Superstorm Sandy was a catastrophic event by any measure. The damage inflicted on New York City and the surrounding coastal communities was unprecedented. Insured losses are estimated to total between $20 billion and $25 billion. The impact of the storm was tragic but also serves as a reminder for both insurance coverage issues and emergency preparedness.
Flooding was a significant source of damage from Sandy. Unfortunately, it is estimated that 70 percent of individuals and businesses located within the flood zones did not carry flood coverage. Loss due to flooding is not automatically covered under commercial property insurance, but most policies have the ability to add flood as a covered peril. For properties located in or adjacent to a flood zone, coverage is available through the National Flood Insurance Program (NFIP) through a separate policy. The following link provides additional information on the NFIP and includes a Flood Risk Profile you can use to assess your location: http://www.floodsmart.gov/floodsmart/.
Business Interruption claims comprise much of the insurance loss sustained due to Sandy. A 13-foot storm surge struck lower Manhattan, causing widespread damage to infrastructure and office buildings. Many firms were unable to access their office locations and some continue to be displaced months later.
Business Interruption coverage indemnifies the policyholder for the loss of earnings resulting from a covered property loss. Business Interruption insurance should provide coverage for lost profit and continuing expenses a business incurs due to the temporary closure of the business as a result of the event. Flood needs to be a covered peril in order for your insurance to respond to a business interruption directly caused by a storm surge. Extra Expense is commonly included with Business Interruption coverage and would respond to reasonable additional costs a business incurs to keep operating. An example of an extra expense would be the additional cost to rent a temporary office in order to continue operations.
Property policies will typically include a number of additional coverages that could also respond to an event such as Sandy. These coverages generally have specific limits assigned to them, but you often have the flexibility to increase the coverage.
Civil Authority coverage applies when a location’s access is restricted due to an evacuation order from the government. This coverage can apply if your location is within the restricted area even if you do not sustain a direct physical loss. The coverage will frequently have a specific time period or limit that will apply.
Utility Services coverage can provide for direct damage or business interruption due to loss of electrical, water, or communications services. There are limitations based on how and where the utility services are interrupted. Coverage almost always has a specific limit assigned to it and may include restrictions such as excluding loss due to “overhead transmission lines.”
Property Insurance may include coverage for Ingress or Egress. After Sandy, many workers were unable to return to their offices due to damage to surrounding streets as well as reduction of access to commuting options. Ingress/Egress can provide some coverage for this type of exposure but may include limitations on location and source of the restriction. The restriction would have to be triggered by a covered peril.
Dependent Business Interruption can provide coverage due to a loss suffered by a key customer or supplier. The loss needs to be triggered by a covered peril, and the coverage will have a specific limit. Businesses that rely on a key supplier or customer should evaluate this coverage carefully.
Disaster planning is an important component of a risk-management plan for any business. Many businesses are able to continue operations by working remotely, but it takes advance planning and attention to infrastructure in order to be successful. There are many sources to assist you with developing a disaster plan for your business. FEMA’s link for businesses is http://www.ready.gov/business. Many insurance carriers can also provide guidance and tools to assist with the process.
Superstorm Sandy proved that a large storm can have far-ranging impact beyond properties located on the waterfront. Even businesses located in high-rise buildings are not immune to losses sustained due to flooding. The storm had many tragic consequences, but it also provided valuable lessons for evaluating both your insurance and business continuity plans.
At Cleary, we will evaluate your business exposures and work with you to develop a comprehensive plan to safeguard your business. Give us a call today at 617-723-0700.