FAQs & Recommendations

Hurricane Katrina may wind up to be the most costly natural catastrophe in U.S. history, with current estimated losses from $9 billion to $26 billion, and expecting to rise even higher.

FAQs

How do policies differentiate between flood damage and wind damage?

Most "all risk" business insurance policies cover damage caused by wind and wind-driven rain. Those policies generally exclude damage caused by flood. Insurers may argue that properties damaged by wind, but later flooded, are not covered or are only partially covered.

How are business interruption losses determined?

Coverage for lost income resulting from Hurricane Katrina will be afforded under most property policies. But business income losses, perhaps more than any other type of insured loss, take time to mature and require extensive documentation, usually leading to insurer delay and "negotiation."

What are overlapping coverage grants?

Business property policies contain numerous overlapping coverage grants that contain separate sublimits. The coverage may include business interruption, contingent business interruption, extended business income, extra expense, civil authority, utility services, debris removal, expediting expenses, and preservation of property. It’s important to understand these different coverages. Insurers may categorize losses to minimize such coverage.

How does Civil Authority affect my coverage?

Most policies cover losses that result from an evacuation order. Some of these policies provide set time limitations on how long such coverage is provided. Insurers are likely to argue that when a civil authority time limit is met covered damages cease, despite the fact that other overlapping coverage grants continue to provide coverage.

How can I get an appraisal?

Insurer delay is common with complex property loss claims. Many policies have provisions that allow the policyholder to force an appraisal to cut through disagreements on value related to property damage and business interruption. Enforcing an appraisal may not be easy, due to the overwhelming losses this catastrophe presents.

How can I recover attorneys’ fees and adjustment costs?

Some policies cover legal and accounting fees associated with presenting a loss to the insurance carrier, and even if such coverage is not afforded, many state laws mandate that insurers pay for a policyholder’s legal fees incurred to enforce coverage.

What specific legal rights do I have under state law?

The states of Louisiana, Mississippi and Alabama penalize insurance companies for unfair or deceptive trade practices caused by an insurer's improper handling of a claim. Claims handling requirements are a matter of state law. Louisiana requires that all insurers must make a written offer to settle a property damage claim within 30 days after receipt of a "satisfactory proof of loss" for that claim. The insurer’s failure to make the written offer to settle, if found to be arbitrary, capricious or without probable cause, entitles the insured to statutory penalties of up to twenty-five percent damages on the amount due. A "satisfactory proof of loss" has been defined under Louisiana law as occurring when the insurer has adequate knowledge of the loss.

What are my options for obtaining coverage for losses due to Katrina?

Many losses relating to Hurricane Katrina will raise issues involving property policy coverages and "legal causation." Affected businesses are generally entitled to coverage when part of the loss was caused by a covered peril (wind damage), even if the loss was made worse by a non-covered peril (flooding). A business may be fully covered for all of its business interruption losses, despite widespread flooding. Additional coverages, such as contingent business interruption, dependent property coverage, and utility services coverage may broaden the scope of recovery for lost income if the loss of income results even in part from a covered peril. Contingent business interruption coverage pays for losses resulting from property loss at the location of a key vendor or supplier even in the absence of physical damage at the policyholder’s premises. Similarly, evacuation orders may activate civil authority coverage, but any time or money limitations on that coverage should not override coverage afforded under parallel lines of coverage provided for in the policies.

How do I determine proof of loss?

Most property policies require the policyholder to characterize a claim through submission of a proof of loss document. The document must outline total damages that the policyholder believes are covered under the policy, and must be signed under oath. Insurers typically also require the attachment of relevant documentation supporting the claim. Of course businesses cannot quantify the totality of a loss within the short periods of time typically required in the policy for submission. It is often necessary to submit a series of "preliminary" or "partial" proofs of loss accumulating more damage information as the claim develops. A proof of loss can be used against the policyholder, so pay careful attention to every word before signing.

Recommended Steps for Insurance Claims

1. Preserve evidence of the damage. Take videotapes––with sound––as well as photographs of all property damage, while the damage is occurring and during initial cleanup efforts. Capture all costs of your losses with a single account number.
2. Review all your insurance policies for potential coverage with legal counsel before submitting any claim. Analyze your flood, automobile, comprehensive general liability and other policies for potentially overlooked coverages.
3. Notify the insurer and the broker of any property damage and business interruption immediately. Schedule a conference with the insurer and key members of the recovery team––risk manager, facility manager, financial officer, on-site response manager, counsel, accountants and other outside consultants.
4. Demand written extension for any deadlines that might be missed. Some policies require that proofs of loss be submitted within 30 days of the start of damage, and that lawsuits must be filed within one year. Extensions are often granted, especially for major losses. Failure to comply with deadlines or to secure adequate extensions can damage your case.
5. Arrange a funding agreement with insurers to advance cash for business interruption losses or other partial payment of losses. Policies vary on this obligation, but insurers will generally agree to such an arrangement if reasonable under the circumstances. Do not negotiate any final settlement of claims before the loss is finalized.
6. Hire an accounting firm to work with your counsel and recovery team if the claim is large or complex. Depending on your insurance policy, these costs may be recoverable.
7. Evaluate your insurance policy and potential coverage issues, including deductibles and sublimits, early in the process, as an insurance company’s categorization and payment of certain types of expenses could compromise coverage. Retain legal counsel that understands how property policies work and the law governing the key issues to protect your rights.
8. Gather all documents relating to your business interruption claim and submit that information in a coherent presentation. Allocate costs to appropriate coverages, mindful of deductibles and sublimits. A well-documented claim will be paid faster than a disorganized claim.
9. Note the extra expenses that may be recoverable, including the costs of continuing production at the current site, moving to a temporary location, using other company facilities, contracting out work, and paying overtime and bonuses. Understand the EE sublimit to establish a budget for recovery efforts.
10. Obtain approval from insurers before replacing damaged property. Insurance carriers may also have a right to physically take and sell damaged property. It is not uncommon for an insurance carrier to deny payment on otherwise useless property that was subsequently destroyed or discarded, if such action was taken without their knowledge or consent.
11. To secure interim funding for business interruption losses, present to the insurer documentation demonstrating what you need to get back into business, either at your current location or at a temporary location. Determine what products are most important to get back into production.
12. Communicate with the insurer as much as possible and keep a log to document those communications. Provide all necessary and relevant documentation to the insurer. Keep written documentation of when the claim was submitted, when adjusters viewed the damaged property, what they saw, what they asked for, and what was provided. Insurance carriers will repeatedly ask for information that has already been provided, especially if there is no written evidence that there has been compliance with information requests.