HURRICANE SEASON: SMALL BUSINESS DISASTER READINESS CHECKLIST

Transcription

1 HURRICANE SEASON: SMALL BUSINESS DISASTER READINESS CHECKLIST

2 WELCOME In Louisiana and throughout the southeast region, business owners must be aware of the threats posed during hurricane season. According to the Federal Emergency Management Agency (FEMA), more than 40% of small businesses never reopen after a disaster, and for those that do, only 29% operate after two years. As a small business owner, there are steps you can take to prepare your company prior to a hurricane, flood, or other natural disaster. This guide provides useful information to prepare your business and your employees. Our included recommendations can also assist your business in its rebuild and restoration efforts should a disaster strike. If you need help ensuring your business is prepared and fully covered in the threat of a weather event, or you need assistance maximizing your claims after a storm, contact Konrad Jackson or Dan Dilzell of Jackson & Jackson at (504) or (225)

3 ABOUT THE AUTHORS From Hurricane Katrina through the 2016 South Louisiana Flood, Jackson & Jackson continue our commitment to assisting our clients, colleagues and friends recover, rebuild and restore their businesses in the wake of casualty loss and natural disasters. Jackson & Jackson has extensive experience in handling business/commercial property and business interruption claims through Hurricanes Katrina, Rita, Gustav and Isaac and were successful in assisting numerous clients obtain maximum recovery from their insurance carriers, handling and negotiating in excess of $15 million in insurance claims recovery. This experience includes insurance claim assessment, policy review, negotiation, settlement and litigation in both state and federal courts. From this extensive experience, Jackson & Jackson attorneys developed a comprehensive review, analysis and consultation of commercial insurance policies and disaster preparedness protocol which we offer to small businesses across the state to help ensure that appropriate and complete coverage is in place and assets are protected before and after the storm hits or a loss is incurred. J. Konrad Jackson is the Managing Member of the New Orleans Office and head of litigation for the firm. From Hurricane Katrina through Hurricanes Rita, Gustav, Ike and the historic Louisiana floods of 2016, Konrad has led the firm s insurance claims management practice, focused primarily on assisting small business in maximizing recovery from its carriers. Daniel W. Dilzell is a litigation attorney who has been with the firm since Dan has extensive experience in first party insurance claims for recovery of businesses against their property and casualty, and business interruption insurers. After Hurricanes Katrina, Rita, Gustav and the 2016 flood, Dan was instrumental in making full recovery for the firm s commercial property clients.

4 TABLE OF CONTENTS 1 Do you have the right policy and coverage 2 Disaster preparedness plan/policy implementation 3 When hurricane watch/warning is issued 4 Steps After Loss Initial Steps Supporting Property 5 Prepare Property Proof of Loss 6 Documenting and Supporting Business Interruption Loss

5 STEP 1 Making sure you have the right policy and coverage: meet with your agent/broker and attorney and conduct a risk assessment and coverage analysis. The coverage review and analysis should include: a. Business Risk Analysis b. Business Interruption Checklist (Business and Individual) c. Business Interruption BIV analysis d. Contingent Business Interruption (CBI) Analysis e. Extra Expense as an alternative, or in addition to, BI f. Civil Authority g. Sub-Limits and Deductibles h. Loss Valuation Considerations ACV v. RCV i. Mitigation and Recovery Considerations j. Flood v. wind k. Liability Risk and Exposures l. People Exposures and Protection. Mitigation and Recovery Considerations m. Policy Exclusions/Proximate Cause Issues 1

6 A. Business Risk Analysis Understand your existing insurance policies and make certain that coverage and limits are sufficient. Different types of insurance that might have different sublimits vary significant under a standard property and business interruption insurance policy. B. Business Interruption Checklist (Business and Individual) Prepare accurate ratable business interruption values for a more effective methodology, consider soliciting the aide of specialists such as an experienced forensic accountant to assist underwriters identifying appropriate coverage and perhaps a more favorable rate. Once a system is in place, accuracy, consistency and efficiency should improve. Explore realistic loss scenarios: analyze exposure scenarios and calculate MFL (maximum/ worst foreseeable loss) and PML (probable/realistic maximum loss). In both cases, property damage and business interruption effects would be calculated as if they had occurred. Again, a forensic accountant will be helpful as they will have prepared claims similar to your scenarios and would be able to accurately value the losses. C. Business Interruption BIV analysis Business interruption value (BIV) reporting is one of the most misunderstood data requirement of all lines of coverage. BIV validity/grade assessment can be accomplished through analysis of the following: (1) annual net sales; (2) NAICS (North American Industry Classification System) code; (3) current Ratable Value (insurance industry s gross measurement of BI value at risk); and (4) completion of standard BIV questionnaire. D. Contingent Business Interruption (CBI) Analysis CBI is a critical part of the business interruption an supply chain risks facing companies. CBI is about protecting the balance sheet by protecting the continuity of earnings either via operations or insurance. To accurately express the risk that a supplier or customer disruption may pose involves a holistic approach looking at an organization and its earnings streams. An expert can be brought in to calculate the net earnings at risk to allow clients to make better costbenefit decisions involving loss control, mitigation, and risk transfer. E. Extra Expense as an alternative, or in addition to, BI Business interruption value (BIV) reporting is one Another common discovery from performing an exposure analysis is which type of time element coverage is the best risk transfer solution. If a company s particular risk is loss of sales, BI would cover the lost earnings. If sales are not the risk or can be sustained at an extra expense, then extra expense coverage would be more appropriate. If sales are at risk but can be mitigated to the degree contingency measures are enacted at an additional expense, then it would be a combination loss exposure. Exploring your loss scenarios and subsequent contingency plans would allow you to better quantify your risks and select the option best suited to your needs. Extra expense is a more tangible risk than BI, making it easier to rate, and at a generally lower cost. F. Civil Authority Coverage may also be available for loss of business income and extra expense sustained as a result of governmental denial of access to your property, due to a covered loss at a location not owned by you. There may be a 2 or 3 day waiting period before coverage begins, and coverage generally only applies for a few weeks. 2

7 G. Sub-Limits and Deductibles Co-insurance: penalty imposed by the insurance carrier for under reporting/declaring/insuring the value of tangible property or business income. Penalty is based on percentage stated within policy and amount underreported. In order to avoid this penalty, it is vital for the value of properties to be accurately reported and updated annually to reflect inflation and other increases in cost. H. Loss Valuation Considerations ACV v. RCV Coverage may also be available for loss of business Replacement cost value (RCV) is defined in the policy. Put simply, it means the cost to replace the property on the same premises with other property of comparable material and quality used for the same purpose. This applies unless the limit of insurance or the cost actually spent to repair or replace the damaged property is less. The term actual cash value (ACV) is not as easily defined. Some courts have interpreted the term to mean fair market value, which is the amount a buyer would pay a seller of neither were under undue time constraints. Most courts, however, have upheld the insurance industry s traditional definition: the cost to replace with new property of like kind or quality, less depreciation. So, the only difference between RCV and ACV is deduction for depreciation. RCV coverage will cost more than ACV coverage. Thus, an analysis of which coverage is of more value to a property vis-a-vis the cost of coverage is a critical step in coverage selection. 3

8 STEP 2 Disaster Preparedness Plan/Policy Implementation a. Create emergency response plan b. Identify building/repair contractors formulate plan to move quickly in event of physical loss to property c. Crisis communication plan wireless communication/store all critical documents electronic (paperless/icloud) d. Create emergency contact list for all employees, disaster response/recovery government agencies and building/repair contractors - electrical, mechanical, plumbing and fire e. Business continuity/recovery plan f. Test and evaluate plan g. Define and conduct plan implementation exercises h. Use exercise results to evaluate effectiveness of plan i. Identify when preparedness program should be reviewed j. Utilize review to make necessary changes and plan improvement k. General business preparation l. Interior and exterior building preparation 4

9 STEP 3 When Hurricane Watch/Warning is Issued a. Enact emergency preparedness/contingency plan b. Emergency contact information/government agencies/ protocol c. Protect People Evacuate Staff /Employees d. Confirm up-to-date employee contact list e. Protect Property secure doors and windows; clean out drains and catch basins; check that fire protection equipment is working properly; shut off gas/flammable liquid lines e. Shut down production processes safely; shut down non-essential equipment f. Contact building/repair contractors -- electrical, mechanical, plumbing and fire protection g. Secure documentation access critical business documents h. Contact customers to alert of initiation of emergency preparedness plan i. Contact agent/broker confirm emergency contact information and protocol 5

10 STEP 4 Steps After Loss Initial Steps Supporting Property Loss a. Notify carrier and agent/broker immediately b. Loss mitigation - protect persons and property from further damage c. Assemble damage assessment including electrical, mechanical, plumbing and fire protection contractors d. Contact employees and damage e. Collect and preserve evidence of business losses and damages f. Mitigation coordinate with insurer and building repair contractors g. Mitigation/Recovery/Restoration plan implementation h. Review policy coverage and exclusions i. Consider requesting advance from carrier j. Contact/engage attorney loss adjustment for complex property and BI coverage issues k. Flood v. wind damage analysis l. Insurance Policy Declarations Page(s) m. Complete Copy of Insurance Policy(ies) n. Claim Adjuster Information (when available) w/in 48 hours of reporting claim o. Claim Adjuster Estimate (if available) p. Contact customers 6

11 STEP 5 Steps After Loss Prepare Property Proof of Loss - Loss Documentation a. All pictures of property(ies) (before and after damage, if possible) b. Itemize property and contents damaged or destroyed c. All repair invoices for repairs actually made d. All repair and replacement estimates (including clean-up and pre-construction) e. Any other damage estimates obtained in addition to insurance claims adjuster estimate f. Itemization of all repair and replacement expenditures g. Itemization of any steps taken and costs incurred to mitigate losses h. Itemization of all contents damaged or destroyed i. Prepare inventory of personal property/contents/inventory damaged or destroyed j. Original purchase documentation for all contents damaged or destroyed (if possible) k. Notify police in the event of theft 7

12 STEP 6 Steps After Loss Documenting and Supporting Business Interruption Loss a. Policy Review b. Prompt Notice to Carrier c. Prepare Sworn Proof of Loss d. Mitigation and Recovery e. Create Separate Accounts (Extra Expense) f. Extra Expenses: Temporary location rental/ transportation/debris cleanup/new equipment/ marketing/advertising/repairs g. Marshal Critical Financial and Legal Documentation h. Determine Probable Period of Interruption/Restoration i. Calculate BI Loss 8

13 Loss Mitigation Protect Persons and Property From Further Damage Cover property if it is exposed to the elements Make temporary repairs if reasonable and necessary to protect property from further damage but don t proceed with permanent repairs Contact a professional mitigation company to mitigate any water or smoke damage Secure the property and restrict the area as necessary Maintain and protect evidence by not tampering with point of origin in event of fire Maintain a record of all expenses incurred protecting the property Separate damages from undamaged personal property/contents, if possible Prepare inventory of personal property damage: list quantity, description, actual cash value and amount of loss; attach bills, receipts and related documents Marshal Critical Financial and Legal Documentation 1. Record all expenses and losses due solely to loss 2. Financial statements (Balance Sheet and Income Statement) 3. Financial Statements by month for all months subsequent to the loss 4. List of recurring, ongoing expenses (per month) 5. Copies of invoices, checks, or other documentation for any one-time expenditures necessitated by the loss, i.e. cleaning, waste removal, data recovery, additional salaries, etc. 6. Copy of all leases in force at the date of loss 7. Copy of insurance declaration page and policy Calculate BI Loss 1. Lost Revenue less Saved Expenses = Lost Profit 2. Impacts and Variables 3. Civil Authority 4. Potential Coverage Adjustments 5. Possible Exclusions 6. Special Conditions and Limitations 7. Logistics and Extra Expense Coverage/Loss 8. Service Interruption 9