Hurricane Sandy caused billions of dollars in property damage and resulted in billions of dollars in lost business revenue. Many business owners are wishing that they had purchased business interruption insurance, but many others are discovering that their policies do not necessarily provide coverage for the consequences of this natural disaster. Before buying your next policy, it is important to carefully inquire about just what coverage you will be afforded.
Business interruption insurance, or business income insurance, is intended to reimburse the insured for the amount of revenue it would have received during the period of interruption caused by a covered event. Like all insurance, however, whether a business is covered by loss from an event like Hurricane Sandy depends upon the terms, conditions and language of the policy.
There are many difficult, complex questions raised by a disaster like Hurricane Sandy that impact whether business interruption coverage will be afforded. A few simple examples will illustrate why the question of coverage is not nearly as simple as it might seem. These are where the business interruption occurs: (1) without physical property damage; (2) due to flood damage; or (3) from civil evacuation.
If the business property was lucky enough to escape serious physical damage, but operations cannot resume due to road closures, flooding elsewhere, power outages or other causes, there might not be coverage. Most business interruption policies require that the insured suffer physical damage to its business property which results in the interruption of operations to trigger coverage.
The cause of property damage can also be important, for policies can be “all-risk” or “named peril”, which limit the causes of interruption to those specifically named in the policy and may not include floods or other natural disasters. Even many “all-risk” policies provide exclusions disclaiming coverage for disasters such as flooding and tidal water overflows, such as those caused by Sandy at the ocean shore and far inland.
If your business property escaped weather and flood damage, but was closed due to evacuation of the town or area, there may or may not be coverage. Some business interruption policies contain additional provisions or endorsements which extend coverage for lost revenue resulting directly from the insured’s access to business property being prevented or hindered by order of a civil authority due to damage to or destruction of nearby property.
Courts will no doubt be sorting out these and other issues implicated by Sandy for years, just as they have been due to the September 11th attacks and Hurricane Katrina. To prepare for the next time, it may be prudent to spend some time on reviewing specific policy provisions or exclusions in relation to your business needs and circumstances with your broker or attorney before buying or renewing coverage.