Hurricane Harvey Alert !Understanding insurance coverage and

the immediate steps Risk Managers must take to mitigate a loss and

prepare a claim.!

FrankL.RussoFounder/Execu3veVicePresidentof

ProcorSolu3ons+Consul3ng

GregoryD.PodolakManagingPartnerSDVSoutheast

2HurricaneHarveyAlert

HurricaneHarveywilltestmanyriskmanagers’insuranceprogramsandresponseplansasit’sbeenover10yearssinceamajorhurricanemadelandfallintheU.S.Manyriskmanagershaveyettoexperienceahurricanecausedareawidedisasterthatcandevastatemul3pleproper3esacrossmanymiles.SuchdisastersareoNencomplexandrequiredecisivedecisionmakingthatcouldmeanthedifferenceofcon3nua3onorcessa3onofyourbusiness.Whenpropertyandbusinessinterrup3oninsuranceisinplace,suchlossesrequiresignificantdocumenta3onanddatatosubstan3atethelossandprovecovereddamages.

I. Review your policies closelyManybusinesseshavecoveragegapsthatleavethemwithexposuretocatastrophiclosses.Tomakema=ersworse,insurerso?enrestrictthecoverageavailableforcatastrophicdamages,parBcularlythosecausedbynaturaldisasters,throughtheuseofexclusionsandsublimits.InaddiBon,whentherearelarge-scalelosses,insurersmaytrytoliberallyapplyexclusionsandsublimits,orcategorizethelossesinwaysthatreducetheavailablecoverage.

3HurricaneHarveyAlert

TheBusinessInterrup.onCoverageGrant

DisrupBontobusinessoperaBonscancauseenormouslossesasacompanystrugglestogetbackonitsfeet.BusinessinterrupBoninsurance,alsoknownasbusinessincomeinsuranceor“Bmeelement”coverage,generallycoverslostearningsthatresultfromdisrupBontotheinsured’sbusiness.BusinessinterrupBonpolicieshavemanymorevariaBonsincoveragetermsandcondiBonsrelaBvetoothertypesofinsurancepolicies.SinceonebusinessinterrupBonpolicycandiffersignificantlyfromanother,policyholdersshouldalwaysreviewthespecificlanguageoftheirpoliciesatbothrenewalandattheonsetofanypotenBalinsuranceclaim.

DespitethevarietyinbusinessinterrupBonpolicies,thefollowingcoveragegrantiso?enBmespartofacommercialpropertypolicy:

WewillpayfortheactuallossofBusinessIncomeyousustainduetothenecessarysuspensionofyouropera.ons...causedbydirectphysicallossofordamagetoproperty.

SuchcoveragecanbeextremelyvaluabletocompaniessufferingasuspensionofoperaBonsa?eracatastrophicloss.However,ambiguouspolicylanguageandalackofuniformpolicyinterpretaBonbythecourtscanleadtootherwiseavoidabledenialsofclaims.

4HurricaneHarveyAlert

TheShi'ingIden,tyof“DirectPhysicalLoss”

Businessinterrup3oncoverageoNenrequiresthattheinsuredsuffer“physicalloss,”“physicaldamage,”or“directphysicallossordamage,”butlacksdefini3onsfortheseterms.Abusinessmightsufferinterrup3onwithoutanydirectphysicallosstoitsproductsinatradi3onalsense.Forexample,ifanoilrefinerysuffersapoweroutageduringahurricane,theremaynotbeanydirectphysicaldamagetotheoilorpetroleumproductswithintheplant,butthereisalmostcertainlyacessa3onofbusinessduetothelossofpower.Theissuethenbecomeswhetherlossofpowerattheplantcons3tutesadirectphysicalloss.

Over3me,somecourtshavebeenexpandingtheirinterpreta3onof“directphysicalloss”toincludeeventssuchaspoweroutagesthatrendertheinsuredphysicallyincapableofcon3nuingitsbusinessopera3ons.Theoutcomeofthisissuevariesbyjurisdic3on.

HurricaneHarveyAlert

Furthermore,somebusinessinterrupBonpoliciesrequireonly“directphysicallosstoCoveredProperty,”asopposedto“directphysicallosstoCoveredPropertyatanInsuredLocaBon.”Theformerlanguagemayprovidebe=ercoverageininstancessuchaspoweroutages,sincethepolicydoesnotspecifywherethepropertymustbelocated.Forexample,ifinsuredbusinesspersonalpropertysuchasmachineryorequipmentislocatedoff-premises,coverageforanybusinessinterrupBonresulBngfromdamagetosuchmachineryisunlikelyifthepolicyrequiresthatthelossoccur“atanInsuredLocaBon.”

PlacingaValueonLostBusinessIncome

A?erHurricaneKatrina,manyrefinerieswereforcedtosuspendtheiroperaBons,someforextendedperiodsofBme.Gaspriceswentupasmuchasfi?ypercent,butanout-of-operaBonsrefinerywouldobviouslybeunabletoprofitfromtheincreaseinpricesthesamewayanunaffectedrefinerywouldprofit.ThisraisestheissueofcompensaBonunderbusinessinterrupBoninsurance.Shouldtherefinerybecompensatedintheamountitwouldhaveearnedhadtherebeennohurricaneatall?OrshouldthemeasureofdamagesbetheamountthatwouldhavebeenearnedifthehurricaneoccurredandthisparBcularcompanywasunaffected?

HurricaneHarveyAlert

ThevaluaBonclauseofbusinessinterrupBonpoliciestypicallysetsforththemannerforcalculaBngtheamountofreimbursementforaclaim.InvaluingclaimswherethepolicyissilentastochangesinprofitopportuniBesfollowingacatastrophicloss,courtso?enholdthatthepolicyholdermustbecompensatedasthoughthelossneveroccurred.

MonitorCon.ngentBusinessInterrup.onexposures

SomeBmes,asinglecatastrophiceventcanimpacttheenBresupplychain.WhenadisrupBontothesupplychainoccurs,conBngentbusinessinterrupBoninsurance,alsoknownasdependentpropertyinsurance,cancoverearningslostbecauseofdamagetofaciliBesthatarenotowned,operatedorcontrolledbytheinsured,butuponwhichtheinsureddependstoconductitsownbusiness.DependentproperBesincludeproperBestheinsureddependsupontodelivermaterialsorservices,acceptproductsorservices,manufactureproductsfordeliverytotheinsured’scustomers,ora=ractcustomerstotheinsured’sbusiness.

HurricaneHarveyAlert

II. Takeimmediateac3ontomi3gate,documentandsetthetoneforaclaimsubmission

AsthestormmovesonanddamagesareiniBallyinvesBgated,thefirsthoursanddaysa?eralossareparamounttose[ngatoneintheinsuranceadjustmentprocessthatwillhelptherecoverygoassmoothaspossible.Belowarefivekeystepstofollowwhenbeginningtherecoveryandclaimprocessonalargeloss:

Documentallthedamage

Photographsandvideofootageofthelossarekeytomemorializingthedamages.Atsomepoint,thesedocumentswillhelpyouse=lepotenBaldisagreementsonitemssuchasscope,quanBty,andpricing.BesuretoincludepicturesofanyidenBfyinginformaBonsuchasserialnumbersofdamagedequipment.

Mi.gatethelossandini.ateyourrecovery

A?erthedamagehasbeenmemorialized,itisimportanttofocusondecisionsthatgetyourbusinessupandrunningasquicklyaspossible.SomeBmesthereisconfusiononwhetherornottoacttomiBgatethelosspriortothefirstadjustersiteinspecBon.Whileyoudon’tneedtoaskforpermissionfromyouradjusterbeforeyouact,ithelpstokeephimorherintheloopasyoumovetomiBgateyourloss.Moreo?enthannot,anydecisionmadebyaprudentbusinesspersontomiBgatealossisconsideredfavorablybytheinsurancecommunity.Bedecisive.

HurricaneHarveyAlert

Surveythedamagewithyourinsuranceadjuster

Whenyouhaveadatesetfortheadjustertoviewthedamage,makeeveryefforttobethereinperson.Riskmanagerso?enrelyonfacilitystaffforthisinspecBon.BeingtheresetsthetoneandworkingrelaBonshipfortheenBreadjustmentprocess.Inalarge,area-widedisaster,adjustersaretypicallyspreadthinandlikelydonothaveunlimitedBmetospendatyourloss.BepreparedtowalktheadjusterthroughthelossandfocusthediscussiononyourbusinessoperaBons.ExplainyourrecoveryeffortsandyourBmelinetodocumenttheloss

Provideapreliminarylosses.mate/orderofmagnitude

Asyouradjusterbeginstoreviewtheparametersofyourloss,heorshewilllooktorecommendalossreservetotheinsurer(s)foraccounBngpurposes.PrepareashortsummaryidenBfyingallareasofyourlosswithassociatedesBmatedcosts.Forexample,ifthereisbuildingdamage,obtainesBmatesforrepairtodemonstratetheulBmatecosts.IfclaimitemsaretooearlytoquanBfy,suchasbusinessinterrupBon,includetheitemas“tobedetermined”or“TBD.”Thiswillhelptheadjusterconsidertheworst-casescenarioincludingpotenBalfutureclaimitemsasheorshesetsthereserve.

HurricaneHarveyAlert

Requestpar.alpayments

Rememberthattheclaimdoesn’thavetobepaidonlyattheendoftheprocess.Theadjustercanreleasefundsasitemsareagreedtoandsupported.Asyouprovedamagesthroughtheadjustmentprocess,askforparBalpayments.Thiswillhelpyoumaintaincashflowforyourbusinessduringtherecovery.

Assembleyourteam,bepreparedandvigilant

RiskmanagersshouldworkwithagoodteamofsophisBcatedclaimpreparers,brokersandlegalcounseltoincreasethelikelihoodofmiBgaBngcatastrophiclosses.Theyshouldestablisha)properbusinessinterrupBonvalues,b)favorablepolicylanguage,andc)adequatecoveragelimits,allinadvanceofaloss.Policyholderscanalsoincreaserecoveriesfrominsurerspost-lossby(a)assemblingtheclaimpreparaBonteamearly,(b)thoroughlyreviewingtherelevantcoverage,sub-limitsandexclusionsbeforepresenBngtheclaim,and(c)beingrealisBc,yetzealousinpursuitofinsurancerecoveries.

HurricaneHarveyAlert 10

For further information please contact:

FrankL.Russo,Founder/ExecuBveVicePresidentofProcorSoluBons+ConsulBngatfrusso@procorllc.comor646.220.0991

GregoryD.PodolakinSDV’sSoutheastofficeatgdp@sdvlaw.comor239.315.4215

SDVLawisanaBonallawfirmexclusivelyrepresenBngpolicyholdersininsurancerecoveryma=ers,withregionalofficesaroundthecountry.