Wringing the Most Out of Business Insurance

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12 p.m., Oct. 31, 2012 — Thousands of small businesses closed by Hurricane Sandy this week may be covered by insurance for property damage and lost revenue. Even companies located thousands of miles from the storm zone  may be eligible to file claims, so long as they sustained losses related to crucial customers or suppliers in the devastated area. I spoke to Linda Kornfeld, an insurance-litigation attorney with Chicago law firm Jenner & Block, about how small business owners can get the maximum allowed under their insurance coverage. Kornfeld, who is based in Los Angeles and who has represented businesses in insurance disputes since 1991, focuses on claims resulting from disasters; edited excerpts of our conversation follow.

How does a small company that’s been hit by the storm determine whether it is covered for damages?

Let’s say your business has been closed Monday and Tuesday and you’re opening your doors on Wednesday. Figure out whether you can start operating again and get a sense of where your losses are. A critical first step is to get a hold of your insurance policy and read it.

Is disaster coverage a standard part of a basic business insurance policy?

No two policies are identical and this is a complicated area. But business-related coverage typically covers damage to property and if you have that, it almost always will cover lost profits due to the damage.

What should an entrepreneur be looking for in the policy?

See what’s specifically covered. Do you have flood coverage or is it excluded? What about wind damage? What is your policy limit and what’s your deductible? Sometimes there will be sub-limits, so you may have $5 million total coverage for property damage and lost profits, but only $2 million for flood damage. That’s because insurance companies want to limit their exposure to particular types of risk that can be so devastating.

What other limits might there be in the policy language?

There could be sub-limits or policy deductible differences for flood, or wind, or named storms. That means if a storm is significant enough to receive a formal name, it might have a sub-limit on the amount you get. What has to be determined is the definition of what constitutes a named storm and whether Sandy meets that definition.

Why is identifying these limitations important?

In this case, your loss may be caused by some combination of wind and flooding. So if your policy has no sub-limit for wind, but it does have one for flood, you’d be better positioned to frame your loss in respect to wind rather than flooding. You want to look for opportunities to promote your claim for maximum benefit available under the policy.

At what point should the business owner contact the broker or claims adjuster?

Reach out to a professional as soon as you can after you read through your policy and then do your best to present your claim. Policies often have specific timing requirements, so check to see when you have to give notice and when you have to provide what’s called “proof of loss”—and what that entails. Insurers sometimes argue that if you blow a timing requirement, you’ve blown coverage. I don’t agree with that, but they’ll argue it if they can, so make sure you strictly comply with the timing. If you can’t, ask for an extension of time or modifications as to what information needs to be provided.

Small companies with little in the way of capital reserves will need to get repairs done and doors open as soon as possible. What if they can’t wait for a claims adjuster?

The most important thing is to fix that gaping hole in your roof and get your company up and running. Try to get the blessing of your insurance company for any expenditures you’re making; that will help immensely. If you can’t reach them or they’re being difficult about giving approvals, do what you need to do to get your company back to normal. Just keep careful notes of every expense you’re making and all the communications efforts you’re making to reach out to your insurance company.

What about businesses located around the country that lose revenues because suppliers or customers in the storm zone are out of commission?

Businesses not located in the area may still be impacted, especially since we’re talking about a place like New York City. Maybe your business is in another state but a business you rely on was in the heart of the storm. Say you have a key manufacturer in New York and they’re not able to supply you with the inventory you need. You may have to switch suppliers, and it may be far more expensive to do that now that it otherwise would be. Some property policies have coverage that addresses those kinds of situations. It’s called “contingent business interruption coverage” and it means you may be covered if you suffer a loss, even though you did not have a tree come down on your office.

—Karen Klein

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