The stoplights have been repaired and the debris has been cleared, but many local businesses are still feeling the effects of Hurricane Irma, especially in the hospitality industry, due to continued rebuilding efforts, the public perception that South Florida is not ready for visitors again and the loss of other tourist attractions that draw visitors to South Florida. The adverse effects may also be felt years to come, when visitors decide against scheduling a wedding or other event during the summer months in South Florida. While these losses are difficult to quantify and can only be insured through a defined time period, businesses should ensure they maximize insurance coverage for this lost income.
“Business interruption” or “loss of business” coverage pays for lost income and profits following a suspension of operations caused by physical damage, such as a hurricane. This coverage applies to the time period immediately after the physical event occurs and ends when the business resumes operations, either after repair or relocation to another location. Further, there is typically a waiting period of 72 hours after physical damage occurs before the loss of income will be covered. Thus, if a business reopens a week after a hurricane hits, it may only receive coverage for loss of profits during that short time period even though it suffers lost profits for months after reopening. For this reason, it is recommended that businesses negotiate with their insurance carriers to reduce the 72-hour waiting period, and additionally consider securing an “extended period of indemnity,” which would cover loss of income for a specified period of time after the business resumes operations, such as 30, 60 or 90 days after reopening, when business losses often continue due to the loss of customers.
Additionally, after Hurricane Irma, many business are finding that insurers are denying coverage for loss of income because the interruption of operations purportedly was not caused by hurricane damage, but rather the business interruption was caused solely by electrical outage or flooding. Many of these policies include exclusions for loss arising out of electrical outage or flooding. Thus, businesses should strongly consider securing separate coverage for business interruption coverage caused by electrical outages. And in the event an insurer denies coverage for business interruption loss, policyholders should consider whether they have additional coverage for loss of income due to an order of “civil authority,” such as an evacuation order, which prevents access to their business, which is covered under a lot of policies. But standard policy language may still limit this to require a covered cause of loss in the immediate vicinity of the premises. Thus, these coverages should also be carefully considered.
Further, even if your business was not in the direct path of the storm, you could still suffer significant loss if a key supplier or customer was closed after the storm. Thus, businesses should consider whether their policy includes “contingent business interruption” coverage or “dependent properties” coverage. This covers loss of income caused by the interruption of another business that you rely on, such as a supplier, customer, shipping company or other properties that attract business (such as Key West, Puerto Rico, Monkey Island, etc.). For example, if your sole supplier of construction materials was out of business after Hurricane Maria and unable to provide you materials, your resulting loss of business income would be included under this coverage. Or if fewer customers are coming to your business because of damage to other dependent properties, such as closure of the convention center, which affects nearby hotels, then there may be coverage for the resulting lost business under contingent business interruption. But, such coverage is also subject to the same time limitations as traditional business interruption coverage.
Because there may be multiple types of coverages available to a policyholder after such a loss, such as lost income from business interruption, extra expenses incurred to continue operations, civil authority coverage and contingent business interruption coverage, it may be helpful to separate these damages into separate “buckets” of loss to ensure maximum insurance coverage.
In sum, it is important to review these coverages to determine whether there is coverage for business income losses suffered after Hurricane Irma, so you maximize the amount of insurance you obtain to cover your lost business, and further you should ensure that you are adequately covered moving forward.
Walter J. Andrews, a partner at Hunton & Williams, focuses his practice on complex insurance litigation, counseling and reinsurance arbitrations and expert witness testimony. Katherine Miller, an associate at the firm, focuses her practice on complex business litigation with an emphasis on insurance coverage counseling and litigation.