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Insurance Claim Help for Property Damage from Hurricanes/Storms/Floods

For Business Owners

General Claim Tips
Standard Flood Insurance Policy (download pdf 336K)
A primer for business owners impacted by Katrina (download pdf 100K)
Info re: Claims under policies issued by the National Flood Insurance Program
Bulletins and updates re: claims under Flood policies
Recovery Resources in Louisiana
Listing and description of the various types of policies that may offer coverage
A Guide to Insurance Coverage for Losses from Hurricane Katrina
   (download pdf 284K) Written by attorneys who specialize in representing the insured
Katrina damage is covered despite insurance industry “spin”

General Claim Tips for Homeowners and Businesses

1. NOTIFY YOUR AGENT AND INSURANCE COMPANY PROMPTLY THAT YOUR HOME OR BUSINESS IS DAMAGED AND YOU ARE FILING A CLAIM

Even if you do not carry a "flood" policy, or believe your damage may not exceed your deductible, you should notify your agent/broker and carrier in writing that you have sustained a loss and are filing a claim. Coverage for some flood related losses may be available under certain sections of your homeowners or business policy.

2. IF THE INSURANCE ADJUSTER TELLS YOU THE DAMAGE DOES NOT EXCEED YOUR DEDUCTIBLE – GET AN INDEPENDENT OPINION

The adjuster sent by your insurance company to inspect your home or business after a flood may not know how to look for and identify all flood-related damage. Do not blindly trust your adjuster, especially if he or she tells you no benefits are owed because the damage did not exceed your deductible. Your home and/or businessis simply too valuable for you to rely on one person’s opinion.

3. REVIEW YOUR POLICY CAREFULLY

Look closely at your "declarations" page. This page states your name, address, policy number, categories of coverage, dollar limits, endorsements, lender, etc. Make sure you have the most current, up-to-date copy. Read the "Endorsements" (extras) that apply to your policy. Every endorsement has a code number that matches text in the policy. If you are confused, do not rely solely on your insurance company or adjuster for answers. Consult with professionals who specialize in advising or representing insurance consumers.

4. COVERAGE BASICS:

The same dollar amounts of coverage you have under your homeowners policy should suffice for flood coverage as well. CAUTION: Many homeowners' policies have a provision that increases your coverage above the limits stated on the declarations page under certain conditions. These are called "extended replacement" or "guaranteed replacement" clauses. The FEMA flood policy does not have this provision. Your limits will be exactly as stated on the declaration page. For more information see UP's TIPS ON FIRE CLAIMS.

5. DO NOT BE PRESSURED INTO A QUICK SETTLEMENT AND DO NOT SUBMIT A CLAIM FORM THAT SAYS  “FINAL” OR “FULL” UNTIL YOU ARE SURE YOU UNDERSTAND YOUR RIGHTS, YOUR COVERAGE, AND THE FULL EXTENT OF YOUR CLAIM.

Your adjuster may try to rush you into a fast settlement. Unlike other forms of coverage, your insurance company may farm out all policy services regarding flood coverage to companies that do not even specialize in insurance. The person actually adjusting or deciding your claim may not be trained or even knowledgeable about flood coverage. He or she may tell you that damage pre-existed the flood. Don’t be railroaded. Documenting a major loss to ensure a full, fair recovery requires work. Before you know the true amount of your insurance claim, you must get estimates from reputable contractors, and inventory all lost or damaged possessions. This takes time. A licensed structural engineer should fully inspect and tell you the scope of necessary repairs so you can have a reputable contractor provide an estimate based on that scope.

IMPORTANT: Because flooding leaves water in walls and hidden areas, mold, mildew, and fungus may grow inside the house. Some of these can be extremely dangerous. -- You should monitor your house by having a licensed environmental hygienist test the air inside your home.

6. BE AN INFORMED, ASSERTIVE CLAIMANT

Organize all papers related to your claim. A three ring binder with folders is generally the best system. Keep a diary. Record the names, phone numbers, job titles, and supervisor's names of everyone you speak with, and keep detailed notes of all pertinent conversations. Take photos of the damage and keep copies in a safe place.

Communicate with your neighbors, find those insured with your insurance company and meet with them regularly to share information and ideas on securing a fair settlement.

If your adjuster is uncooperative, complain in writing. If you feel your claim is not being handled fairly, contact a qualified attorney or public adjuster who specializes in representing policyholders.

7. BE SURE YOU ARE FULLY COMPENSATED FOR YOUR "ADDITIONAL LIVING EXPENSES" OR "LOSS OF USE"

Keep all receipts for meals, lodging, and purchases to replace damaged items from the time you must vacate your home until it is fully repaired. Policies vary on how long this coverage lasts and how much you can recover.

8. BE EXTREMELY CAUTIOUS ABOUT THE REBUILDING OF YOUR HOME. YOU ARE ENTITLED TO "LIKE KIND AND QUALITY"

Insurance companies may pressure you to accept their contractors’ cut-rate repair estimates or short-cut repair methods. Check with your local Building Department and reputable contractors who have experience repairing flood damage.

If the adjuster tells you there is no damage inside walls or flooring -- get a second opinion. Push for the best inspection methods on your engineer's recommendation. Don't settle for limited testing. (E.g., inspecting walls by drilling holes in them is not as good as actually tearing off the sections of the wall in areas with suspected damaged.)

9. DEMAND THAT YOUR CLAIM BE SETTLED FOR THE AMOUNT OF YOUR OWN CONTRACTOR'S ESTIMATE. YOU DO NOT HAVE TO ACCEPT THE INSURANCE COMPANY'S CONTRACTOR OR ESTIMATES.

  1. Beware of "lowball" estimates from insurance company adjusters and contractors with whom they have relationships.
  2. Beware of out-of-state, inexperienced or unreliable contractors without proper insurance of their own.
  3. If the flood made pre-existing damage worse, you’re covered for the necessary repairs.
  4. Some flood repairs are expensive, especially hidden damage in walls and floors. Wet and mildewed areas can be potentially hazardous. Monitor your air after any flood, especially if you smell mold, mildew, or musky odors. You may have to fight to get the full amount of policy benefits you paid for.
  5. Don't be penny-wise and pound-foolish by refusing to pay experts to advise you on the scope of damage and cost of repairs. They will help you prove your claim.

10. DO NOT SIGN "RELEASES" OR WAIVERS OF YOUR RIGHTS OR ALLOW YOUR INSURER TO RECORD AN INTERVIEW WITH YOU WITHOUT CHECKING WITH AN ATTORNEY WHO HAS EXPERIENCE REPRESENTING INSURANCE CONSUMERS, (POLICYHOLDERS)

Read all documents carefully, including both sides of all checks, to make sure they do not contain "final" or "release" language. You should not need to sign a "waiver" or "release" to get monies owed on your claim. Your insurer has the right to take your recorded or sworn statement if it has questions about your claim, but it makes sense for you to check with a lawyer. Signing a final proof of loss prematurely or making a mistake on tape may hurt your ability to fully recover the policy benefits you need to repair your home properly.

11. IF YOUR BUSINESS WAS DESTROYED — ALL THE ABOVE APPLY

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Leasehold Improvements Insurable under Building Coverage

 

as posted at cms.nationalunderwriter.com
please also visit UP's buying tips and www.femainfo.us

The U.S. District Court for the Middle District of North Carolina ruled that a tenant could recover under the building coverage of a Standard Flood Insurance Policy for flood damage to leasehold improvements in Studio Frames LTD v. Standard Fire Ins. Co., NO. 1:01CV0876, 2005 WL 1993511 (M.D.N.C. Aug. 16, 2005).

The Studio Frames art gallery leased spaced at a shopping center owned by Federal Realty Trust Investments, Inc. After suffering flood damage as a result of Hurricane Fran, Studio Frames received a loan from the Small Business Administration, which required the company to carry flood insurance to cover its leasehold improvements and the contents of its gallery.

Studio Frames bought a Standard Flood Insurance Policy (SFIP) from the Standard Fire Insurance Company. The policy contained the standard language written by the Federal Emergency Management Agency (FEMA). To cover its interest in the leasehold improvements, Studio Frames bought building coverage in the amount of $194,700, as well as contents coverage in the amount of $287,200.

A subsequent flood caused severe damage to Studio Frames' contents and leasehold improvements. An adjuster from Standard Fire learned that Studio Frames leased its building from Federal Realty, which also maintained a flood policy.

The insurer said that Studio Frames was not eligible to receive payment under the building coverage portion of the policy because a tenant is not allowed to purchase building coverage. The adjuster said that Studio Frames could, however, make a claim for the leasehold improvements for an amount equal to 10 percent of the contents coverage.

Standard Fire attempted to refund the premiums that Studio Frames paid for the building coverage, but Studio filed a breach of contract claim against Standard.

Standard Fire asserted that because tenants can insure some leasehold agreements under the contents portion of the policy, the improvements cannot be insured under the building coverage portion. The court did not agree, stating, "Nowhere in the SFIP does it state that a tenant cannot purchase Building Coverage for its property interest in leasehold improvements."

Standard Fire further argued that a tenant whose landlord already carries SFIP insurance cannot purchase it as well under the policy's prohibition of duplicate policies. The court pointed out, however, that the policy stated that the same property may not be insured under more than one policy, but not that a building cannot be insured under more than one policy.

The court stated, "A landlord and a tenant can, and in this case do, have different property interests and different insurable interests in the different components of a leased building."

Standard Fire's final argument was that the National Flood Insurance Act barred insurance coverage of more than $500,000 on a single structure. The court refuted the argument, saying that "the statute is ambiguous in expressing Congress' intent," and that "FEMA's reasonable interpretation of [U.S. Code section] 4013(b)(2) also supports a finding that [U.S. Code section] 4013(b)(4)'s text was not intended by Congress to serve as an aggregate limit of Building Coverage."

Thus, the court found that Standard Fire repudiated its flood insurance contract with Studio Frames, and Studio Frames was entitled to recover damages for its leasehold improvements.

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Hurricane Season and Insurance Coverage

as posted at cms.nationalunderwriter.com

Last year, the words hurricane and Florida seemed synonymous. Today all eyes are on the Gulf states of Louisiana, Mississippi, and Alabama as Hurricane Katrina made landfall near New Orleans. According to a mid-morning public advisory issued by the National Weather Services National Hurricane Center, the center of Hurricane Katrina was again moving ashore near the Louisiana-Mississippi border. The hurricane continued to pound southeastern Louisiana and southern Mississippi (http://www.nhc.noaa.gov/text/refresh/MIATCPAT2+shtml/291438.shtml).

A hurricane warning continued in effect for the north-central Gulf Coast from Morgan City, Louisiana, to the Alabama-Florida border. New Orleans and Lake Pontchartrain were the center of attention.

As of today, probable flooding caused by torrential rains and the hurricane\storm surge were of greatest concern as residents remained evacuated from the city of New Orleans and surrounding areas.

In most of the coastal states, damage caused by windstorm will be covered by the various states’ windstorm or beach pools. Flood-related damage will fall to FEMA and its National Flood Insurance Program. But, how do the standard homeowners policies or commercial property policies apply in this situation? What about business interruption and other consequential losses? How is debris removal to be paid for, and how are property policy deductibles to be applied?

These and other questions are being asked by property owners and business owners throughout the areas that were struck by the hurricanes. This article by the FC&S staff will try to answer the coverage questions.

Homeowners Coverage

Some homeowners, particularly those in a high-risk area, may find they have three policies in force—a standard homeowners policy that covers all but hurricane damage, a windstorm policy that covers damage caused by a hurricane, and a flood policy that covers tidal overflow or the runoff of surface water from the torrents of rain. In other states with a coastal exposure, windstorm pools (also referred to as beach plans) offer windstorm coverage. Binding authority is normally suspended within a certain timeframe when any named storm is approaching. For example, the Florida site of Citizens Property Insurance Corporation, which serves the needs of homeowners in high-risk areas and others who cannot find coverage in the open, private insurance market, (http://www.citizensfla.com) had suspended binding coverage Tuesday night, August 23, in the path of Katrina.

The windstorm Web site for Louisiana, www.lacitizens.com, was unavailable today because of the storm.

Not all windstorm coverage is the same, so in any area offering this coverage the policy should be reviewed. South Carolina’s Wind and Hail Underwriting Association offers a standard dwelling policy that covers direct physical damage to the dwelling, other structures (but not pool screens, fences, greenhouses, etc.), personal property (within a building and with limitations on such items as golf carts), additional living expense or fair rental value (subject to a 10 or 15 day deductible)—but the only covered cause of loss is wind or hail. Even “wind or hail” is limited; the peril does not include “ice (other than hail), snow or sleet, whether driven by wind or not. Those familiar with the ISO “windstorm or hail” named peril will recognize its counterpart: “We will not pay for loss or damage to the interior of any dwelling or other structure, or the property contained inside the dwelling or other structure, caused by rain, snow, sand, or dust whether driven by wind or not, unless the direct force of wind or hail damages the dwelling or other structure causing an opening in a roof or wall and the rain, snow, sleet, sand or dust enters through this opening.”

Citizens Property windstorm insurance (Florida) was much like South Carolina’s, but the policy has recently been broadened so that coverage B applies to fences, detached pool screens and the like. Coverage A now applies to the dwelling and attached structures such as pool screen cages. Fair rental value has been added to coverage D. Limited fungi, wet or dry rot coverage resulting from windstorm has been added.

Windstorm deductibles vary by state. The South Carolina policy described above offers a choice of deductibles: 1% of the limit of liability as shown on the declarations page, but no less than $250 nor more than $25,000; or 2% but no less than $500 nor more than $50,000. The deductible is, however, applied separately to each dwelling, each other structure, and personal property in each dwelling or other structure on the policy.

Under Florida law, hurricane deductibles are applied on a calendar year basis. If multiple hurricanes occur in one calendar year, the deductible amount must be fulfilled only once by the homeowner. The Louisiana hurricane deductible, however, applies in full to each and every hurricane.

There is no coverage for trees, plants, shrubs, or lawns for damage caused by wind under these policies. But if a tree is blown onto a dwelling, causing damage, then the cost to remove the tree should be covered as part of the cost of repair. Unlike standard homeowners forms, there is typically coverage for debris removal of covered property only. Since trees are not covered property, there is no coverage to remove them if they simply blow over and do not damage covered property.

Coverage for ordinance or law varies by state; read the policy carefully.

And of course, not all damage in the course of a hurricane is wind-related. Much damage results from the large amounts of rain and the ensuing flooding. Although windstorm policies cover damage to personal property caused by rain entering a dwelling when the roof has blown off, they will not cover damage caused by water flowing under a door. That is the province of the National Flood Insurance Program. However, there is a thirty-day waiting period for new applications (they become effective at 12:01 A.M local time on the thirtieth calendar day after the application date and the presentment of premium, which must accompany application). There will be no coverage for any flood damage caused by Ivan unless a policy is already in place.

There is often damage caused by a blackout, even when there is no direct physical damage caused by a hurricane. Some of the damage is insurable; other damage is not.

Damage to a building—in this case, a home—is unlikely simply because of a blackout. It is possible for a consequential loss to occur, such as a burglary because an alarm system did not function. A loss such as this should be covered. Although the standard homeowners forms exclude coverage for loss resulting from power failure off premises, the exception is that if the failure results in an insured peril, that ensuing loss is covered. Although the alarm did not function to warn the homeowner or authorities that a burglary was in process, the actual cause of loss is burglary—not power failure.

However, there is a situation that could arise for the homeowner that may involve some property damage. Say, during the blackout, there are severe thunderstorms and water run-off that would normally cause a sump pump to operate; but in this case, the pump fails. Is there coverage for sump pump failure caused by a power outage? We believe there is if the insured has purchased water back up and sump overflow coverage. The power outage exclusion, as we mentioned, gives back coverage for an insured peril on the insured premises. Purchasing sump coverage effectively means the insured has purchased an additional peril, and so the loss from the inoperable sump pump would be covered.

Damage to personal property could well occur. Lack of air conditioning and the resulting increase in heat and humidity could affect some personal property. Some artwork is particularly susceptible to dampness in the atmosphere. There is no coverage for this, unless the artwork is scheduled. Of particular concern, is the rapid growth of mold. We do not see coverage for loss resulting from mold that grows because air conditioning units are not functioning. Again, damage from power failure occurring away from the insured premises is not covered unless the failure results in a covered cause of loss. Mold is not a covered cause of loss unless it is in itself the result of a covered cause of loss. That is not the case here.

Food spoilage will impact many people. Some standard homeowners forms automatically provide an amount of coverage, usually $500 worth. Other forms do not cover food spoilage unless it is added by endorsement. Bottom line, many people will not have coverage for this loss.

The next items of personal property that could be damaged are those that sustain a power surge when power is restored. Although standard homeowners forms cover loss from artificially generated electrical current, the forms add that damage to electronic circuitry or components that are part of electronic apparatus (home computers, appliances, etc.) is not covered. And, although computer coverage is available by endorsement, two endorsements examined each excluded loss caused by off premises power failure.

The issue of additional living expense may also be raised. Suppose an insured with severe asthma was driven from the home by the heat and lack of air-conditioning and drove 100 miles to a city not affected by the blackout, incurring hotel expenses. Would this qualify for reimbursement under the homeowners form? As additional living expense is triggered by damage to the insured premises, no coverage would be available.

Subscribers to the FC&S Bulletins can find more information by referring to The FC&S. See “Homeowners Exclusions,” Personal Lines volume, Dwellings section, “Sump Overflow and Power Failure,” (Q&A 1284) and see “Power Outage and a Motorhome’s Refrigerator” (Q&A 1301).

Auto Policies

Personal Autos
Autos certainly do get damaged when hurricanes sweep through an area. Vehicles can be damaged by wind, water, and collapsing structures. So, how does the auto policy respond to the damage?

The standard personal auto policy pays for direct and accidental loss to the covered auto or any nonowned auto (a defined term), including their equipment. There is no question that a hurricane and its effects cause direct and accidental loss to autos. The important thing is for the insured to have the proper coverage on the auto. For example, if the insured only purchased collision coverage and the auto was damaged by wind or flood, the insured would have no coverage for the damage to his auto. Faced with the fact that living in a hurricane-prone area is likely to result in wind and water damage to the covered auto, the insured should purchase other than collision coverage as well as collision coverage.

This advice applies to autos owned by the named insured as well as to autos not owned by the named insured, but in his custody or being operated by him—for example, a rental car. Many people fly south on vacation and then rent cars for use on a short term basis. The standard personal auto policy provides physical damage coverage for the rental car, but again, the insured has to have purchased the appropriate coverage under his auto policy, namely collision coverage and other than collision coverage.

If an insured’s car is damaged and cannot be driven, the personal auto policy will also respond to that type of loss. Temporary transportation expenses incurred by the insured in the event of a loss to a covered auto are paid, without application of a deductible. So, if the insured’s car is wrapped around a tree by a hurricane, the auto policy will pay the costs of renting a temporary substitute auto; the standard coverage does not exceed $20 per day for the substitute auto, up to a maximum of $600, but some insurance companies may offer higher amounts.

If the insured (pre-hurricane) has rented a car for his vacation, he has most probably signed a contract whereby he will be legally responsible for loss to and loss of use of that rented car. The standard auto policy provides coverage for the loss of use expenses involved. For example, if the car rental company claims it has lost revenue due to the loss of use of its car, and the insured is legally responsible for that lost revenue, the auto policy will pay that claim. However, the most the policy will pay for any expenses for loss of use is $20 per day (again, some insurers may offer a higher amount).

The insured should also be aware that the transportation expenses are paid only after the covered auto or the rented auto is withdrawn from use for more than a certain period of time—usually twenty-four hours.

The standard auto policy, like any other insurance policy, has exclusions that may affect coverage for a loss caused by a hurricane. For example, if the insured drives away from the expected storm and the car breaks down, mechanical breakdown is not a covered cause of loss. Or, if the insured owns a motor home or a camper body but it is not shown on the declarations page of the auto policy, and hurricane winds severely damage the motor home or camper, loss to such vehicles is not covered by the auto policy. Or, if the hurricane damages custom furnishings or equipment that the insured has in his pickup truck, these items are excluded from coverage under the auto policy. So, the insured should read the exclusions that are on the auto policy to be aware of the losses that are not covered.

One final note on the personal auto policy. One of the duties of the insured after a loss is to take reasonable steps to protect the covered auto or nonowned auto and their equipment from further loss. If, for example, a hurricane damaged the insured’s car or rented car and the car is immobile, the insured should have the car towed to prevent further loss, whether it may be loss by theft or another hurricane. The insurer will pay reasonable expenses incurred by the insured to prevent another loss.

Business Autos
The business auto policy, like the personal auto policy, provides physical damage coverage for loss to covered autos. This would include loss caused by windstorms and floods.

As with the personal auto policy, the insured has to choose what type of coverages he wants. The choices are comprehensive (any cause except collision), specified causes of loss (only those causes of loss that are listed), and collision. To adequately counter against loss by hurricane damage, the insured should have both comprehensive coverage and collision coverage; but at the very least, the insured should have specified causes of loss coverage since that coverage includes loss due to windstorm and flood.

Unlike the personal auto policy, the business auto policy requires the insured to choose what type of auto is to be covered. The business auto policy has symbols to designate covered autos, such as symbol 1 is “any auto,” symbol 2 is “owned autos only,” symbol 8 is “hired autos only,” and symbol 9 is “nonowned autos only.” For the business insured to have proper auto coverage, he must use the correct symbol. For example, if the insured has owned autos only and would never rent a car or use nonowned autos in his business, symbol 2 should be used to designate the covered autos. If the insured chooses symbol 2, rents a car for his business purposes, and a hurricane damages that rented car, the business auto policy would not provide coverage for the damage.

The business auto policy does provide towing coverage. If a hurricane damages the covered auto and the insured wants the car towed, the business auto policy will pay for the tow. However, the amount paid for the tow is limited to the amount that the insured has chosen on the declarations page, and the coverage is only for a private passenger type car. For example, if the insured has a Chevrolet Cavalier and a truck on his business auto policy and both vehicles are damaged by hurricane winds, the auto policy will pay for towing the Cavalier but not the truck. Some insurers may offer towing coverage for all the insured’s vehicles, but the standard policy does not.

The business auto policy provides transportation expenses similar to the personal auto policy, but with a certain limitation. The personal auto policy provides transportation expenses coverage if the loss to the covered auto is caused by such things as windstorm or water; the business auto policy provides such coverage only for theft of a covered auto. So, hurricane damage does not mean that the business auto policy will pay for temporary transportation expenses incurred by the insured.

On the other hand, the business auto policy will pay for the expenses for which an insured becomes legally responsible to pay for loss of use of a rented vehicle. It makes no difference if the loss is caused by theft or hurricane—if the insured has those types of coverages indicated on the declarations page, the business auto policy will pay the loss of use expenses. The insured still has to be legally responsible to pay the expenses, but the loss will be paid.

As with the personal auto policy, the coverages offered by the business auto policy are limited by certain exclusions. There is no exclusion for hurricane damage, but the policy will not pay for loss to tapes or discs or certain electronic equipment. If hurricane winds or hurricane-driven water destroy a covered auto and tapes or discs that the insured had in the auto, the business auto policy will cover the loss to the car but not the loss to the equipment. Individual auto policies may have their own unique exclusions and insureds need to be aware of what their policies will not cover.

There is one more thing that insureds with business auto policies should know. The auto policy has a deductible that applies for each covered auto. Hurricanes can damage many autos at the same time. The auto policy will pay for the damage done to each auto, but the listed deductible will be applied to each auto and not be applied on a per occurrence basis. For example, if the insured has five autos listed as covered autos on a business auto policy with a $500 deductible applying to each of those cars, and a hurricane sweeps in and damages all five cars, the deductible will be applied to each car. It will not be just one $500 deductible applied overall because there was damage caused by just one hurricane; recovery for each auto will be reduced by each auto’s own deductible. This will leave the insured paying a larger portion of the loss than he might have first thought.

Commercial Property Coverage

Hurricanes could produce property losses that may or may not be covered under the provisions of the current version of the ISO CP policy. The commercial property policy promises to pay for “direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” Of course this promise is subject to the limitations and exclusions contained elsewhere in the policy.

A standard feature of property insurance forms is the coverage for direct physical loss of or damage to covered property caused by or resulting from windstorm.

The windstorm or hail clause found in the covered causes of loss section of the basic and broad forms of the ISO CP policies covers windstorm or hail, but excludes “loss or damage to the interior of any building or structure, or the property inside the building or structure, caused by rain, snow, sand or dust, whether driven by wind or not, unless the building or structure first sustains wind or hail damage to its roof or walls through which the rain, snow, sand or dust enters.”

A common type of claim reached by this exclusion is water damage to walls, ceilings, or personal property that occurs during a windstorm but for which there is no apparent source. Sometimes this type of damage results from seepage around window casings or eaves that are of adequate soundness for ordinary weather but not for hurricanes or similarly violent happenings.

Another consideration for windstorm coverage is the possible application of percentage deductibles that apply only to the windstorm or hurricane peril. ISO provides a Windstorm or Hail Percentage Deductible endorsement, CP 03 21, that modifies the application of the deductible so that a percentage deductible—1, 2, or 5 percent—applies to loss caused directly or indirectly by windstorm or hail. If loss from a covered weather condition occurs, and that loss would not have occurred but for the windstorm or hail, then that loss is considered to have been caused by windstorm or hail and the windstorm or hail deductible applies. Coverage may be on either a specific basis—for example, each building under a separate limit of insurance; or blanket—such as building and personal property in that building under a single limit of insurance.

ISO provides clear examples of how to apply the deductible and states that it is to be based upon the insured value of the building. However, company-specific forms may not be so precise. For instance, we received a question from an FC&S subscriber whose insured received a double dose of damage from both Charley and Frances in 2004. The insured’s policy contained a per coverage, per item deductible in lieu of per occurrence with no definition of what constituted an item or a coverage, and a 2 percent wind deductible that offered no information on how it would be applied if losses occurred at more than one location under blanket coverage. In this situation, we determined that the policy was not clear and was possibly subject to legal interpretation.

The subscriber’s question brought another question to light—are different storms considered separate events with separate deductibles and limits? While we determined that they are, some insurers may view damage to the same area of a building caused by different storms as continued damage from the first storm. Individual policies should be consulted to conclude how the storms should be viewed.

Windstorm is one of the causes of loss that may be removed from coverage of the commercial property program by endorsement. Its removal is made possible to avoid duplication of coverage for insureds that have windstorm insurance through a catastrophe pool or similar facility.

Windstorm or hurricane coverage may not be available to commercial insureds in certain coastal areas. These insureds may be able to turn to Beach or Windstorm plans that are offered in several states, including Florida and Louisiana.

Flooding Concerns with Hurricane Katrina

Windstorm is not the only cause of loss associated with a hurricane. One huge concern with Hurricane Katrina is flooding. Flood is an excluded peril under most commercial property forms, but coverage for eligible properties may be purchased through the National Flood Insurance Program (www.fema.gov/nfip). However, there is a thirty-day waiting period for new applications (they become effective at 12:01 A.M local time on the thirtieth calendar day after the application date and the presentment of premium, which must accompany application). There will be no coverage for any flood damage caused by Ivan unless a policy is already in place. It is important to note that the NFIP coverage does not include provision for business interruption losses. So, if a business is affected solely by flood waters and not by actual windstorm, business income insurance may not be available.

For more information on the National Flood Insurance Program, see the article that is located in this path on FC&S Online: Topics Home > Commercial Lines > Miscellaneous Lines > National Flood Insurance Program > National Flood Insurance Program—An Overview.

Other losses may result from power outages. In the special causes of loss form, CP 10 30, one exclusion states that the policy does not cover loss or damage caused by “the failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises.” The failure includes lack of sufficient capacity and reduction in supply. This would appear to apply to any loss of commercial property covered by the standard CP form.

The form gives back coverage for any loss or damage that results from a covered peril. If a fire starts in a business when the power goes out, any damage done by that fire would be covered.

Electronic equipment is especially susceptible to loss under these circumstances. Power that goes out quickly may damage circuits and other electronic equipment. Such equipment may also be damaged when the power is restored. The CP policy will not extend coverage to these types of losses.

It is also possible that businesses such as restaurants and grocery stores might suffer loss to perishables if their refrigerators quit. These losses are indirect or consequential and are covered only if the insured has purchased the appropriate endorsement.

A commercial property insured may purchase an endorsement to cover exposure to loss from an off-premises power failure, CP 04 17, Utility Services—Direct Damage This endorsement covers the CP insured’s property in case a specified utility service suffers direct damage from a covered peril. The endorsement allows the insured to specify a sublimit of personal property coverage for this peril or to choose to have the entire limit subject to this peril. The addition of the endorsement does not increase the limit of liability for the covered property.

It is important to note that coverage may vary greatly from policy to policy and this information is based on standard wording found in ISO policies.

Business Income (Business Interruption) Coverage

General Coverage Considerations
The operations of many businesses may be interrupted by hurricanes and resulting flooding, and many of these businesses will be turning to their insurance carriers with business income insurance claims.

It is important to note that business income insurance involves two aspects of loss: a suspension of business and a resulting loss of business income. One, without the other, will not result in a covered claim. In addition, typical business income (business interruption) coverage is triggered by a suspension of business that is caused by direct physical damage to or loss of property at the premises described in the policy. The damage must be caused by a covered cause of loss. While hurricane (windstorm) typically is a covered cause of loss, flood typically is not.

In general, insurance forms also include additional coverages that address specific loss situations, such as when a governmental entity shuts down premises or when computer operations are interrupted. A prime example of such loss situations is the closing of roads and bridges, as well as forced evacuations of areas that lay in the path of the hurricanes.

The issue of what constitutes “direct physical damage or loss” and whether this damage is caused by a covered cause of loss lies at the heart of all such coverage analysis. There is little doubt that the hurricanes of 2005 will wreak substantial direct physical damage, and coverage would be inferred as long as windstorm is a covered peril on the insured company's business income policy. The direct physical damage would have to happen on the insured's premises in order for a business's primary business income coverage to be triggered. However, auxiliary coverages—such as contingent business income or action of civil authority—may be triggered as long as the hurricane causes physical damage somewhere away from the premises, if the insured business operations are adversely impacted by the off-site damages.

The typical business income deductible is stated in terms of hours of interruption. The business suspension must last longer than the deductible in order for coverage to be available.

A potential issue may arise if flood is deemed the primary cause of business interruption to a property that is not damaged by wind. That may cause questions of fact as to whether the flood—or the originating hurricane—caused the business interruption. Likewise, if power outages, windstorm, and flooding all converge to cause a suspension of business, finders of fact may question whether the suspension should be covered by business income insurance or not. The details of a given situation may have to be studied to determine whether coverage is triggered or not. But, if windstorm can to any extent be determined as the cause of the suspension, coverage should be triggered.

These items are general considerations, but different types of insurance policies address the prospect of business income losses in various ways. The most broadly used forms (the ISO forms) are discussed in this context. Suffice it to say that if a company does not carry windstorm as a covered peril, business income coverage would not be available.

ISO Businessowners Policy (ISO Form BP 00 03 7/02)
BOP policies typically are used to address the insurance needs of small businesses. The current ISO BOP form provides property insurance on a special form perils basis. Business income insurance is built into the coverage form.

The covered causes of loss that are insured on the 2002 form are risks of physical loss unless they are excluded or limited in the form. However, some exclusions may affect the availability of business income coverage.

The BOP power failure exclusion states there is no coverage for:

Power Failure
The failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises (emphasis added).

But if the failure of power or other utility service results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.

This exclusion does not apply to loss or damage to “computer(s)” and “electronic media and records.”

Since the power failure exclusion states that there is no coverage if the power failure occurs away from the described premises, a problem could arise if, for example, a business lost power (but was otherwise undamaged by the hurricane) because the hurricane knocked out transmission lines that were not on the insured's premises. However, if the windstorm caused damage to, say, a transformer on the described premises, the exclusion would not apply and coverage could be inferred.

Note, however, that the exclusion does not apply to loss or damage to computer hardware and software. So, if computer operations were suspended, causing a loss of business and lost net profit, coverage might be triggered—again as long as the deductible provision was met.

Business Income Coverage Specific to the BOP
The BOP form does include two auxiliary business income coverage grants that also should be reviewed. These are for business income losses arising from the action of a civil authority and for business income losses arising from dependent properties.

Civil Authority
In order for this coverage to be triggered, the insured must actually incur a loss of business income because civil authority prohibits access to the described (insured) premises. The coverage grant requires there be direct physical loss of or damage to property away from the insured premises as the result of a covered cause of loss.

The forced evacuation of areas of Louisiana and the closing of highways and bridges that lay in the path of a hurricane—which already had damaged property elsewhere—would appear to meet this requirement for coverage. Again, windstorm must be a covered cause of loss on the business's policy, and the business must sustain a loss of business income because it was shut down by the evacuation order.

However, a mere decrease in business because people didn't want to venture outside during a storm, absent a governmental order shutting down access, would not satisfy the criteria for coverage under the civil authority provision.

One other provision of this coverage also would affect coverage. There is a seventy-two-hour waiting period under the civil authority provision. In other words, a civil authority would have to shut down the business for three days before coverage is triggered.

Business Income from Dependent Properties
This BOP coverage grant provides up to $5,000 of insurance for damage to insured businesses that lose business income because one of their “dependent properties” is damaged by a covered cause of loss.

A dependent property is one that delivers materials to the insured, accepts the insured’s products or services, manufactures products under contract for the insured, or attracts customers to the insured’s business.

For example, a restaurant may be in a shopping center that is anchored by a large, prestigious department store. Shoppers might generate the bulk of the restaurant’s business. The occurrence triggering business income coverage for the restaurant would have to occur at the department store in order for coverage to emanate from the dependent properties provision.

Again, there is a requirement for physical damage at one of these properties that arises from a covered cause of loss.

Flood
While flooding caused by hurricanes could lead to business interruption losses, flood is not a covered cause of loss on most policies. Although flood insurance may be available to commercial property insureds through the National Flood Insurance Program, it is important to note that the NFIP coverage does not include provision for business interruption losses. So, if a business is affected solely by flood waters and not by actual windstorm, business income insurance may not be available

ISO Business Income (and Extra Expense) Coverage Form (CP 00 30 4/02)
This is a standard coverage form that is used to insure businesses that are larger than those that qualify for a BOP. It often is used in conjunction with a commercial property coverage form and a cause of loss form but may be written as a separate policy. The causes of loss form dictates what perils are insured. In this case we will review potential coverage as it would flow from a special form cause of loss provision, which insures all risks unless they are excluded or limited on the policy. It is similar to the BP 00 03 discussed previously.

The special causes of loss form CP 10 30 (10/00) includes exclusions that are applicable specifically to business income coverage. As with the BOP form, there is no coverage for:

(1) Any loss caused directly or indirectly by the failure of power or other utility service supplied to the described premises, however caused, if the failure occurs outside of a covered building.

But if the failure of power or other utility service results in a Covered Cause of Loss, we will pay for the loss resulting from that Covered Cause of Loss.

As with the BOP, this exclusion appears to clearly preclude any coverage for business income arising from an off-premises power outage. Coverage may be purchased for off-premises power failure, and if a business purchased that endorsement, coverage could be inferred if a hurricane tore down lines away from the insured premises, causing it to shut down even though there is no direct damage on the insured site.

The dependent properties and civil authority coverage discussed previously in regard to the BOP is similar to that found in the commercial property form.

Insurer-specific and Manuscript Business Interruption Forms
Many insurers have drafted their own business interruption forms, and some large insureds may have successfully negotiated language that would provide coverage in addition to that discussed previously.

However, most would probably still require direct physical loss or damage to some tangible property in some specific place. They also almost undoubtedly would have a waiting period.

Workers Compensation

Workers compensation coverage is available to employees who are injured in employment-related accidents. Therefore, employees who might be injured by a hurricane-related incident while in the course of employment typically would be successful in filing for workers compensation benefits.

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