Hurricanes are an unfortunate reality for homeowners and business owners across the United States, with each year bringing another devastating storm to our shores. According to government researchers at the Congressional Budget Office (CBO), the annual economic losses caused by hurricane winds and storm-related flooding average $54 billion—with losses to commercial businesses alone accounting for around $9 billion. Attorney Bill Voss explores what business owners need to know about hurricane damage risks, the keys to filing successful commercial property damage claims, and the steps to take immediately after the storm passes.
Why Are Hurricanes So Costly to Business Owners?
Most owners carry some form of insurance to protect themselves and their businesses from injury liability and commercial property damage. Even if owners have a valid claim for hurricane losses, their recoveries may be limited by ambiguities in the policy language, policy exceptions, or problems with the insurance company. In addition, there are many factors that can cause the amount of insurance payment to vary widely from company to company.
The extent of hurricane losses suffered by a business often depends on its:
- Location. Coastal areas are naturally more prone to hurricane damage, with some states along the Southwest border recognizing hurricane seasons that last for months of the year. Unfortunately, private insurers may refuse to cover wind damage for some Texas counties, so business owners will have to secure coverage for this peril through the Texas Windstorm Insurance Association (TWIA).
- Scale. It’s common sense that the bigger your business is, the more you could stand to lose when a hurricane strikes. Your business interruption insurance should have a high enough policy limit to cover your monthly operating costs (including employee payroll), profit losses, temporary relocation expenses, and other ongoing expenses until you are able to reopen your doors.
- Structure. The age and design of your buildings can make a big difference in the amount of money it will take to repair them. Flooded basements can cause foundation damage that weakens the entire structure, while multi-story buildings may need extensive repairs on some levels but not others, causing aesthetic problems that may not be covered under insurance.
- Pre-existing damage. Insurance companies will often use any excuse possible to get out of paying legitimate claims. One method is to blame the loss on something other than the hurricane, such as wear and tear, lack of proper maintenance, or pre-existing damage. Businesses that perform regular safety and building maintenance inspections are less likely to be put off by insurers, especially if they routinely perform maintenance and repairs.
- Industry. The type of commercial enterprise you run could influence your potential hurricane damage losses. Farms, ranches, and other outdoor enterprises are at particular risk of income loss due to flooded fields or lost livestock, while industrial manufacturers are likely to lose millions of dollars’ worth of heavy machinery to water intrusion. If a business has multiple locations, each location will need to be insured under a parent policy (or under an individual policy with its own selections and limits). If you run a limo or taxi service, your commercial auto policy should cover non-collision damage events for your entire fleet of vehicles (especially since hurricanes can cause vehicles to become flooded, stranded, or washed away in a storm surge).
- Documentation. Your insurer may require a lot of paperwork to properly value your claim, including inventory lists and receipts for out-of-pocket expenses. Owners who regularly perform property inspections after a storm, keep records up to date, and have itemized lists of their assets and holdings are more likely to receive fair payment on their claims, since they have documentation to prove the exact cost of each loss.
How to Protect Against Hurricane Damage Losses
While businesses can expect to lose $9 billion annually for losses caused by hurricane winds and flooding, the CBO estimates that commercial insurance claim payments typically only cover about 40 percent of these losses. The rest of the costs of restoration and lost income are either paid by the owner out-of-pocket, or force the business into permanent closure or bankruptcy.
Owners may be able to secure a higher percentage of their losses by taking a few smart steps, such as:
- Planning for the worst. If it has been more than a few years since you have updated your coverage, you could find that your policy limits are much lower than your business is actually worth. The cost of hiring an independent inspector or private adjuster could save you millions when it comes time to file your next claim, especially if you adjust your policy to cover a large loss or total loss of your business.
- Rereading your private insurance policy. Will your business income insurance pay for only six months of recovery, or is there a possibility of an extension? Does your policy allow payment for concurrent causation if more than one peril damages your property? What exactly triggers the extra expense or umbrella coverage endorsement on your policy? Will your payment be reduced by the amount of depreciation on your property? All of these factors can affect the amount of coverage or even form the basis of a denial of your claim.
- Taking advantage of optional extras. The best insurance for hurricane damage is the one that is tailored to your specific needs. For instance, you may benefit from building ordinance insurance to pay the cost of bringing a damaged structure up to current building codes, utility interruption insurance to cover lost perishable stock, increased cost of construction coverage to prevent shortages and delays during rebuilding, and inland marine insurance to replace goods that were washed away in transit to or from your location.
- Securing federal coverage. The flooding caused by a hurricane can persist for weeks, with no possibility of continuing your operations until waters recede. Unfortunately, commercial property damage policies can exclude or severely limit coverage for flooding caused by a natural disaster. Owners are advised to secure a separate flood damage policy through the National Flood Insurance Program (NFIP) to recover costs for damage to the foundation, electrical systems, structure, and contents.
Steps to Take After a Hurricane Has Affected Your Property
Although installing shutters over windows and relocating vehicles to higher ground can help prevent property damage, nothing is more important than your safety and the safety of your workers. If a hurricane has been forecasted in your area, you should activate your hurricane emergency plan and be ready to evacuate if necessary. Once the storm has passed, you can get started on your hurricane recovery by:
- Notify your insurance company. Early notification will allow the insurance agency to assign you a case number and start on your claim as soon as possible—a vital head start at a time when thousands of claims may be made at once.
- Document losses and property conditions. In addition to making spreadsheets of lost inventory (includes prices, dates of purchase, and serial numbers), you should take photos of all damaged items and record a video walkthrough of the entire property.
- Make only temporary repairs. Do not make any unnecessary repairs to the property before the insurance agent has seen the damage. Necessary repairs are those that prevent further damage, secure the property, or prevent injuries to staff and visitors.
- File your claim. It is important to file your claim as soon as you have gathered the necessary information to prove your losses. You should also retain the claim number, policy number, and a written copy of the claim for your records.
- Call an insurance litigation attorney. Unfair denials, delays, and underpayments are common problems for policyholders, many of whom do not know that they can fight back against insurance companies acting in bad faith. If your insurer refuses to pay for damages, it may be necessary to hire an attorney to advise you on your next steps.
If you are struggling to get fair payment from an insurer after a hurricane, our attorneys will work to get the coverage you deserve from your commercial insurance policy. Simply fill out the form on this page today to contact an insurance attorney at the Voss Law Firm or order a free copy of our book, Commercial Property Owners Must Read This BEFORE Filing an Insurance Claim.