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Articles

Intense Storm Season Looms: Policyholders Need to Prepare

AK Alert

  • Published On: July 5, 2024

The United States is expected to face one of its worst hurricane seasons in two decades, according to the National Oceanic and Atmospheric Administration (NOAA) and several other meteorologists.  On May 24, NOAA issued its most aggressive outlook to date, predicting there will be between 17 and 25 tropical storms, eight to 13 of which are expected to be hurricanes, including four to seven “major” hurricanes.  Not only can we expect an increase in the number of storms, but recent studies have also shown that hurricanes are intensifying faster, giving people less time to take the proper measures ahead of time.

In early July, Hurricane Beryl became the earliest Category 5 storm ever to form in the Atlantic, indicating that the forecast is on target.  At the time of this writing, Beryl has caused intense property damage and multiple deaths in Carriacou, Petite Martinique, Grenada, St. Vincent, and the Grenadines.

NOAA’s projections are largely attributed to climate change, with rising temperatures increasing the risk of destructive weather events.  Back in 2005, meteorologists warned people to brace themselves for a potentially dramatic hurricane season due to the warming waters in the Atlantic Ocean.  That year, the United States faced its most aggressive hurricane season.  Water temperatures today dramatically exceed those of 19 years ago, and recent reports show that average surface temperatures are one to two degrees Celsius above normal.  We should not be shocked, then, if weather events this season set a new record.

NOAA also forecasts a transition from one of the strongest El Niños ever observed into a La Niña climate pattern, which is conducive to Atlantic hurricane activity, especially while oceanic heat fuels storm development.

With a particularly intense hurricane season around the corner, policyholders should take preliminary steps that will allow them to maximize insurance recoveries in the event of a loss.  Those steps are outlined below, along with strategies to maximize coverage after the loss event.

Before the Loss: Assembling a Claims Team, Understanding Your Policy, and Mitigating Damages

Before loss claims arise, policyholders should assemble their claim team -- typically including the Risk Manager, General Counsel, CFO, coverage counsel, insurance broker, claims preparation professional, building consultant, structural engineer, and forensic accountant.  It is also a good idea to establish a relationship with an emergency restoration company prior to the loss.  A restoration company is needed to respond immediately after a loss to secure the property, take reasonable steps to prevent further damage, and set the policyholder on a track to resume operations as soon as possible.  Emergency restoration companies are in great demand after a loss, so it is important to line them up before the event occurs.

To prepare for a potential loss event, policyholders should meet with coverage counsel  to read and understand all potentially responsive insurance coverage and become familiar with any available coverage – including not only for repairs or replacement of physically damaged real and personal property, but also for lost profits stemming from a slowdown or complete cessation of business income.  The review should also take full account of exclusions and definitions, as well as any limits, sublimits, and deductibles applicable to each available coverage.  Other considerations include whether policies provide all risk or named peril coverage, any specialized insurance coverage particular to the policyholder’s industry, and whether policies contain anti-concurrent causation language that could limit coverage in the event of a loss that results from both covered and uncovered causes.

Prior to a pending storm or other potential loss event, policyholders should also act to keep damage to their property at a minimum and otherwise mitigate losses.  These efforts may include boarding up doors and windows, moving important equipment to an area where it will be safest in a major storm, and preparing ahead of time for temporary remote work that may be necessary.  The policyholder should document these efforts and pass the costs to their property insurance companies.

Be Aware of Obligations After the Loss Event

Insurance companies typically require that the policyholder provide timely notice of a loss.  Policyholders should familiarize themselves with reporting requirements before a loss and ensure compliance to avoid a coverage dispute or even forfeiture of coverage.  While giving prompt notice, however, policyholders should be cautious about providing any specifics concerning the cause of loss until the policy has been reviewed and all facts have been obtained.  In the immediate aftermath of a storm, the cause of loss can simply be listed as the storm itself or “the effects of” the storm.

Commercial property policies typically contain other time-sensitive requirements.  Many require that the policyholder file a sworn proof of loss within a specified number of days from either the inception of the loss or the insurance company’s request for the proof of loss.  Policyholders should also be aware of any contractual suit limitations periods that detail how long a policyholder has to file an insurance coverage lawsuit from the inception of the loss.  Some policies also contain a deadline by which the policyholder must specify their intention to replace the damaged property and receive replacement cost coverage, or deadlines that specify when repairs must be complete in order to receive replacement cost coverage.  If the policyholder needs extensions or modifications of these deadlines, experienced counsel should negotiate a proper and enforceable written tolling agreement with the insurance company.

Most policies require that policyholders mitigate damages and resume operations as soon as possible after a loss event.  Measures may include drying out materials to prevent mold, temporary roofing, repairs to prevent additional water from entering the building, and securing the property to protect against injuries or theft.  All activity and costs should be documented with photos, videos, and other written documentation, and policyholders should make sure to keep insurance companies fully appraised of this activity, as well as provide a reasonable time for the insurance company to inspect the premises before any documented items are discarded.

Detail any Business Income Loss

Maximizing post-storm insurance recovery entails assessing not only the physical damage to property but also income losses stemming from damage to covered property, flooded and blocked roads and bridges, interruptions of shipping and air transport, evacuations, and closures by civil authority.  Insured losses may extend well beyond the area of impact.

Business interruption insurance covers businesses for losses in income stemming from disruptions to their regular operations as a result of covered damage to insured property.  “BI” coverage also may be triggered by circumstances including utility service interruption, a government evacuation order or a substantial impairment in access to a business’ premises.  Many property policies also provide "extended business interruption" coverage that begins when the property is fully repaired and ends when operations are ramped up to their pre-disaster level – though that extension typically is limited to 60 days.

Contingent business interruption coverage is triggered when policyholders lose revenue after a property loss impacts one or more of their suppliers, business partners, or customers. The business itself need not suffer physical damage.

Extra expense coverage applies to additional costs incurred as a result of damage to a business’ property, and to costs incurred to mitigate economic losses.  Contingent extra expense coverage applies when costs are incurred to reduce business interruption losses caused by damage to the property of a supplier or customer.

Conclusion

With a particularly aggressive hurricane season forecast, it is critical that policyholders prepare for losses they may face in the next few months.  Having an insurance recovery plan in place before the loss event occurs, understanding and recognizing the scope of potential losses, giving prompt notice and complying with other policy requirements, documenting property damage, and securing the property against subsequent damage that may not be covered, are all key to maximizing property insurance recovery resulting from a hurricane loss.

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