one of the regions at risk. Commercial property insurance remains widely available here. But simply having a policy is not enough. When bad weather hits, policyholders must be proactive in ensuring that they receive the coverage to which they are entitled. The following steps are a roadmap for doing so.
- Give Notice
The first step: give notice -- to anyone and everyone – that you have suffered a loss. Don’t wait until you know its full extent; give notice first and analyze it later. This means calling your insurance companies immediately, even if you don’t have hard copies of your policies and don’t remember the policy numbers. It means getting the names, agent numbers, emails and addresses of the people with whom you speak. It also means sending follow-up writings that confirm your timely report of the claim.
Late notice is one of the principal excuses used by insurance companies to deny coverage. Don’t give any insurance company an opportunity to use this excuse against you.
- Find Your Insurance Policies
The second step: find your insurance policies. Start with your insurance broker. If you know the names of at least some of your insurance companies, you should send them a written request for hard copies, either by mail or PDF.
You should throw a wide net, locating copies of any insurance policies that you have ever purchased that could possibly be applicable. Look for primary, excess, local and global property insurance policies; general, umbrella and excess liability insurance policies; and also specialized policies, such as marine, multi-peril, fire and business owners policies. Until you know the extent of the claims for property damage, liability or business interruption that you may ultimately pursue, you can’t possibly know which insurance policies will apply.
- Evaluate Your Coverage
The third step: evaluate the scope of your insurance protection. While insurance policies are complicated, all policyholders should have a basic understanding of what they have purchased. For example, most policyholders appreciate that they have purchased basic coverage for tangible property damage, but they may not realize that those policies typically cover damage to intangible property as well.
In brief, standard-form property policies typically cover three different types of damage: property damage, business income losses and extra expenses. Property damage coverage pays for physical loss or damage to buildings and business property – machinery, equipment, inventory, raw materials – as well as property of others in the policyholder’s control. Business income coverage pays for the policyholder’s loss of net revenue after expenses (profit) and the policyholder’s unavoidable continuing expenses during the loss period. Extra expense coverage pays for both the policyholder’s costs in minimizing or avoiding a business income loss.
Certain types of intangible property coverage may be particularly significant in the wake of Hurricane Sandy. Due to transportation shutdowns, evacuations and other problems, many businesses may suffer acute business losses even though their operations are physically unscathed and open for business. Such losses are subject to coverage under specific provisions in standard-form property and liability insurance policies.
In property policies, check for provisions regarding contingent business income coverage, contingent extra expense coverage, civil authority coverage, ingress/egress coverage and utility and communications service interruption coverage. In liability policies, check for a definition of “property damage” that includes property that is not physically injured. These and similar provisions may provide coverage for events that interfere with suppliers, or customers or prevent or hinder access to premises.
- Keep Careful Records
The fourth step: start a diary. Right away. Facts decide insurance claims and no one is closer to the facts of a particular policyholder’s claim that the policyholder itself. It is a wise practice for policyholders to take photographs of damaged property before anyone, including civic authorities, have a chance to alter the scenes. Policyholders also should take notes of key developments in the upcoming days, including notes about all actual or attempted communications with their insurance companies. It also could be extremely valuable for policyholders to locate and secure key records from their operations, varying from receipts for physical property that has been damaged to information about income patterns for businesses that are dependent on the seasons.
These steps will start the process for moving forward with a storm damage claim. If you remember to take them, you will be ahead of the game in protecting your company from catastrophe losses to the fullest extent possible.
 Home Insurers Cut Natural Disasters from Policies as Climate Risks Grow, Washington Post, https://www.washingtonpost.com/business/2023/09/03/natural-disaster-climate-insurance/ (Sept. 3, 2023).