It’s Déjà Vu All Over Again

Once more into the breach, dear friends. Five years ago, our beloved community was targeted by a series of wildfires and mudslides that caused severe damage to our businesses and residents, including loss of life. And now we again find ourselves at the mercy of Mother Nature with rain and mud once more impacting our lives. 

Insurance can be a valuable asset in times like these. The last time around, fortunately, the vast majority of insurance companies accepted the Insurance Commissioner’s mandate that they resist the temptation to assert technical defenses to coverage. The coverage picture is murkier today than it was five years ago. 

If you or your business have property damage and/or business interruption losses today and need to file a claim, make sure that you cover all bases – including property insurance, flood insurance if you purchased it from FEMA, and if all else fails, an application to the FEMA disaster relief fund. 

Consider making the initial assessments discussed here. There are important aspects to the claims preparation process, and key policy provisions affecting the availability of coverage for property damage and/or business interruption losses, that you should take into account throughout the process.

Document the Damage and Loss

– Document physical property damage to both the exterior and interior of your home or business using photographs, video, and inventories of any lost items (e.g. personal property). 

– Document any business interruption losses to your business using historical business records and sales data to establish lost income evaluations.

– Document any post-loss expenditures incurred immediately following the loss (including mitigation efforts), as well as any subsequent work related to the loss (e.g. repair/replacement estimates, appraisals, etc.).

Identify Potentially Applicable Types of Coverage

Homeowners’ policies are designed to provide coverage for property damage losses caused by covered events, while commercial property policies typically include coverage for both property damage losses and business interruption losses associated with covered events.

– If your copy of your insurance policy(ies) has been lost as a result of the natural disaster, contact your insurance broker for assistance in obtaining another copy. 

– If included, the business interruption portion of your coverage may contain several specialized types of coverage:

Business Income: Replacement of income that would otherwise have been earned by the business had no loss occurred – generally defined as the net profit or loss before taxes, plus continuing normal operating expenses, including payroll. 

Extra Expense: Additional costs in excess of normal operating expenses incurred to continue operations (for example, at a difference location) while damaged property is repaired or replaced.

Contingent Business Interruption: Replacement of lost income and profits resulting from an interruption to the business of a direct or indirect supplier or customer affected by a covered event.

Debris Removal: The costs to clean up the natural disaster-related damage.

Civil Authority: The lost income for a temporary time period during which access to the business location, or the operations of the business, are prohibited by order of a civil authority.

Ingress/Egress: The costs associated with shipments or employees unable to reach the business location due to the natural disaster-related damage.

Service Interruption: The costs related to a power outage in connection with a covered event that prevents normal operations.

Identify Key

Coverage Conditions

and Limitations

Reviewyourinsurancepolicy(ies)tofamiliarizeyourselfwithcertaincoverageconditionsandlimitationsthatmayaffecttheavailabilityofcoverageforpropertydamageandbusinessinterruptionlosses: 

LimitsofLiability,Sublimits,andDeductibles/Self-InsuredRetentions:Thelimitofliabilityisthetotalamountofcoverageavailableundertheinsurancepolicy,subjecttoanysublimitsforcertaincoveragesandanydeductible/self-insuredretentionthatyoumayberequiredtopay“out of pocket”beforeobtaininginsuranceproceeds. 

WaitingPeriod:Theremaybea“waiting period”(e.g.72 hours)listedforcertainbusinessinterruption-relatedcoveragesthatlossesmustextendbeyondinordertobesubjecttocoverage.

DutiesintheEventofLoss:Theseprovisionsdetailthestepsyoumusttakefollowingalossinordertosubmityourclaimandobtaininsurancecoverage.Noticeoftheclaimoraproofoflossprovidingthedetailsofyourclaimmayberequiredwithinarelativelyshortperiodoftime,forexample.Thesetimeperiodscanactasastatuteoflimitationsthatmaybaryourclaimifitislate,requiringpromptactionbyyou.

Exclusions:Thelistofexclusionsintheinsurancepolicyshouldbereviewedcarefullytodeterminewhetheranymightapplytoprecludeorotherwiselimitcoverageforyourloss(e.g.floodorotherwaterdamage-relatedexclusions).

AppraisalandValuation:Theseprovisionscontaininformationregardingtheprocessandformulastobeusedtocalculatecertainbusinessinterruption-relatedlosses,aswellastodeterminethevaluationofpropertydamage-relatedlosses(e.g.repair,replacement,actualcashvalue,etc.).

Suit Limitation: Thetimeperiodwithinwhichalawsuitcanbebroughtagainsttheinsurerfollowingaclaim,ifnecessary.Notethatthetimeperiodmaybelimited.

Prepare and Submit

the Claim

Provide notice of your claim under any potentially applicable insurance policies as soon as reasonably possible following the loss – include your name or your business’ name, address of the insured property, approximate date of loss, and any available initial details or description relating to the loss.

– Other more detailed documentation can be submitted as it becomes available and/or as it is requested by the insurer (e.g. repair/replacement estimates, appraisals, etc.).

– Review your insurance policy to confirm any deadlines for the submission of a more detailed proof of loss for business interruption-related losses, and if necessary, seek agreed-upon extensions from the insurer.

– Maintain records of all communications with the insurer and keep early communications at a high-level to allow time for the claim to be fully evaluated before articulating coverage positions.

We understand that all of this can be overwhelming. Both insurance brokers and attorneys can help to guide you through this wilderness. 

To provide further assistance, the authors and a local insurance broker are hosting a public meeting at the Santa Barbara College of Law to discuss your questions and concerns. 

Date: Wednesday, January 25 at 7 pm

Address: Santa Barbara College of Law, 20 E. Victoria Street