Key Questions and Answers About Insurance Coverage For Hurricane Losses
Many individuals, corporations, and small-business owners impacted by Hurricanes Harvey and Irma are scrambling not only to protect and rebuild their properties, but also to mitigate their losses by calling on their insurance coverage. Both tasks can be time-consuming and frustrating in the immediate chaos that often follows a natural disaster. The following guidance, in question-and-answer format, is offered to help individual and corporate policyholders pursue insurance coverage for losses suffered from such events.
Q: Should I deal with my insurance company directly regarding my claim or should I let my insurance broker assume that role?
A: Following widespread natural disasters, it often makes sense for policyholders to deal directly with their insurers rather than rely on their brokers or other middlemen to handle their claims. Insurers and brokers are often overwhelmed by coverage claims in such emergency situations and lines of communications can be severely strained, resulting in frustrating delays. While you should always keep your broker in the loop when corresponding with your carrier, we recommend that policyholders open up a direct line of communication with their insurers after suffering losses from a major natural disaster.
Q: What’s the best way to notify my insurance company of a coverage claim?
A: In emergency situations like those often following hurricanes and floods, homeowners and businesses should immediately put their insurers on notice of covered losses—even if they have scant information on the extent of their losses or have doubts about the scope of their coverage. We suggest immediate notice be given orally by telephone, which should be promptly followed up with a written notice of claim. Sometimes, but not always, the policy will provide details on how oral or written notice should be given to the carrier. If it does not, the insurer’s website often provides that information. We suggest that the initial written notice be sent by certified mail.
In most cases, the sooner a policyholder puts its carrier on notice the better. An insurer will often schedule an inspection of the policyholder’s damaged property upon receipt of oral notice—even where the policy provides that notice must be in writing. In a natural disaster situation, it is usually first come first served: The policyholder who provides earlier notice will get an earlier inspection and, consequently, an earlier coverage decision.
It is important that you make a record of any oral notice you give to your insurer—and then follow that up with a more detailed letter. The policy will often detail the information required to support your proof of loss. If you cannot immediately access your property to inventory the damage, you should give your insurer as much information as you can and advise that you will provide more details later.
Never assume oral notice to your insurer is enough, even if it results in a quick inspection by the insurer’s adjuster. Written notice creates a paper trail that may be very important later, especially if the timing of your notice becomes an issue. Moreover, most homeowners and commercial business policies provide that written notice must be given “promptly” or “as soon as practicable”—and courts in many jurisdictions have interpreted these requirements quite stringently. And in most homeowners policies, the insurer’s obligation to initiate an investigation of the claim only begins upon receipt of written notice.
In short, when in doubt, immediately notify your insurer orally of your claim, and then promptly follow up with written notice—even if the notice is short on details. You can then supplement your written notice with additional information after you have conducted a more thorough investigation of the damage and have assessed of the scope of your coverage.
Q: If I have a policy that covers damages caused by a hurricane, shouldn’t I also have coverage for flood damages cause by a hurricane?
A: Unfortunately, the answer is “probably not.” Many policies that provide coverage for damages to homes or businesses caused by hurricanes also contain flood exclusions. A typical flood exclusion precludes coverage for “loss caused by or resulting from flood, surface water, waves, tidal water or tidal waves or spray from any of these whether or not driven by wind.”
It might seem counter-intuitive that a policy that purportedly covers hurricane losses can exclude coverage for the most common source of property damage from hurricanes—tidal surges and floods. Even so, many courts have strictly enforced flood exclusions in business and homeowners policies, even if the flooding is directly and solely caused by hurricane winds. In such cases, insurance adjusters frequently must distinguish between wind damage and water damage, a distinction that can be highly subjective and controversial.
In some jurisdictions, courts have applied the principle of “efficient causation” in determining whether coverage exists for otherwise excluded losses. There are two types of efficient causation: predominant causation and concurrent causation. In certain jurisdictions, one or both principles may apply in cases where there are two causes of a given loss, only one of which is a covered peril.
Under the predominant causation principle, if the predominant cause of the loss is covered, the entire loss is covered. For example, even if the policy excludes coverage for mold damage, if the predominant cause of the mold damage is wind-blown water damage—a covered peril—there may be coverage for the mold damage.
In concurrent causation cases, the covered cause of the loss need not even be the predominant one. For example, if two separate events contribute to a given loss, the entire loss is covered as long as one of the two events is covered, and regardless of which cause is the predominant one.
Can a policyholder with a policy that covers hurricane damage, but also contains a flood exclusion, cite the “efficient causation” principle in arguing that flood losses are covered despite the exclusion? That is, can a policyholder plausibly claim that hurricane winds that caused or contributed to the flooding were the efficient cause of the flooding and, consequently, all resulting loss is covered? In an ‘efficient causation” jurisdiction, such an argument would be plausible. This underscores the importance of determining which jurisdiction’s law applies in interpreting the insured’s policy—and whether or not it is an “efficient cause” jurisdiction.
Q: How do I determine which state law applies to my insurance policy?
A. This is a complicated but very important question. Insurance law can vary widely from state to state, and some jurisdictions tend to be considerably more favorable to policyholders than others.
Although some business and homeowners policies specify which state’s law applies in interpreting the policy, many do not. Policyholders frequently assume in hurricane situations that the applicable jurisdiction is the state where the property damage occurred. This is not necessarily the case. Insureds should consult with coverage counsel if they are in doubt as to which state’s law applies and the advantages of applying one state’s law rather than another.
Q. What about hurricane damage to my automobile? Can I assume such damage is covered by my car insurance?
A. In most cases, yes. Wind and flood losses are covered under most business and personal auto policies provided the insured purchased other than collision-only coverage. You should check your policy to make sure it doesn’t exclude coverage for flood damage (most auto policies do not). If there is a possibility of coverage, promptly notify your carrier.
Q. What if a hurricane causes a major disruption of my business. Is the resulting loss of income covered by my insurance policy?
A. If your policy covers windstorm damage, and even if it also contains a flood exclusion, it may provide coverage for lost or extra expenses that your business suffers from a hurricane. Check your policy to see if it has a “business interruption” or “extra expense” coverage part. If there has also been flood damage, you need to be prepared to show that the business interruption occurred—at least to a significant extent—due to wind rather than flood. If it’s unclear which, you should take the position that the entire loss is covered. Unfortunately, if you have purchased flood insurance for your business, and even though that policy covers your business premises and personal property from flood damage, it probably will not provide coverage for your resulting business interruption losses.
Proving the extent of your lost profits from business interruption can be a formidable task. Insurers will usually insist on detailed proof that the loss was due to the insured event, rather than to unrelated external factors (such as market conditions that would have occurred even absent the storm). Many businesses that suffer significant hurricane-related losses hire independent adjusters to help them make the case to their insurers.
Q: What about additional living expenses, such as the cost of putting up my family in a hotel until they can return home?
A: If you suffer a loss from an event covered by your homeowner’s policy, such as windstorm damage, your policy may provide coverage for your temporary living expenses, often subject to a sublimit (such as 20-30% of your overall policy limit). Your insurance company may agree to advance you money to pay for such expenses, even where the policy does not require them to do so (It never hurts to ask). Most insurers will require you to carefully document all such expenses, such as hotel rooms, extra transportation costs, and restaurant charges. Unfortunately, if your loss is primarily due to floodwaters, and even if you have flood insurance for your home, your necessary living expenses and other incidental costs are probably not covered by a typical flood policy.
Q: If I have wind-damage coverage through a state property insurance association, how do I go about filing a claim?
A: Your insurance broker should be able to tell you whether wind damage is covered by your homeowners or commercial property policy and/or through your state’s wind or property insurance pool. The process for pursuing a claim with your state property insurance association is a creature of state law, and that process can vary widely from state to state. You may want to coordinate with you coverage counsel if you decide to assert such a claim.
Q: Should I hire an independent adjuster to quantify my hurricane damages, or can I simply rely on my insurance company’s adjuster?
A: If your claim is large enough, and you believe your insurance company’s loss estimate is on the low side, you would be wise to retain an independent adjuster (sometimes called a public adjuster) to help you conduct your own evaluation. Independent adjusters often appear at hurricane disaster sites in search for clients, and not all are equally competent or trustworthy. Accordingly, you should select your independent adjuster carefully.
Q: How do I know whether I’m protected from flood damage by the National Flood Insurance Program?
Typically, flood damage is not covered by homeowners insurance. If you are a renter, homeowner, or a business owner, and your property is located in a community that participates in the NFIP, you can purchase a flood policy through that program from a private insurer. Many lenders require homeowners to buy flood insurance through the NFIP if their home is in a 100-year floodplain. If you bought flood insurance from an NFIP insurer, FEMA’s website offers helpful step-by-step guidance on asserting a claim under your policy.
Q: What should I do if I am dissatisfied with how my claim is being handled by my insurance company?
A: In hurricane situations, the most common dispute that arises between policyholders and their insurers is whether and to what extent there is coverage for damage caused by storm surges and flooding. The “wind vs. flood” determination can be a complicated one, and you should consider hiring an independent adjuster if you question that determination by the insurer’s adjuster.
If the claim is substantial enough, and if you are convinced your insurer is not being fair, you should hire a coverage attorney to evaluate your coverage options, including litigation. In that situation, you should never sign a release with your insurer until you have consulted with your attorney. Courts have generally found such releases to be enforceable, no matter how one-sided they may be in favor of the insurer.
Q: Should I rely on my insurance company to hire a reputable contractor to repair or rebuild my home or business following a hurricane?
A: Most policies do not obligate policyholders to accept their insurers’ choice of remedial contractor. If your insurance company recommends a contractor, be sure to carefully check his or her credentials, and, if not satisfied, find your own. But be careful: incompetent and downright dishonest contractors are known to take advantage of hurricane victims desperate to rebuild. You should be especially wary of contractors who promise to handle your insurance claims for you, or encourage you to assign your insurance benefits over to them in exchange for “free” or “discounted” repairs.
Q: If I need immediate repair work done and the insurance company has not yet evaluated my claim, can I assign my insurance claim to my contractor so he/she can begin work right away?
A: Some insurance companies—even before making a coverage determination—will advance funds to their policyholders to make emergency repairs. However, many will not do so—leaving in a bind policyholders who don’t have enough money to make necessary repairs in a timely fashion. In those situations, some building contractors will offer to make repairs at low or no cost in exchange for an assignment of the insured’s rights to insurance proceeds.
It is usually unwise for policyholders to accept such offers from their contractors. In fact, rarely should policyholders assign their insurance benefits to anyone. For one thing, their policies may contain “anti-assignment” clauses that prohibit the assignment of policy rights without the insurer’s consent. Worse, an assignment of coverage rights to your contractor may result in your loss of control over the extent and timing of the repair of your home—never a good idea.
Q: Do I jeopardize my insurance if I make repairs without my insurer’s prior consent?
A: In many cases, time is of the essence when it comes to making emergency repairs after a major storm event. As many flood victims know, to avoid mold and fungus buildup, flood-ravaged homes should be stripped of soggy dry wall and allowed to dry out as soon as flood waters recede. Emergency repairs, if made soon enough following a storm, can prevent or substantially limit additional property loss by water penetration, theft, mold or fungal growth.
Most insurance policies require policyholders to obtain their insurer’s consent before incurring covered repair costs, especially if the repairs are permanent. But what if your insurer refuses to give such consent pending a coverage determination, which could take weeks? Or what if you are simply unable to contact the appropriate representative of the insurer to request such consent—an all-too-common occurrence in hurricane and flooding situations?
Some business and homeowner policies give the policyholders leeway by allowing (or even requiring) them to take emergency measures, without the insurer’s consent, as necessary to protect the home or business from further damage. Often there is a limit on the extent of such coverage. For example, some homeowner policies provide that, unless the insurer agrees otherwise, the cost of emergency repairs are only covered up to the lower of $3,000 or one percent of the policy limit. And some policies prohibit the insured from making any permanent repairs until the later of three days after the loss occurs or the date the insurer conducts an on-site inspection.
When in doubt, after a storm event policyholders should do whatever it takes to secure their homes or businesses from theft, vandalism or further physical damage, even if those measures are “permanent” and even if the policyholder cannot obtain its insurer’s prior consent. In most such emergency-repair situations, courts have been reluctant to enforce “consent-to-repair” clauses in homeowners’ policies. In any case, policyholders should carefully document all efforts they make to obtain their insurer’s consent. And they should fully document the cost of those repairs and be prepared to explain why they were necessary to prevent or limit further covered damage.