To prevent a repeat of last year--when many insureds discovered that their insurance protection didn't fully cover the devastation and lengthy disruption caused by the hurricanes--every business located in the possible hurricane path needs to act now, reviewing property coverage, to make it easier to recover from the next spate of storms.
For starters, Florida is not the only destination for hurricanes in the United States, with the entire eastern United States considered a hurricane-prone area. Most hurricane deaths and much of the damage are due to floods unleashed by the storm. So any businesses located in vulnerable areas need to know whether their policies cover flooding.
Even if you're not in a designated flood zone, heavy rains could cause flooding almost anywhere. In fact, since 1968, nearly a quarter of flood claims submitted under the National Flood Insurance Program reportedly have involved losses outside of high-risk areas.
Consider some ways to protect your business before the next storm hits:
- So-called "all-risks" coverage doesn't necessarily mean you have coverage for all losses. "All-risks" simply means that the insurance company is describing the scope of coverage through "exclusions." For example, most all-risks policies exclude flood, and some exclude wind loss as well.
- Most policies exclude flood. A flood can be surface water, waves, tides, overflow or the rising of any body of water, whether wind-driven or not. Courts enforce these exclusions, even where an otherwise covered windstorm directly causes the flood. So, unless you specifically secure flood coverage, you're out of luck.
- Flood insurance is not readily available and must be dealt with differently by large and small businesses. The NFIP coverage is limited and geared primarily toward homeowners and small-business owners, so it's not particularly suitable for larger businesses. Maximum coverage available through the NFIP to businesses is $500,000 for buildings and $500,000 for contents.
- Larger companies may obtain property insurance using broker-worded forms, which typically don't exclude flood. In addition to potentially negotiating for endorsements providing flood coverage in their property policies, companies may also arrange for smaller deductibles, or perhaps higher, seasonal deductibles.
- It's important to determine if you are covered for windstorm damage, and whether there are gaps between your windstorm or flood coverages, and other general property coverage. Replacement cost coverage under general property insurance policies may not cover additional costs to comply with new building codes.
- Some insurers offer limited coverage for loss of utilities for an additional premium. You can also purchase business interruption coverage, or even contingent business interruption insurance, to pay for lost business when the weather shuts you or your suppliers or customers down.
As in prior years, there may be no way of preventing nature's blows. However, making sure you're covered can be a good cushion.
RICHARD MACKOWSKY is a member of the insurance coverage practice group at the law firm of Cozen O'Connor.
August 1, 2005
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