Insurance Coverage Should Help Businesses Recover From Wildfires

Our heart goes out to the people suffering from the wildfires in Hawaii. These unprecedented fires have left a wake of destroyed buildings and homes and the sadness of fatalities. While insurance may be the last thing on many people’s minds, it can prove to be a vital resource to recover from destruction such as this and a basic understanding of this is critically important. In short, insurance coverage is supposed to provide a practical means of economic recovery from disasters like this.

Insurance is a resource that often is overlooked or under-utilized. Property insurance policies provide a range of coverages. They can respond in multiple ways and provide coverage far beyond just paying to repair a building. Property owners, renters and their business partners may have claims for loss to their property. Fire is a widely covered peril and, in fact, many standard property insurance forms are fire policies. We have heard business operators ask whether an insurance policy provides coverage for so called “acts of God” – unexpected and unintended damage because of a wildfire – and the answer, generally is absolutely. That is what insurance is supposed to cover. It is what you pay for.

The first step in most instances is to give notice to the relevant insurance companies that a property has been affected and that a claim will be made for coverage. Your insurance agent or broker can often assist with this process.

Property policies can vary in the ways coverage applies to a particular loss. Most policies will have retentions or deductibles that apply. Many will pay for replacement costs, the cost of bringing renovated and rebuilt property into compliance with current code requirements, and for the amounts spent to investigate and compile the information needed to present a claim to the insurance company. 

In prior instances, such as the California wildfires, insurance companies did not always properly state the amount of a loss or estimate the amounts needed to make the property owner whole. State insurance commissioners sometimes need to be involved, but they typically cannot be involved in the details of claims. Therefore, policyholders should be cautious and prepare themselves to defend the amount of the loss they suffered. Some good news is that policyholders often have the facts on their side. They need to assemble the needed information and communicate it effectively to their insurance companies in writing.

One of the more complicated areas of coverage provided by property insurance policies is so-called time element coverage. It includes business interruption coverage, which pays coverage for the lost income that necessarily follows a destructive fire at a business property. While the concept is straightforward – the coverage pays for the profits a business would have been making during the time it is partially shut down for repairs – presenting the information needed to fully capture the extent of business interruption loss can be complicated. 

Property owners and business owners need to analyze the true affects of a fire loss on their business in order to get paid for business interruption costs. Additionally, policy terms can vary and require waiting periods, provide exceptions to certain expenses and set forth other detailed provisions for calculating a loss. Policyholders working through such losses, especially those with multiple business locations, may need to involve attorneys and other professionals to properly calculate the extent of business interruption loss.

Another complicated set of coverages under property insurance policies are “contingent” coverages. They can include coverage for losses due to the shutdown of business partners, the inability to use or generate profit from property that was not specifically damages, and for a business owner’s lack of access to its property. The coverages can be considered contingent when they depend on another business or other parties’ actions. They sometimes turn on another party’s damaged property no longer needed goods or services, government action and damage to neighboring or facts about other parties and the policyholder’s demonstration of how those facts have led to the its losses. Again, utilizing outside professionals to help present such claims may be necessary.

One other item to consider is whether you can get costs advanced on a claim – if, for example, you have immediate expenses that need to be covered to pay for mitigating a loss, or to cover payroll or debt service. Often, insurance will make advance and emergency payments prior to a full claim submission and depending on your circumstances it may be appropriate to make such a request. Sometimes partial proofs of loss can be used to facilitate advance payments.

Fire routinely lead to complicated claims for businesses in a number of industries, including hotels, restaurants, retail establishments, transportation companies, entertainment providers and venues, and the companies that service such businesses. Business owners should begin assembling their insurance policies and analyzing the extent of their losses as soon as it is possible to do so. 

The following tips can help lead to a successful claim process:

• Give notice right away.
• Assemble a team with the knowledge and skill to identify and calculate loss.
• Communicate in writing with your insurance companies.
• Track expenses, estimates, receipts, and invoices.
• Set goals and push for them.
• Avoid assumptions: Get the facts about what took place, not labels or buzzwords.
• Be prepared to present details supporting the full value of your claim.

Contact the authors if you have questions.