The influx of severe weather events throughout 2024, including most recently Hurricane Helene, demonstrates the need for retail and energy companies to shore up commercial property and business interruption insurance. This LawFlash details five key steps to help preserve and maximize insurance recoveries following a severe weather event or natural disaster.
Recent extreme weather events have wreaked havoc on business owners and their properties throughout 2024. Financial losses caused by Hurricane Francine are estimated at $1.5 billion,[1] adding to an already $62 billion in global insured losses during the first half of the year.[2] In the United States alone, an increasing number of severe thunderstorms and tornadoes have caused an estimated $34 billion in insured losses making it one of the costliest years for severe weather in US history. With Hurricane Helene making landfall, after responding to the initial concern for security public safety and restoring operations, companies must evaluate next steps towards insurance recovery.
Businesses in the energy and retail industries are particularly vulnerable to severe weather. For example, companies in the oil and natural gas sectors saw production in the Gulf of Mexico cut almost in half as a result of Hurricane Francine[3] and will see similar decreases in production due to Hurricane Helene and other expected severe weather. Retail companies with operations from Texas to Florida along the panhandle up the Atlantic Coast and companies relying on imports and exports through the Gulf of Mexico also have faced and will continue to face significant impacts. In addition to physical property damage, catastrophic weather events lead to business income losses resulting from disruptions such as business closures, evacuations, power outages, and supply chain disruptions for companies across all industries.
Therefore, it is critical that companies understand how to maximize insurance recoveries, which can be a complex process filled with hidden challenges. Below are five key steps to help preserve and maximize insurance recoveries following a severe weather event or natural disaster.
1. IDENTIFY ALL AVAILABLE INSURANCE POLICIES
Locating and carefully reviewing all potentially applicable insurance policies is a critical first step in seeking recovery for a policyholder’s losses. The most likely source of coverage will come from a company’s first-party commercial property and business interruption policies. These policies, which can be marketed under a variety of different names by different insurers, typically contain the following key coverages potentially applicable to losses resulting from a severe weather event:
- Property Damage typically covers physical loss or damage to business premises and other property owned or leased by the policyholder, such as damages caused by wind, ice, snow, or water.
- Time Element/Business Interruption insurance refers to coverage for losses resulting from the inability to use damaged property for its normal uses or a decrease in production, including, for example, loss of earnings or profits.
- Contingent Time Element/Business Interruption coverage insures against business interruption or extra expense losses caused by physical loss, damage, or other disruptions to a supplier, customer, or other party in a supply chain.
- Extra Expense covers additional expenses incurred in excess of regular operating costs to continue or resume normal operations or mitigate losses while the loss or damage to property is ongoing or being repaired, replaced, or otherwise addressed.
- Service Interruption generally covers damage to property and goods as well as income losses caused by interruption of utility services to covered premises, such as power outages, often requiring physical loss or damage at the utility service provider’s premises.
- Ingress/Egress insurance provides coverage for losses incurred when access to and from an insured property is prevented by physical damage—i.e., flooding or a fallen tree prohibiting entrance.
- Supply chain insurance may provide additional coverage for disruptions in the supply chain, including coverage for non-physical interruptions.
These coverages often have varying applicable limits of liability or time limits, and different deductibles may also be applicable.
2. COMPLY WITH NOTICE, PROOF OF LOSS, AND SUIT-LIMITATION CLAUSES
Identifying and complying with time-sensitive policy requirements is a crucial step in preserving rights under an insurance policy. For example, insurance policies often require that an insured provide adequate notice of a claim. Although requirements for how and when to give notice or file a claim vary by policy and state law and need to be carefully examined, many policies require notice of a loss as soon as practicable. Commercial property policies also generally require that a sworn proof of loss be submitted within 60 to 90 days, or sooner, absent written agreement by the insurer.
Finally, many policies also require that any suit under the policy be filed within one or two years after inception of the loss. Given these often-strict and time-sensitive requirements, insurance recovery counsel, brokers, and agents should be involved immediately to assist with claims.
3. DOCUMENT DAMAGE AND MAINTAIN RECORDS
Evaluating the full extent of loss and damage following a severe weather event such as a thunderstorm, hailstorm, tropical storm, superstorm, hurricane, tornado, cyclone, flood, or fire takes time. A business should begin documenting and quantifying any damage or business interruptions as soon as possible. This may involve collaboration among the business’s operational, finance, and accounting personnel. Key actions include the following:
- Separate any damaged property from undamaged property.
- Photograph or video the damage, including structural damage, affected objects, and standing floodwater levels.
- Itemize damaged or lost items, their date of purchase and value, and collect receipts.
- Track extra or expediting expenses needed to continue business operations, such as (1) overtime pay, (2) costs of emergency gear and protective equipment, (3) added freight charges for quicker delivery of emergency supplies, (4) relocation costs, (5) advertising or notification costs, (6) costs associated with maintaining lost power, e.g., generators, or (7) costs for water or other impacted utilities.
- Locate business accounting records relevant to financial performance and loss of earnings or revenue.
- Obtain copies of fire, police, or other relevant reports.
- Keep crisis response, evacuation, and other recovery-related purchase orders, invoices, receipts, and other documentation.
4. COOPERATE WITH YOUR INSURANCE COMPANY
Many insurance policies require that the policyholder cooperate with the insurer’s investigation of a claim. Cooperation does not mean capitulating to unreasonable requests by the insurer or responding to requests that are irrelevant to a coverage determination or designed to limit or deny coverage or to increase the burden on the policyholder, but reasonable cooperation is generally required.
5. ENGAGE AN EXPERIENCED TEAM
In the aftermath of a severe weather event, hundreds of tasks need attention. Many businesses are not only managing their own losses and damages but are also working around the clock to meet the needs of their employees, customers, consumers, and other stakeholders. Given these concerns, it is important to think proactively and critically about assembling an insurance recovery team.
[1] See KCC Hurricane Francine Flash Estimate.
[2] See Severe thunderstorms and flooding drive natural disaster losses in the first half of 2024 | Munich Re.
[3] See BSEE Monitors Gulf of Mexico Oil and Gas Activities in Response to Tropical Depression Francine | Bureau of Safety and Environmental Enforcement.
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