ACC CONFERENCE Preparing in Advance for a Natural Disaster: Insurance Coverage Issues and Tips for Companies Dealing with Such Losses November 9, 2017 Selena J. Linde, Perkins Coie LLP Vivek Chopra, Perkins Coie LLP Livya Antonacci, JBG Smith Perkins Coie LLP
Presenter: Selena Linde Selena Linde is a Partner in Perkins Coie's Insurance Recovery Practice and is a primary author and editor of the first edition Association of Corporate Counsel's Policyholders Primer on Insurance. Ms. Linde has been honored as one of twentyfive worldwide recipients of Business Insurance's Women to Watch, one of eleven National Insurance Stars and one of the top 150 Women Litigators by Benchmark Plaintiff. Ms. Linde has recovered more than a billion dollars for her clients and has an active trial practice representing policyholders in complex insurance coverage cases throughout the country and an equally active arbitration, mediation, and counseling practice. Selected representations include: Lead Coverage Counsel for Hospitality Company in Puerto Rico (Property and Business Interruption Claims stemming from Hurricane Lead Coverage Counsel for Hospitality Company (Data/Privacy and Property Claims) Lead Coverage Counsel for Residential Capital ( E&O and D&O Claims related to packaging of mortgage backed securities) Lead Counsel NorthWestern Energy (CGL, D&O, Property, and EPL Claims) Co-lead Counsel Motors Liquidation Trust (CGL claims related to historical asbestos and environmental liability for pre-bk General Motors) Join Ms. Linde's LinkedIn network for updates and articles on insurance coverage topics. She can be reached directly at (202) 654-6221 or SLinde@perkinscoie.com. 2
Presenter: Vivek Chopra Mr. Chopra is a partner with the firm s Insurance Recovery practice. He is a nationally ranked policyholder attorney. In 2012, Mr. Chopra was named both as one of eleven National Litigation Insurance Stars and a Local Litigation Star - District of Columbia in Benchmark Plaintiffs Litigation, the Definitive Guide to America s Leading Litigation Firms & Attorneys. Every year since 2013, he has been listed as a Washington, D.C. Super Lawyer for his policyholder-side insurance coverage work. Lead Coverage Counsel for Tennessee Valley Authority, the nation's largest public utility, recovering more than $330 million (Property and Liability Claims stemming from the largest coal ash spill in U.S. history) Lead coverage Counsel for Western Digital recovering full policy limits for property damage to company s largest manufacturing plant after Thailand Floods Lead Coverage Counsel for Hitachi Zosen Corporation s $100 million property damage claim for damage to the Big Bertha tunnel boring machine in Seattle, Washington Co-lead Coverage Counsel for Carnival Cruise Lines recovering tens of millions of dollars for property damage caused by Hurricane Wilma Co-lead Coverage Counsel for Hospitality Company in Puerto Rico (Property and Business Interruption Claims stemming from Hurricanes Maria and Irma) Mr. Chopra can be reached directly at (202) 654-6257 or VChopra@perkinscoie.com. 3
Presenter: Livya Antonacci Livya Antonacci is Vice President and Counsel at JBG SMITH Properties, a real estate investment trust that owns, operates, develops and invests in over 20 million square feet in the Washington, DC region, with another 18 million square feet in its development pipeline. Ms. Antonacci advises on and oversees legal operational matters for JBG SMITH, which include insurance recovery and coverage issues, claims and litigation, and risk management. Ms. Antonacci has over ten years of experience in the areas of real estate law and litigation, as well as an in-depth understanding of the challenges both legal and practical encountered in connection with real estate ownership and development in Washington, DC and its surrounding communities. Prior to joining JBG SMITH, Ms. Antonacci was Legal Counsel at Federal Realty Investment Trust. 4
Introduction Impact of 2017 Hurricanes and Wildfires Preparing in Advance Key Insurance Policies First Party Property Policies Coverages Exclusions and Specific Issues related to Hurricanes and Wildfires Other Insurance Policies The Amount of Loss Steps to Take Following a Natural Disaster 5
2017 Impact of Hurricanes and Wildfires Insured losses could range from $38 $53 Billion. Significant property damage and economic losses in California, Texas, Florida, Puerto Rico, US Virgin Islands and Caribbean. Continuing impacts expected through at least 4Q of 2018. 6
Impact of Hurricanes and Wildfires on Businesses Heavily impacted industries: - Tourism - Energy - Transportation - Retail 7
Insurance A Valuable Resource Insurance can help businesses to recover from the disaster and minimize ultimate losses. Policyholders should plan in advance if possible Those impacted by recent events need to act now to determine how their insurance coverage may respond. 8
Insurance Preparing in Advance Understand what insurance policies you have and what they cover Interview consultants and have them approved in advance by your carriers Take inventory and document property prior to a loss Mitigate damage 9
Key Types of Insurance Policies Several types of insurance policies may respond to pay for losses including: First-Party Policies, including Time Element Coverages Event Cancellation Policies Trade Disruption Insurance Policies Travel Insurance Policies Inland Marine Policies Stock Policies 10
First-Party Property Coverage Insurance Coverage for Property Damage and Economic Losses Typically provide coverage for: Preventative measures taken to protect property Direct damage to or loss of property including place of operation and inventory Financial losses arising from an inability to conduct business The extra expenses incurred in dealing with property loss Costs incurred to establish the extent of any losses 11
Types of First-Party Property Policies There are two types of first-party property policies your business may have: All Risk Policy - Covers losses to real property caused by any peril unless the peril is expressly excluded Named Peril Policy - Covers perils expressly listed 12
Coverage Under First-Party Property Policies Typical real property coverage grant: We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss. 13
Time Element Coverage In First-Party Property Policies Most first-party property policies also provide time element coverages: Business Interruption Contingent Business Interruption Utility Service Interruption Civil Authority Ingress/Egress Extra Expense 14
Business Interruption Coverage Provides coverage for lost income and ongoing, necessary operating expenses due to suspension of business operations while the damaged property is being repaired or replaced. 15
Business Interruption Coverage Grant We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your operations during the period of restoration. The suspension must be caused by direct physical loss of or damage to property at premises which are described [within the policy]. 16
Business Interruption Coverage Business Interruption coverage usually requires property damage. While unusual, business interruption coverage may be available without any physical damage. Coverage may also be available where there is no physical property damage to the insured property but to another property. 17
Restoration Coverage Covers business losses from the time the policyholder resumes business until business returns to normal. May be found in separate provision. May be covered even without a specific provision. 18
Contingent Business Interruption Coverage Provides coverage for economic losses incurred because a direct supplier is unable to provide its goods to the policyholder because of damage or destruction of the direct supplier s property. Provides coverage for economic loss that prevents the policyholder s customer from accepting goods from the policyholder because of damage or destruction of the customer's property. 19
Contingent Business Interruption Your company may have the burden to prove that the third-party s business interruption was caused by a covered peril. Policy may limit coverage to specific suppliers and customers. 20
Contingent Business Interruption Coverage Grants This policy also insures against loss resulting from physical damage to or destruction by causes of loss insured against to property that wholly or partially prevents any direct supplier of goods and/or services, or property that wholly or partially prevents any direct receiver of goods and/or services from the Insured from accepting the Insured s goods and/or services, such supplier or receiver to be located anywhere in the world. 21
Utility Service Interruption Coverage Provides coverage for losses incurred due to the interruption of utility services that results from physical damage to the utility. Usually requires a minimum interruption period before coverage applies. 22
Civil Authority Coverage Covers losses due to an order of a civil authority: Closure of downtown Houston, Miami, San Juan Closure of Florida coastal resorts Curfews in portions of Texas, Louisiana, Mississippi, Florida, Puerto Rico and U.S. Virgin Islands Mandatory evacuation orders 23
Civil Authority Coverage May have time limitations ( not exceeding 30 days ). May have distance restrictions from insured property ( within 2 miles of an insured location ). 24
Broad Civil Authority Coverage Grant When a Covered Cause of Loss causes damage to property other than property at the described premises, we will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises. 25
Ingress / Egress Coverage Provides coverage for lost income due to the inability to access the policyholder s property other than because of civil authority. Road, bridge, and highway closures Mass transit shutdowns 26
Ingress/Egress Coverage Grant This covers loss resulting from necessary interruption of business conducted by the Insured as a consequence of denial, prevention of, or reduction in access to or use of highways, bridges, causeways or terminals or the means of access thereto caused by or resulting from a peril insured under this Policy. 27
Extra Expense Coverage Provides coverage for reasonable and necessary increased costs of conducting business due to property damage caused by an insured peril New suppliers Temporary offices 28
Definition of Extra Expense Necessary expenses incurred during the period of restoration that would not have been incurred if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss. 29
Profit and Commission Coverage Provides coverage when a policyholder s inventory has been damaged or destroyed. 30
Additional Coverages Under First-Party Property Policies Costs incurred to prevent loss Debris removal Pollution cleanup and removal Electronic data Personal property and property of others Valuable records Increased costs of construction Emergency response charges 31
Carrier Defenses to Coverage: Hurricanes Carriers may assert that claims arising out of the hurricane are barred due to common exclusions or limitations on coverage for: Water Flood Land Mold/Fungus 32
Insurer Defenses Water/Flood All Risk property policies typically contain a flood exclusion that excludes property damage or loss caused by water. Many businesses with known flood exposure, however, purchase flood coverage either by endorsement or in a separate policy. Wind driven water is not excluded May be subject to separate sub-limits and deductibles. Whether coverage applies will depend on the specific policy language, facts and applicable law. 33
Water/Flood Exclusion and Causation Causation issues are often the key to securing insurance recovery for hurricane loss Efficient Proximate Cause Doctrine Claim covered if non-excluded cause was the efficient proximate cause of loss. Concurrent Causation Claim covered if one of two or more contributing causes insured even if other causes are not insured. Anti-Concurrent Causation Clauses Claim not covered if any excluded cause is involved regardless of any other covered cause contributing to the loss. 34
Land Exclusion Standard policy forms exclude coverage for land. Findings for coverage: Some courts have found exclusion only applies to land in its natural state. Some courts hold if land is rendered unusable property policies may provide coverage. Some policies feature additional coverages that give-back some coverage for damaged landscaping 35
Carrier Defenses to Coverage: Wildfires Carriers may assert that claims arising out of the wildfires are barred due to common exclusions or limitations on coverage including: Co-insurance requirements Land exclusion Pollution/smoke/smog exclusions Actual cash value v. replacement costs v. increased costs of construction 36
Common Disaster Coverage Issues Smoke damage Continuing Damage Mitigation Reputational Damage 37
OTHER INSURANCE POLICIES 38
Event Cancellation Insurance May provide broad coverage for: Cancellation Abandonment Curtailment Postponement Relocation 39
Event Cancellation Insurance Coverage Grant The Company will indemnify the Insured against their Net Ascertained Loss up to but not exceeding the Limit of Indemnity solely and directly in consequence of: The necessary Cancellation, Abandonment, Postponement, Curtailment or Relocation in whole or in part of any Insured Event(s) The failure of any Speaker(s) to appear except as excluded below Failure to vacate the Venue(s) stated in the Schedule at the termination of tenancy arising from any cause beyond the control of the Insured, or the Event(s) organizers, or sponsor(s), or financial supporter(s) or such parties. 40
Trade Disruption Insurance Provides coverage for loss of earnings and extra expense caused by disruption in a supply chain Does not require physical damage to policyholder assets Developed specifically for businesses that depend on global supply chains Provides coverage for loss of earnings and extra expense due to supply chain disruption. 41
Travel Insurance Policies Provides coverage for delays and cancellations related to travel. Some businesses have travel policies to cover employee travel. Covers costs of extra hotel fees, non-refundable fares, lost or stolen luggage and alternative travel arrangements. 42
Inland Marine Policies Provides coverage for inland transportation and storage risks. May provide coverage for trucking delays. 43
Stock Policies Provides coverage for goods and materials in transit or stored at third-party facilities Often an upgrade to off-premises or transit coverage provided in standard property policies Intended to protect complex supply chains and exporters and importers of raw materials and finished goods 44
Additional Insured Coverage Companies may be able to access coverage outside of their own insurance portfolio. Two types of additional insured endorsements: Specific endorsement Blanket endorsement Additional insureds may have the same rights, less rights, or greater rights as the named insureds. 45
First-Party Property Insurance Recovery for Lenders Property policies purchased by the borrower/mortgagor frequently contain clauses protecting the lender/mortgagee from losses insured against by the policy. These clauses may be called mortgage clauses or loss payable clauses. Lenders should carefully review these clauses to determine their rights and obligations under the policy. 46
First-Party Property Insurance Recovery for Lenders If there is a loss, the lender should: 1. Consult the insurer to determine the procedure to be followed in adjusting the loss 2. Monitor the policyholder's actions and obtain a copy of any proof of loss submitted to the insurer 47
The Amount of Loss How do you prove the amount of loss? Deductible Flat rate Percentage Limits Scheduled Blanket Business Interruption/Contingent Business Interruption Losses 48
Important Steps to Take Following a Natural Disaster Loss Gather and review all policies. Evaluate actual and potential claims. Document the damage. 49
Important Steps to Take Following a Natural Disaster Loss Watch your words. Provide prompt notice of loss. Mitigate your loss. 50
Important Steps to Take Following a Natural Disaster Loss Develop a system for logging all records of extra expenses, costs, and lost revenue that matches what is required by the policy language. Hire your own adjuster. Cooperate with the insurance company. 51
Important Steps to Take Following a Natural Disaster Loss Comply with deadlines and policy requirements: Proofs of Loss typically extended with written request Examinations Under Oath (60-90 days) Suit Limitation clauses (1-2 years from date of loss) Request partial or advance payments from your insurance company as needed. Hire experts to assist. 52
Questions?? Selena Linde: 202-654-6221 Vivek Chopra: 202-654-6257 Livya Heithaus: 240-333-3729 53