The last few weeks have been, in a word, brutal: Hurricanes Harvey and Irma have devastated parts of Texas, Florida and Louisiana (not to mention Puerto Rico, the U.S. Virgin Islands, and other parts of the Caribbean); wildfires have spread across California, Oregon, Washington and Montana; parts of Southern Mexico and Guatemala are reeling from a magnitude 8.2 earthquake; while parts of South Asia grapples with intense flooding and landslides that have left more than 1,000 people dead.
Providing for the immediate needs (read: food, clean water, and shelter) of populations displaced by these disasters is a logistical feat in and of itself. But the rebuilding efforts will, by all estimates, take years—and cost hundreds of billions of dollars. Hurricanes Harvey and Irma along with this year’s other natural disasters are potent reminders of the need to plan for long-term redevelopment.
For many business owners, even those here in Ohio, natural disasters can and do affect the ability to manage production, work with vendors, exchange goods, and provide services. In short, natural disasters, even those that are physically remote, will disrupt your business in multiple ways, including your bottom line.
But, moreover, these situations will affect the people who work for us, too, which is why contingent business interruption insurance (CBII) should be a critical element of your long term strategic plan. CBII can protect your business in the event of a natural disaster by covering losses sustained as a result of damages at your properties or injuries suffered by your employees. CBII can likewise protect your business in the event that customers, vendors, or suppliers are suddenly absent, no longer operating, or otherwise become available to you as the result of a natural disaster.
Importantly, most insurers do not offer stand-alone CBII policies; rather, CBII is generally only available to businesses already covered by some form of property insurance or commercial general liability policy.
An example of how CBII works
ABC Manufacturing Inc. has designed and built dollies, wheelchairs, walkers, wheelbarrows, carts, trailers, and other specialized wheeled products, since 1917. ABC has a “buy American, build American” policy, so all of its wheels are supplied by Houston Wheels Co. out of Houston, Texas. Houston Wheels is one of the largest producers of specialty wheels in the United States: If it rolls, there’s a good chance that Houston Wheels make it go. Houston Wheels has been one of ABC’s main suppliers for many years.
Hurricane Harvey caused massive flooding in and around Houston and, as a result, Houston Wheels Co. is no longer operating. ABC is desperate to find another U.S. supplier that can provide the same, high-quality wheels for the same (or comparable) price. To make matters worse, some of ABC’s largest customers include nursing homes and citrus farmers in Florida, and after Hurricane Irma swept through, ABC needs to find new purchasers for its finished inventory, which it can no longer ship to its regular customers. The loss of its main supplier and one of its largest markets is hurting ABC’s business.
Fortunately, ABC Manufacturing has CBII coverage, and it submits a claim to its insurer for the lost profits, income, and reasonable expenses that it sustained over the past several weeks. ABC’s losses will be covered (subject to any policy limits and exclusions), to the extent that they were caused by interruptions of business operations at its suppliers’ and customers’ facilities.
This hypothetical illustrates the usefulness of CBII coverage for businesses, particularly for businesses like ABC that depend on relatively small numbers of suppliers and customers.
What CBI insurance will not do
Between your CBII and standard policy coverage, you should be able to recoup losses associated with disasters. However, not all policies cover all types of contingent business losses. For example, some policies might exclude:
- interruptions to ingress/egress at insured facilities that are not caused by extreme weather events
- interruptions to ingress/egress at insured facilities caused by acts of civil authority
- Utility service interruptions that affect operations at insured facilities
- Changes in temperature that interfere with operations at insured facilities
Submitting a claim
Submitting a claim to your insurance company can be a hassle under ordinary circumstances, let alone submitting one in in the wake of a natural disaster affecting large swaths of the country. On one hand, your insurer is cycling through an almost inconceivable number of claims; on the other hand, if you are up-to-date with your policies, you deserve prompt and timely service. It is one thing to face a delay because of the sheer number of claims being processed—but a bad faith denial of coverage presents a separate issue altogether.
That is why a skilled business attorney can come in handy. At Gertsburg Licata, our General Counsel services help Ohio business owners breathe easily, knowing they have the coverage they need, when they need it.
Max Julian is a partner at Gertsburg Licata in the litigation practice group. He may be reached at (216) 573-6000 or at [email protected].
Gertsburg Licata is a full-service, strategic growth advisory firm focusing on business transactions and litigation, M&A and executive talent solutions for start-up and middle-market enterprises. It is also the home of CoverMySix®, a unique, anti-litigation audit developed specifically for growing and middle-market companies.
This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction. If you have specific questions about your matter, please contact an attorney licensed to practice in your jurisdiction.
