Hurricanes can leave businesses devastated, with things like high winds, storm surge, and other complications wreaking havoc on commercial property. These massive storms do not discriminate. They can damage Fortune 100 companies, small “mom and pop” outfits, or any other business in-between.
In the wake of all that destruction, insurance companies become inundated with commercial property claims. Because they often receive more claims then they can handle, wherever possible they will turn to a time tested, tried and true list of exculpatory defenses to deny or dispute a hurricane claim in Florida.
These are the ten most common things that are disputed by insurers during Florida commercial hurricane damage claims.
- Was the rainwater that left property damage caused by physical damage related to wind?
It is easy to assume that any property damage caused by rain will be covered by your commercial insurance property. However, many policies that do not include flood damage provisions will only cover interior water damage when it enters the building via a covered cause of loss. For example, you would be in the clear as a commercial property owner if the rain came through as a result of an opening caused by wind damage. It is common though to have water damage during a hurricane when nothing actually happens to the physical property. - Was the damage to your property caused by an excluded peril like storm surge or flood waters?
Storm surge and flooding are common causes of damage during a hurricane. The tricky part with this is that most insurance policies have clauses known as a specific water exclusion that will reject coverage for loss due to one of these factors. It is vital that your policy has an extra flood endorsement to keep you safeguarded. - Was the water damage caused by both a covered peril and an excluded peril?
There will be many situations where damage is levied by both a covered and excluded peril, i.e. wind and flood waters. In this situation, only the covered peril damages would be covered, making these cases all the more complicated to iron out. As a result, courts often rule to only allow those insured to recover a portion of the total damages. - Does a wind deductible apply and reduce your damage claim?
You may think the loss sustained by your business clearly falls under your wind policy, but there can be different applications and determinations when it comes to wind deductibles. Wind Deductibles are endorsements that usually carry a much higher dollar deductible then your policy’s general deduction. These deductibles can drastically impact what you are able to recover and they are varied in type, ranging from flat dollar amounts or a percentage that is calculated based on the property’s total insured value. There may also be a per occurrence or named storm deductible that comes into play. These different intricacies is why it is very important that you correctly negotiate your wind deductible when building your policy, or risk your wind coverage being relatively useless. - Does the coinsurance clause apply, and, if it does, how much is your claim reduced by?
Even more dispute can develop around a coinsurance clause. They require the insured to maintain insurance on their property that is equal to its actual cash value or a specific percentage of it. These clauses are built with the insurer in mind as a way to safeguard them against under-insurance because it penalizes the policy holder who under-reported the property’s value in order to pay lower premiums. If it is found that you have under-insured your commercial building, then the coinsurance clause will decrease how much money you can recover in the event of damages. The coinsurance penalties hold true whether you are making a property damage or business income claim. - What is a “period of restoration” that is reasonable for business income recovery and extra expense loss?
Figuring out what stands as a reasonable “period of restoration” to collect on your business income loss is another factor that regularly comes up. The regular range that is deemed acceptable begins 72 hours after the loss occurs and ends prior to “the date when the property should be repaired, rebuilt or replaced with reasonable speed and similar quality or the date when the business is resumed at a new permanent location.” The timeline can continue past the expiration of the policy as long as the repairs are still unfinished and the limits are not exhausted. The restoration period is not defined as the specific period that was the time it took for repairs, but rather, the reasonable amount of time things should have been fixed. Thus, issues arise over terms like “reasonable speed,” “similar quality,” and “resumption of business” that are included as qualifiers in the policy. - Does the availability of materials that cause delays get covered under “period of restoration?”
If materials used for repairs are not available or delayed in arriving, that can extend the period of restoration for your property. The language of your policy probably does not address in specifics any factor that is beyond your control either. The good thing is that courts usually side with the insured, allowing for any delays out of your control to still be covered. As long as you can document that you made significant efforts to rectify the situation, you should be fine. - Are continuing business losses covered after the “period of restoration?”
Continuing business losses are normally only considered if extended business income coverage was purchased and if your losses came from physical damage. Business losses likely will not be recovered from catastrophes like a hurricane that create downgraded business conditions. Any additional coverage for business income starts on the day property is restored to its previous condition and operations restart. The plan extends by up to 30 days beyond this date. Disputes in this matter happen when the insurance company takes issue with the extent to which the insured pursues repairs of their business to pre-loss form. Claim terms that could cause an issue due to their interpretation include “date you could restore,” “your operations,” “reasonable speed,” “the level which would generate,” and “business income amount that would have existed if no direct physical loss or damage had occurred.” - Are current building code requirements related to repairs covered?
Commercial insurance policies often do not cover the extra costs for a building to meet current code requirements. Most of them contain a “Ordinance Or Law” exclusion that states the insurer will not pay for a loss or damage that is the result of an ordinance or law. This will work against the insured from receiving additional damages for code requirements, beyond the basic fixes that can repair a building. An “Increased Cost of Instruction” endorsement can protect against this and give you the coverage you need for code compliance. You usually have to have replacement cost coverage to access this endorsement. Many people just expect that their construction costs will be covered and the problem starts when the insurance company then denies the claim or pays out only a percentage of it. - Is the delay due to uninsured code repairs covered?
There is an issue that arises when trying to separate the time and business loss income from the performance of covered repairs and the uninsured repairs related to code upgrades. Getting a building back to its pre-storm state can often be delayed once they realize additional things need to be up to code. The “period of restoration” clause also regularly includes a provision that makes it sure the insurer is not responsible for this extended rebuilding timeline. Insurers will be very specific when fighting this situation, claiming that the code repairs did not have much effect on the overall repair date.
