Winter Storms Uri and Viola – as well as other recent, inclement weather – have brought much of the United States to its knees this month. Historically low temperatures and record-breaking snowfall have devastated the American South (and beyond) – the far-reaching implications of which will likely be felt for months. According to media reports, Karen Clark & Co., “which runs catastrophe-modeling software widely used in the U.S. insurance industry,” predicts that insurance companies could owe approximately $18 billion “for damages to homes and businesses from the long stretch of frigid weather in Texas and numerous other states,” including Arkansas, Missouri, Oklahoma, and Tennessee.
Business losses as a result of these storms extend far beyond physical property damage and include business interruption losses, losses caused by power and other utility outages, and extra expenses incurred to continue or resume business operations after the storms.
For any policyholder that has suffered a loss(es) due to Winter Storm Uri, Winter Storm Viola, or, for that matter, any other weather event, it is a good idea to conduct a comprehensive review of all potentially applicable commercial insurance policies to determine which, if any, may provide coverage for a particular loss(es). Experienced insurance-coverage counsel, and/or perhaps the policyholder’s insurance broker, can be helpful with that review.
For most businesses, it is their commercial property insurance policies that will most likely be the best source of coverage for losses caused by the recent winter storms. Various coverage grants, additional coverages, and coverage extensions found in such policies, including but not necessarily limited to the following, may be of most import:
- “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 what constitutes a “covered cause of loss” can vary from policy to policy – and certain exclusions (e.g., exclusions for damages caused by flood, wind, and/or hail) – may negate coverage, this core coverage is the coverage 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 winter storm, e.g., physical damage to a building or equipment.
- “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 factory physically damaged by the recent winter storms that can no longer produce its goods, meaning that not only will that business need to rebuild or repair its factory, it 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 these 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.”
- “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.” For example, suppose that a policyholder in New York produces a product and relies on another business in Texas for component parts. If that Texas company’s factory is damaged by a winter storm and the New York policyholder as a result cannot get the necessary component parts, cannot therefore produce its products, and thus loses income, the New York policyholder 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.
- “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 replacement premises or temporary location. Examples of “extra expenses” may include costs associated with the relocation of one’s business to a temporary site while its primary location is restored, buying or leasing equipment for one’s temporary site, and paying employees overtime or hiring temporary workers to operate during the “period of restoration.”
- “Utility Service Interruption” – Sweeping power outages throughout parts of the country have greatly exacerbated the damage caused by the recent winter storms. Utility service interruption coverage, however, may provide some relief for at least certain of the losses caused by these interruptions. 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.” Note, that certain policies may refer to this coverage as “off-premises service interruption” coverage.
- “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 a weather event 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 be available for the policyholder’s resulting loss.
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 to review one’s own insurance policy(ies) carefully and not just to rely on general observations by insurers or others.
That said, it is important for all policyholders to provide timely notice to their insurers in the event they experience loss or damage (or even experience circumstances that could give rise to loss or damage). From an insurance-coverage perspective, if a policyholder has any doubt whether it should provide notice to its insurer, it generally should err on the side of providing notice. Failure to provide timely notice can jeopardize the right to coverage.
At the same time, a policyholder should carefully document its loss(es). For example, it can and should take pictures of any physical property damage, carefully track and record any lost profits, and save any receipts evidencing extra expenses incurred.
Once again, experienced insurance-coverage counsel can help a policyholder provide notice, document its claim, and/or perform other tasks, including, for example, responding to an insurer’s reservation of rights or denial of coverage.
Leech Tishman’s Insurance Coverage Practice Group stands ready to assist businesses in Texas and across the country that have been affected by Winter Storm Uri, Winter Storm Viola, and/or any other weather event. For assistance or more information, please contact Michael H. Sampson, Chair of the firm’s Insurance Coverage practice group, at (412) 261-1600 or firstname.lastname@example.org, or Jeffrey T. Criswell, a member of the firm’s Insurance Coverage practice group, at (412) 261-1600 or email@example.com.
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