Business interruption and contingent business interruptionclaims loom as a large issue following 'Superstorm' Sandy, asthousands of businesses of all sizes deal with flooding, physicaldamage, power outages, government orders and supply chaindisruptions.

Finley T. Harckham, shareholder in the Insurance Recovery Groupat law firm Anderson Kill & Olick, says he expects “hugebattles” between business policyholders and insurers over whetherinterruption losses are covered.

“It all depends on the policy and triggers,” he tellsPC360. “Much of the coverage is tied to physicaldamage—damage covered under your policy.”

Business interruption covers businesses for losses stemming fromunavoidable interruptions in their daily operations as a result ofphysical damage, but if damage was due to an uncovered peril—flood,for instance—coverage may not be available.

Also, businesses may have coverage for loss resulting fromevacuation by order of civil authority, triggered when authoritiesclose off access to a damaged area. Damage to the insured's ownproperty is not required to trigger coverage but the ordertypically must result from property damage of a type covered by theinsurance policy.

Businesses that are not themselves forced to close may be ableto tap contingent business interruption coverage, which istriggered when policyholders do not themselves suffer physicaldamage but still lose revenue after a property loss sidelines amajor supplier or customer base. Contingent BI is a standardprovision in many property insurance policies, though many smallbusinesses are not aware of it, Harckman says.

“For larger companies, business interruption dwarfed propertylosses after Hurricane Katrina,” Harckman says. “Sandy won't beKatrina-like but there are some parallels.”

Harckman recommends businesses research their policies as theyassess income losses from Sandy's destruction and delays.

High Commercial-Claim Activity Expected in Wake ofSandy

“Too many businesses do not think about insurance unless theirpremises are damaged—or if they do, they fail to calculate the fullrange of loss,” notes Harckham. “Small businesses in particular maynot even be aware of their business interruption coverage, letalone their contingent business interruption coverage.”

Dan Gerber, co-chair of Goldberg Segalla's Global InsuranceServices Group, agrees that causation will be an issues in businessinterruption claims, adding, “Most policies that exclude stormsurge flood coverage afford limited coverage for flooding caused bysewer or drain back-up. Here again, causation will be an issue. Adetermination is required as to whether the loss resulted frominitial flooding or perhaps debris in a drain.”

Gerber adds, “One of the key issues is determining appropriaterestoration periods. This is the period when a business is againable to commence normal operations. Generally, coverage is onlyafforded for loss up to the point of restoration of normalbusiness.”

Agents and brokers may also face litigation. Gerber says somecan expect scrutiny over the coverage they have recommended toclients, resulting in some errors and omissions claims.

Al Tobin, managing principal of Aon Risk Solutions' PropertyPractice, says Aon expects “direct property damage, power outages,blocked buildings and civil authority to cause large businessinterruption losses.”

“Most commercial policies provide flood coverage; however, somepolicies contain specific language limiting or even excludingcoverage in flood-susceptible areas,” he says. “All organizationsshould review their existing policies immediately.”