Common Property Insurance Claim Issues Following Winter Storms

In the aftermath of a winter storm, many businesses must assess losses from various causes and focus on their operational and financial recovery via their insurance contracts.

Below are some claim issues that you may face after a winter storm. It’s not an all-inclusive list, but each example has been the subject of extensive debate in insurance and legal circles.

Time Element

What is and isn’t covered? How are losses calculated? Business interruption and extra expense claims can be one of the most misunderstood coverages on an “all-risk” property form, and one that often brings difficulty in settling a claim. Following a winter storm with multiple impacts, many of the claim recovery difficulties arise around what is not covered in a business interruption policy, when does coverage begin and end, and what other conditions must exist for coverage to apply.

It’s important to note that a business interruption policy does not replace revenues: It replaces the profits lost and the continuing expenses that a property would have generated if it were operational. For example, a continuing expense could be taxes on a property. A non-continuing expense could be heat, light, or power. Another issue that may cause misunderstanding is the indemnity period. The complexities of business interruption are a good example of why it is important to have a thorough understanding of your policy before a loss occurs.

Deductibles

Following many losses, deductible applications, including by occurrence and by location, can become complex if there are separate deductibles for property damage and time element losses. A catastrophic winter storm event may have many potential deductibles to consider, which may be in the form of straight dollar deductibles, qualifying time periods, or average daily value deductibles.

Another question that arises for insureds with multiple locations is how many deductibles might apply when there are losses over a large territory and over several days. A careful review of the policy definition of occurrence, and if there are Property Claims Services catastrophe bulletins, is needed to evaluate this.

Service Interruption

Winter storm disasters often involve extensive service interruptions, including power, water, gas supplies, and others, which raises the question: What is the scope of coverage for such losses? How are rolling blackouts covered? A service interruption must be caused by a peril insured against or a peril not otherwise excluded and may have distance limitations. It generally deals with the service supplier, such as a utility.

In the event of a service interruption loss, some insurers are likely to argue that if there is no trigger — for example, property damage — then there is not an accidental event. They could take a hard line and say voluntary interruption, such as rolling blackouts, is not a covered service interruption. In addition, as in any coverage, it’s important to understand the specifics of an individual policy. For example, are there distance limitations? What property of the service provider is covered? Are overhead transmission and distribution lines included?

Civil Authority, Ingress/Egress

These two extensions of coverage come into play in almost every instance in which a government entity shuts down an area and prohibits access to a facility due to a covered peril:

Civil and military authority: This has led to some debate over the years, as officials exercise more caution ahead of and following a storm. For example, following Hurricane Irene, Superstorm Sandy, and Hurricane Matthew politicians told people to stay home. So the debate becomes: Can this be considered a civil military authority claim under a policy?
Ingress/egress: This takes into consideration whether you have access to or the ability to leave a property. Wording is very important. For example, has the access to or egress from your property been “prevented” or “impaired”? Additionally, was this due to damage from a covered peril or in connection with a covered peril? Are there distance and/or time conditions? It is critical to understand the exact terms and definitions within a specific policy.

Wide-Area Impact

One of the most difficult claims areas following a catastrophic winter storm involves the extensive geographic area that may be affected. Businesses that may not have suffered significant damage themselves may still see their revenue plummet if a wide swath around them is damaged, thus driving away their customer base. A number of issues go into deciding such a claim. Working with brokers and insurers ahead of time may prove beneficial following a loss.

On a related note, in particular for retail and hospitality companies, insurers will want to look at potential makeup. This analysis can take two forms:

The potential makeup of sales after operations are resumed based on possible pent-up demand.
Insureds with multiple locations, where customers may drive to a more distant store and potentially offset lost sales at a damaged location.

Conclusion

The recovery period following a severe winter storm with multiple impacts is one of high stress for companies and their employees. People may be working to put their own lives back together while they are asked to help the business get up and running. Time is generally of the essence, and insurance can play a vital role in speeding recovery.

If you need help reporting or managing a claim, please contact your Marsh team. You can also report a claim by visiting here: Reporting a Claim.