Understanding coverage can keep insured afloat

Superstorm Sandy was the third destructive storm to hit the East Coast in 14 months. The property destruction and interruption of business operations caused by the storm and the potential for storm-related losses during the winter are reminders of the importance of having insurance and understanding what to do in the event of an insured loss.
• Locate and review all potentially applicable insurance policies. To properly evaluate whether a particular loss is covered, the terms of all policies need to be reviewed. The policyholder must verify that they possess a complete copy of all potentially applicable policies. If your business or personal policy was lost in the storm, or you are unable to locate the policy, contact your insurance agent or insurance broker to obtain copies. Even if you did not suffer a loss caused by the recent storm, now is a good time to review your insurance program with your insurance counselor, broker or agent to verify that you are adequately insured against future losses.
• Promptly notify the insurance company of a loss. Policyholders must provide notice of a loss to their insurance company as soon as possible. Many policies have a specific time limit for reporting losses, while others may require notice “promptly,” “as soon as possible” or “as soon as practicable” after a loss. If a policyholder fails to comply with the policy terms governing notice of a loss, the policyholder may be barred from recovery under the policy.
• Document the losses. Policyholders should photograph and document all storm-related losses. Policyholders should not make any substantive repairs to the damaged property without the consent of their insurance company unless the repairs are necessary to prevent further loss. Policyholders should maintain receipts for any repairs made to the property or for the purchase of supplies used to prevent further loss. Keep records of all communications with the insurance company while a claim is being processed. • Understand the coverage available. Property insurance is the most common type of coverage for damages or losses caused by a storm. Many policies provide broad coverage for “all risks” unless the risk is specifically excluded by the policy. Other policies may be a “named peril,” which provide coverage only for perils specifically identified in the policy. While most insurance policies do not provide coverage for flood damage, they may provide coverage for wind-driven water damage or damage from water which enters a building as a result of the roof having been damaged.
For businesses that sustain economic losses because operations are shut down or interrupted for a period of time, the business may be able to recover its losses under a policy that provides business-interruption coverage. A business that did not sustain physical damage, but depends on suppliers who are unable to supply product because of storm damage, should evaluate whether it has contingent business-interruption coverage.
Businesses should also consider “difference in conditions coverage,” a type of insurance that often provides coverage not provided by a commercial-property policy, such as flood or earthquake coverage. This type of coverage is often purchased in conjunction with, and as a supplement to, commercial-property insurance.
• Exclusions to coverage. Insurers may rely upon certain exclusions in the insurance policy to deny or limit recovery under the policy. The insurance company has the burden of establishing that the exclusion clearly bars coverage. There may be multiple causes for a particular loss. The fact that one cause may be excluded under the policy does not necessary mean that the policyholder is barred from recovery if there is another cause of the loss which is covered. • Resolving disputes over coverage and the amount of loss. Disputes over whether a claim is covered under the language of the policy or disputes over the amount of the loss often arise following storms such as Sandy. Such disputes may need to be resolved by a court if the policyholder and insurance company are not able to resolve the dispute. Disputes over the amount of the loss, however, may be resolved through alternative dispute resolution if the policy contains an appraisal clause.
If a policyholder or insurance company invokes the appraisal clause, both sides will generally designate their own appraiser, and the two appraisers designate a third appraiser. The appraisers then appraise the loss and determine the amount of the loss. The appraisers do not resolve disputes over whether a loss is covered by the policy; their responsibility is to ascertain the amount of loss that must be paid under the policy in the event the loss is covered.
The appraisal clause provides a policyholder with a mechanism to resolve a dispute over the amount of loss within a reasonable period of time following a loss and should be considered if a dispute arises over the amount of loss to be paid.
• Insure against future losses. It is important that all policyholders understand what insurance coverage may be available to provide financial relief for unforeseen losses. Businesses should review their insurance programs to ensure they understand the coverage they have and the coverage they may need in order to protect against future catastrophic events. •


Michael McCormack is a partner in the insurance-coverage group of Hinckley, Allen & Snyder LLP in Hartford, Conn.

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