Hurricane Helene made landfall on Thursday, September 26, 2024, carrying catastrophic 140 mph winds as the first known Category 4 storm to hit Florida’s Big Bend region since records began in 1851. By Friday, Hurricane Helene’s effects could be felt through Georgia, South Carolina, North Carolina, Tennessee, and Virginia, with numerous fatalities and significant property damage and power outages reported across the entire southeastern United States. Flooding from the storm resulted in highway and road closures throughout the region, including Interstate 40 in North Carolina, and multiple dams in Tennessee and North Carolina were on the brink of failure before stormwaters began to subside.
The enormous scope of damage caused by Helene across the southeastern United States underscores the increasing risks of catastrophic property damage and business interruption losses faced by businesses operating on the Atlantic and Gulf Coasts—even businesses located hundreds of miles inland. According to a preliminary analysis by the global reinsurance broker Gallagher Re, Hurricane Helene could ultimately cause $3 billion to $6 billion in private insurance losses and as much as $1 billion in losses in federal flood insurance and crop-insurance programs. However, the toll could continue to grow higher as the full extent of the damage becomes known. Moody’s Analytics, for example, has estimated that the storm caused approximately $15 billion – $26 billion in property damage, as well as an additional $5 billion to $8 billion in lost economic output.
Regardless of the ultimate impact to the southeastern U.S. economy, in the face of claims for such potentially extraordinary losses, insurers may have financial incentives to deny or delay payment toward valid claims, even though the law in virtually every state requires insurance companies to conduct reasonably prompt claims investigation and to pay covered losses when their liability becomes clear. In practice, delays can be more common when facing more complex claims involving significant business interruption losses.
Even if your business was not affected by Hurricane Helene, as the 2024 hurricane season nears its annual climax in the weeks ahead, businesses operating on the Atlantic and Gulf Coasts should review their insurance policies that might cover risks associated with a catastrophic storm, including those arising from a significant and prolonged disruption of critical infrastructure and related services, and be prepared to take action to maximize recovery for their potential losses. Moreover, if your company is facing a situation where an insurer delays, refuses to pay, or refuses to value a hurricane-related claim fairly, it is important not to accept the insurer’s coverage position before consulting with experienced coverage counsel to maximize your insurance recovery and ensure you do not waive any of your rights.
Key Insurance Coverages for Hurricane Losses for All Types of Businesses May Include:
Property Damage Insurance Coverage. Typically covers costs associated with the repair or replacement of damaged property. This coverage sometimes includes coverage for the costs of code upgrades that may be needed to comply with new building codes that were not in place when a structure was originally constructed.
Business Interruption (BI) Insurance. Covers lost revenues and/or profits that a business would have earned but for the interruption of business caused by physical damage to, or loss of use of, property covered by the policy.
Contingent Business Interruption (CBI) Insurance. Even if your business did not directly experience property damage, your property policy may provide CBI coverage for economic losses arising from supply chain disruptions such as an inability to acquire goods or services from your suppliers whose businesses were impacted by Hurricane Helene, or an inability to deliver your products or services to customers.
Service Interruption Coverage. Covers any loss or expense caused by interruption of utility services resulting from damage to a utility’s property.
Civil Authority Coverage. Protects businesses from losses resulting from a government order restricting access to a business’s property or closing airports, roadways, bridges, or ports.
Extra Expense Coverage. Covers additional expenses necessary to resume normal business operations and mitigate business interruption losses.
Ingress/Egress Coverage. Pays for loss of business income caused by physical damage to property of others that prevents ingress or egress to your business.
Key Early Steps to Avoid Mishaps That Can Limit or Prevent Your Insurance Recovery:
When making a claim following a natural disaster, businesses should promptly and proactively assess and document their losses, evaluate their insurance coverage, and attempt to adhere to deadlines and other conditions set forth in insurance policies. The following is a summary of some essential steps that your business should take to maximize the value of its insurance assets following a natural disaster.
Gather All Policies and Closely Review Their Terms. If your business has not done so already, it should gather and review all potentially applicable insurance policies that may provide coverage for property damage or business interruption after a hurricane. As policy terms vary and may be subject to different interpretations, consult with coverage counsel to assist in evaluating coverage. Even if your company is unsure of the full extent of its losses, it is vital to promptly locate all available insurance policies, assess the potential coverages available, and promptly provide notice to your insurers to maximize the recovery available under your company’s insurance program.
Give Prompt Notice. Policies frequently require that an insured notify the insurer “immediately,” “as soon as possible,” or “as soon as practicable” after the insured becomes aware of a potential claim. The effect of failure to provide notice in accordance with policy terms varies among jurisdictions, but the consequences of failure to comply with notice provisions may be severe and preclude coverage. If you did not provide notice in accordance with the literal terms of your policy, consult coverage counsel to determine whether the timing of your notice may be excused under the laws of your state if your insurer tries to deny or limit your coverage based on a late notice defense. Property policies also often contain deadlines for providing a “sworn proof of loss” documenting the causes and value of the loss, or for filing suit against the insurer if the insurer does not pay. Courts often enforce these deadlines. It is important to know these deadlines from the outset and to confirm extensions in writing, if necessary.
Collect and Preserve Evidence of All Losses and Damages. It is important to record all costs, expenses, and damages for which you might seek coverage. If your business sustained direct property damage, take photos and videos of property damage and to the extent possible, retain damaged property and equipment or discuss plans to discard it with your insurer. To ensure full coverage under BI and CBI insurance for lost profits, businesses should document their losses by maintaining proof of business performance prior to, during, and following the disaster. Many policies also provide coverage for the expenses associated with such claim preparation-related activities, including the retention of financial professionals. All such expenses should be tracked starting immediately after the hurricane event, and even certain preparation/mitigation expenses incurred before the event may in some cases be covered.
Be Careful About Internal and External Communications Regarding the Loss. Businesses should be careful about what they say about insurance coverage in internal and external communications with brokers, insurers, and their adjusters or agents. If litigation over insurance coverage becomes necessary, insurers may gain access to internal communications such as emails and memoranda regarding a business’s claims for insurance. How the loss is characterized in such communications may be used by an insurance company in an effort to deny coverage. Involving coverage counsel in these communications may ensure that they are protected as privileged in the event of litigation over coverage. Businesses also should identify a single point of contact or spokesperson for all communications with insurers.
Coordinate Mitigation Efforts with Insurers. While it is important to mitigate losses, it also is important to communicate with insurers regarding such efforts when possible. This will minimize the chance that the insurer will apply hindsight to second-guess the reasonableness of the mitigation procedures that a business puts in place.
Engage Coverage Counsel. Claims from storm events are complex and may contain potential coverage defeating traps. Involving experienced coverage counsel in your claim is critical and they will work with your brokers to ensure that you can maximize the insurance recovery for your loss.
Coverage Issues to Navigate Before Making a Claim:
Policy Exclusions and Proximate Causation Issues. Property policies typically cover “all risks” or specified “named perils” that are not otherwise excluded. Exclusions generally target specific causes of loss. Flood, mold, bacteria, and pollution exclusions are some key exclusions insurers can be expected to assert for hurricane-related losses. It is critical to carefully identify the covered, non-excluded cause of loss from the beginning to avoid unwittingly providing the insurer unjustified grounds to deny your claim. As we have seen repeatedly after similar natural disasters, causation issues can be hotly contested in any claim that arguably involves more than one cause of loss (i.e., wind and flood, or flood and mold). The law regarding concurrent causation differs across jurisdictions and continues to develop, so it is important to be cautious when asked by an insurance company to ascribe a specific cause to your loss.
Sub-Limits and Deductibles. Most policies contain varying sub-limits and self-insured retentions depending on the cause of the loss. It is important to understand these limitations before making a claim. For example, some named peril policies contain specific “Named Windstorm” or “Hurricane” coverage in addition to usual coverage for high winds. Such policies often contain sub-limits and deductibles for these perils that may limit the amount of coverage available.
Multiple Occurrences vs. Single Occurrences. Insurance policies typically provide for a deductible for each “occurrence” that results in a loss, as well as a per-occurrence limit that may be less than the total aggregate limit of the policy. Because major hurricanes like Helene can cause damage to an extremely wide area, businesses could have incurred damage to more than one facility in different locations and at different times – sometimes several days apart. Consequently, the resulting losses potentially may be considered one occurrence (i.e., one storm) or multiple occurrences (i.e., numerous locations separately damaged, or damaged by multiple storms) depending on the specific facts involved and applicable policy language. Additionally, some insurers may try limit coverage by treating wind and water damage caused by the initial storm as a separate occurrence than subsequent flood damage caused by the storm. Businesses should consult with coverage counsel before making a claim given the possibility of disputes over the number of occurrences to maximize coverage in view of the specific deductibles, per-occurrence limits, and language of the policy.
Loss Valuation Issues. Many policies contain information about how losses should be accounted (i.e., actual cash value, replacement cost value, or functional replacement cost value), which can have a dramatic impact on the value of an insured loss. It is important to understand these provisions before making a claim, and for complicated losses, it may be advisable to seek the advice of a forensic accountant before submitting a proof of loss. Furthermore, when rebuilding or refurbishing properties after a disaster, businesses generally must comply with building code regulations currently in force, which may be more onerous than code requirements in place when a building was originally constructed. Some policies will cover additional costs to bring a property up to current code regulations, while others may not.
We work closely with our clients and their risk managers to collect from their insurers for losses arising from property damage, business interruption, and supply chain disruption caused by catastrophic events, and have obtained billions of dollars in insurance recoveries for our policyholder clients following catastrophic events like Hurricane Helene.
