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Gulf Coast Flood Update: Insurance Coverage Considerations

Flood_337x220By Brian S. Scarbrough and Jan A. Larson

As reports concerning the nature and extent of the flood-related damage along the Gulf Coast continue to develop, commercial property damage and business interruption insurance will be critical to the effort to recover and rebuild.  Our insurance work in connection with other disasters, including the 2011 Japanese earthquake and tsunami; Thai floods; Hurricanes Katrina and Ike; and Superstorm Sandy can help companies implement strategies now that increase their ability to later maximize their insurance recoveries.

As you look to protect your business interests, the details below should help you to assess and address the implications and coverage considerations related to the ongoing and historic flooding along the Gulf Coast.    

Identify potentially applicable types of coverage.

  • Commercial property policies are designed to cover both (1) property damage losses and (2) business interruption losses, including specialized coverages related to lost business income:
    • Ingress/Egress (e.g., shipments or employees unable to reach facility due to storm-related damage)
    • Civil Authority (e.g., access to facility or operations of facility prohibited by order of a civil authority)
    • Service Interruption (e.g., a power outage that prevents normal operations)
    • Extra Expense (e.g., additional costs in excess of normal operating expenses incurred to continue operations while damaged property is repaired or replaced)
    • Debris Removal (e.g., costs to clean up storm-related damage)
    • Contingent Business Interruption (e.g., lost income/profits resulting from an interruption to the business of a direct or indirect supplier or customer)

Document the loss.

  • Document physical property damage (e.g., photographs, video) and business interruption losses (e.g., business records, historical sales data) to establish lost income evaluations.
  • Categorize and track losses and expenditures into buckets according to the above types of coverage or other specialized coverages appearing in the policies.

Protect the insured’s privileges.

  • Consider the role of in-house or outside counsel in protecting the insured’s communications regarding the preparation and submission of the claim.
  • The insured’s communications with inspectors, accountants, consultants, and brokers who may be assisting with the claim may not be protected by privilege.

Communicate with the insurers and be mindful of time limitations.

  • Provide notice under any potentially applicable policies as soon as possible.
  • Confirm any deadlines for the submission of a proof of loss and seek agreed-upon extensions, if necessary.
  • Keep early communications at a high-level to allow time for the claim to be fully evaluated and valued before articulating coverage positions.
  • Be prepared to submit interim reports and documentation.
  • In-house or outside counsel can coordinate communications with the insurer(s) to ensure that the information provided is consistent and favorably postures the claim for coverage.

Begin thinking about potential coverage limitations.

  • Are there sublimits applicable to certain coverages?
  • Is there an applicable waiting period before coverage begins?
  • Are there flood-related exclusions or other possibly relevant exclusions?