Forcing an insurer to pay a claim related to Hurricane Sandy may not be an easy proposition, but the first step is very easy: Businesses, homeowners and other policyholders that have known losses or anticipated losses should immediately provide notice of the loss to their insurers before any more time elapses.
The recent tragic events caused billions of dollars in damage up and down the East Coast. Some of these damages may be uninsured, but companies that suffered significant losses should never assume they have no coverage for loss of or damage to property, loss of business income, or lawsuits resulting from the storm. Indeed, not all policies contain hurricane or flood exclusions, and coverage for hurricane-related damage may exist even in the face of exclusions that the insurer claims precludes any recovery — as there may be significant covered damages resulting from the hurricane’s wind, falling trees and objects, or other causes. Further, it may be the insurer, not the policyholder, that bears the burden of proving what damage was caused by the risk they say is excluded versus damage from other covered causes.
Rather than assuming no coverage, businesses that have any operations or exposures in the affected areas should immediately review their insurance policies and provide notice of a potential loss if there is any possibility of making an insurance claim for liability claims, physical damage to property, or loss of business income. This is true whether those losses can be precisely documented now or not.
Businesses may have insurance that covers damage to their property, and losses of anticipated profits that could not be earned because of the massive disruptions caused by the late-October storm and resulting disruptions. Business interruption insurance typically pays for employee salaries, leases and other expenses that must be paid even when a business has been destroyed or shuttered because of a natural disaster. Even businesses with no physical presence on the affected coastal areas might have losses caused by the consequent disruptions to supply chains. Many of these companies have contingent business interruption insurance coverage that protects against shutdowns in their suppliers’ operations resulting from property damage to the suppliers’ property.
After providing notice, one may learn that there is no coverage, less coverage than was expected, or little reasonable likelihood of a recovery, but doubts about coverage should not prevent notice from being provided. Waiting too long to give the insurance company notice can cause significant problems recovering otherwise strong claims, both because of court rules regarding late notice and language in some insurance policies specifying particular time limitations. Many courts in the United States, such as New Jersey, have ruled that “late” notice is not a valid defense to a claim unless the insurer was prejudiced, but even in these states, providing timely notice of a potential claim is a far better risk management strategy than waiting until all of the claim details are known. If it turns out that the policy provides coverage (or arguably provides coverage), late notice could allow the insurance company an unnecessarily easy ground to deny or delay the claim. This is especially true when the insurance policy requires notice of the claim within a specific period of time (such as within a certain number of days or before the end of the policy period).
Some property insurance and other insurance policies also contain specific notice requirements relating to claims that involve pollution or releases of contaminants or other harmful materials into the environment. Often, in cases where there might be coverage for damage caused by a pollution-related event, these policies will require that notice of the pollution release be provided within a specific period of time, such as seven or 30 days. As debris from Hurricane Sandy is being cleared, it is now becoming evident that contaminants were released in various ways into the ocean, rivers and bays of New Jersey, New York and other coastal areas, as well as on land. While an insurance company or court might grant some leeway in late reporting due to the difficulty of accessing some of the damaged areas following the storm, the best and prudent course of action for a policyholder to preserve potential insurance rights is to give notice within the timeframe of the particular policy.
Once notice is given, there are myriad other issues that could arise in the adjustment of a Hurricane Sandy claim, including exclusions, conditions and valuation issues that require exhaustive documentation of the loss. Affected businesses should form a team to handle the claim and consider including professionals like policyholder attorneys, forensic accountants and public adjusters experienced in recovering insurance for property and business interruption losses. These consultants may prove invaluable in reviewing the policy, analyzing the issues, calculating property damage, expenses and lost profits, and determining the strength of a claim, and many insurance policies cover the costs of certain claim preparation expenses. As the claim proceeds, it will be important to keep track of and categorize all damages, claims correspondence and records for future accounting. Emergency and temporary repairs should also be documented and, if practical, reviewed with the insurer in real time. When making permanent repairs, coverage for code upgrades and replacement of old property with new, functionally equivalent property should not be ignored if the policy provides for these.
From the moment notice is given, communication within the claims team and with the insurance company is vital to reaching the goal of eventual insurance payments. To reduce the size of the dispute and keep the claims dialogue moving in a constructive direction, it is often useful to request advances and partial claims payments from the insurer on undisputed amounts early, and repeatedly, because insurers rarely pay what is not requested. That communication process will never begin if no notice is given, and a claim is not actually made.
Uncertainty or incomplete information about a claim’s value or questions about coverage should not prevent a policyholder from telling its insurers about the possibility of a loss. Notice does not get better with age. •
John N. Ellison is a partner and Luke E. Debevec is an associate in the Philadelphia office of Reed Smith. They represent policyholders exclusively in insurance coverage disputes across the country.