Sixteen years to the day after Hurricane Katrina unleashed its fury on New Orleans – and just days after Tropical Depression Fred and Tropical Storm Henri battered parts of the United States – “Hurricane Ida made landfall in southeastern Louisiana…as a category four storm with maximum sustained winds of 150 mph” yesterday, August 29, 2021. Like Hurricane Katrina – which, according to Insurance Journal, “resulted in a combined $41 billion in insured losses in all states it affected” – Hurricane Ida appears to have caused “catastrophic” destruction across Louisiana and the Southeast.
While the full effect of the recent storm is not yet known, there were early reports of Hurricane Ida causing – just by way of example – extensive property damage, cancelled airline flights, closed universities, and oil-production shutdowns. And, by last night, “[a]ll of New Orleans [was] without power.” For those businesses struggling with the physical and financial impact of this recent hurricane, which is tied for “the most powerful [storm] to ever strike Louisiana,” or any of the other recent storms that have hit the United States, insurance is likely to be an important asset.
Specifically, commercial property insurance policies are likely to provide the most help. Through various coverage grants, additional coverages, coverage extensions, and/or endorsements, such policies may cover:
- “Property Damage” – First-party property insurance generally affords coverage for “direct physical loss of or damage” to “covered property” caused by a “covered cause of loss.” While relevant terms and conditions may vary from insurance policy to insurance policy, and certain policy exclusions may preclude coverage, this core coverage is most likely to apply, at least in the first instance, to what many would think to be the most common, or typical, property damage caused by a hurricane or tropical storm, e.g., physical damage to a building. “For instance,” the U.S. District Court for the Eastern District of Pennsylvania recently explained in another context, “a hurricane could cause direct physical damage to an insured property where strong winds blow off the property’s roof.”
- “Business Interruption” – For many businesses, storm-related property damage is likely to also result in lost income due to a suspension (or interruption) of business operations. For example, consider a New Orleans hotel that has been physically damaged by Hurricane Ida and can no longer accommodate guests. Not only will the owners of that hotel need to pay to repair or rebuild the building, they will also lose income in the meantime. Thankfully, many policyholders will have business-interruption (or business-income-loss) coverage – which is often found in first-party property policies – that can cover such losses. Subject to certain exclusions, such coverage is generally available to cover “actual loss” of business income sustained due to the “necessary suspension of [the policyholder’s] operations during the period of restoration.”
- “Extra Expense” – Often part of a business-interruption coverage form, extra-expense coverage generally will reimburse a business for “actual and necessary ‘extra expense’ [the policyholder] sustain[s] due to direct physical loss of or damage” to an insured property. “Extra expenses” are generally defined as expenses incurred to “avoid or minimize the suspension of business” and to either continue operations at the insured property or at some other replacement or temporary site. Examples of “extra expenses” may include costs associated with the temporary relocation of one’s business, procuring equipment for a temporary site, and paying employees overtime or hiring temporary workers to be able to operate during the “period of restoration.”
- “Contingent Business Interruption” – An extension of business-interruption coverage, contingent-business-interruption coverage may be available to a business to cover, subject to certain exclusions, a loss of “business income” and/or “extra expenses” incurred as a result of property damage caused by a “covered cause of loss” that “wholly or partially prevents others from delivering or providing to [the policyholder] goods and/or services.” As Douglas R. Richmond, Senior Vice President, Professional Services Group, Aon Risk Services, wrote in his 2006-2007 Mississippi College Law Review article, “Insurance and Catastrophe in the Case of Katrina and Beyond,” “[c]ontingent business interruption losses may span the country – they certainly will not be confined to insureds along the Gulf – and they will affect all corners of industry.” For example, a New York policyholder that is unable to manufacture its own products because the Louisiana-factory of its component supplier was damaged by Hurricane Ida may be entitled to contingent-business-interruption coverage. Note that this type of coverage typically requires that the loss sustained by the third-party business be the type of loss that would be covered under the policyholder’s own insurance policy.
- “Utility Service Interruption” – Utility-service-interruption coverage may provide some relief for at least certain of the losses caused by interruption in power or other utilities due to Hurricane Ida or any other storm. Such coverage generally applies in the event of a “suspension” of “operations” at the covered premises “caused by an interruption in utility services to that premises.” However, be aware, an insurance company may argue that this coverage does not apply if utilities were proactively shut off prior to the storm’s arrival.
- “Civil Authority” – Often listed under “Additional Coverages” in a first-party property policy, civil-authority coverage can apply when a covered cause of loss causes damage to property other than a policyholder’s own property and, thereafter, an “action” or order of a “civil authority … prohibits access” to the policyholder’s own property. For instance, if a neighboring building was damaged by the hurricane and collapsed, and, as a result, the city government shuts down the local area, foreclosing access to the policyholder’s own building, civil-authority coverage may apply. Note, though, that an insurer may argue that, for this coverage to apply, actual, physical property damage must have occurred. The insurer may also argue that a governmental order predicated on the threat of an impending hurricane and the possibility (indeed, likelihood) of property damage is not enough to trigger this coverage.
As coverage grants and exclusions to coverage – as well as other insurance-policy terms, provisions, and conditions – may vary from policy to policy, it is important that every policyholder review carefully its own commercial property insurance policy(ies) to determine what coverage is available to it.
Leech Tishman’s Insurance Coverage Practice Group can assist policyholders in Louisiana and across the country that have been affected by Hurricane Ida and/or other recent storms. The firm’s Insurance Coverage attorneys can review a policyholder’s coverage portfolio and policies to determine which policies, if any, may provide coverage for a particular storm-related (or other) loss(es); work with a policyholder to provide its insurer(s) notice of a loss; and help a policyholder resolve any coverage dispute that occurs, making sure that the policy receives the coverage it purchased and expected.
For assistance or more information, please contact Michael H. Sampson, Leader of the firm’s Insurance Coverage Practice Group, at 412.261.1600 or firstname.lastname@example.org, or Jeffrey T. Criswell, a partner in the firm’s Insurance Coverage practice group, at 412.261.1600 or email@example.com.
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