Nature has done a number on the U.S. this year. With two monthsremaining, 2011 already set the record for the most FEMA-declareddisasters since the agency began keeping track in 1953. BetweenMidwestern and southern tornadoes, Texas fires, and northeasternblizzards and hurricanes, no corner of the country has escapedwithout being affected in some way. Domestic weather losses haveexceeded $35 billion, according to the National Oceanic Atmospheric Association, and the damagedoesn't stop stateside. With a tsunami in Japan and flooding inAustralia, the rest of the globe has been hit hard as well. Thishas been the costliest year on record, with economic losses in thefirst six months alone topping $265 billion, according to Munich Re.

In handling these crises, businesses must act quickly tocontact their insurance brokers, evaluate potential coverage,and file claims. Delays in identifying insurance createunnecessary problems and can even foreclose coverage. Failure topursue available insurance can even create liability toshareholders and others.

To protect themselves, affected companies shouldfirst review their policies to determine what coverage may ormay not be triggered. This also represents an opportunity toconsider what additional coverage should be purchasedmoving forward to protect against loss from futuredisasters.

Coverage That Can Apply to NaturalDisasters

When reviewing insurance files, companies may find a variety ofpotentially applicable policies.

Commercial property insurance is the first lineof defense in dealing with natural disasters. Most companies carrythis insurance, which generally covers assets lost or damaged as aresult of various perils. Insureds should pay close attention towhat particular perils their policies actually cover: policiestypically cover wind and fire damage, but might exclude othercauses such as flood or earthquake. Policies also may coverman-made damage. Of course, companies and their brokers shouldconsult the actual policy language in evaluating coverageissues.

In the wake of natural disasters, business interruption(BI) coverage also can be critical. This type of policy isintended to compensate a policyholder for lost income andordinary business expenses as long as its business premisessuffered damage.

Even if a business avoids catastrophe, though, its customers orsuppliers may not be so lucky. In certain situations,contingent business interruption (CBI) coverageprotects earnings following physical damage to the property ofthose customers or suppliers. Most policies require that the damageto the property be the same as would be covered for the insured'sown property.

Other lesser-known types of coverage may also aid inrecovery.

Extra Expense: Covers necessaryexpenses (over and above normal operating expenses) incurredbecause of physical damage.

Ingress/Egress:Covers loss sustained whencustomers, suppliers or workers cannot get to an insured property.Typically, these provisions do not require actual physical damageto the property.

Civil Authority:Covers income lost when theauthorities prohibit access to a business due to physical damageelsewhere. Typically, coverage begins 72 hours after the authorityimposes restrictions and can last up to three weeks.

Utility Services:Covers business interruptionlosses caused by a loss of power or communication services.

Interruption of Computer Operations:Coversincome lost when a covered peril interrupts critical computerfunctioning.

Making a Claim

When disaster strikes, a business must immediately take steps topreserve coverage. Under almost any policy, a company should:

• Give prompt notice to the insurer. For each policy that couldeven potentially apply, businesses should send a letter to theinsurance company, demanding coverage under “all potentiallyapplicable policies.”
• Attempt to protect the property from further loss or damage (ifpossible).
• Provide the insurer with a written proof of loss as describedin the policy. Usually, businesses have 60 to 90 days to submitthis claim. If a company needs an extension, it should request oneand obtain the insurer's permission in writing.
• Allow the insurance adjuster to inspect the property andotherwise cooperate with the insurer.
• Keep a record of any and all expenses (including receipts, ifpossible).
• Resume business activities as soon as possible.

Businesses also should immediately document all damage by takingas many photographs as possible. Authorities may require disposalof certain items so companies should take care to document thoseitems before they are no longer available.

Companies must also be mindful that every policy includesits own conditions. Businesses should closely examine policies andconsult with their brokers and coverage counsel to determine thevarious requirements.

Preparing for What's Next

For businesses not affected by 2011's catastrophes, now is thetime to assess coverage and make any necessary changes. Companiesshould confirm that their levels of coverage accurately reflect thevalue of the covered property. They should also consider thetypes of coverage carried. For instance, if a company doesnot carry business interruption coverage, it may want to discussthat option with its broker.

In these tough times, businesses need every break they can get.Carrying and taking advantage of the appropriate insurance coverageputs companies in the best position to recover from unexpectedchallenges as quickly as possible while taking measures tomitigate physical damages and other loss before the storm.