Lessons From Sandy: 4 Steps for Shoring Up Insurance

With the first anniversary of Superstorm Sandy bearing down upon the Northeast, now is the time for business owners across the country to prepare for the next big weather event. From an insurance coverage perspective, this means reviewing, understanding, and updating insurance contracts. But it also means knowing precisely what to do before, during, and after the storm.

Step 1: Before Hurricane Season Begins, Review, Understand, and Renegotiate Your Policies

When it comes to insurance, this first step is arguably the most important. Review and understand your insurance coverage, and plug holes wherever possible.

Although many types of policies could provide coverage in the wake of a storm—commercial general liability, cyber-liability, marine cargo, inland marine, just to name a few—the first party property policy is most likely to respond. Most business owners understand that first party property policies, often written as “all-risk” policies, cover damage to a company’s physical plant. But there is much more to them than that. For example, a typical all-risk policy also provides coverage for: pre-storm preparations; loss mitigation; business income losses (including losses caused by damage to your suppliers); extra expenses; debris removal; and blocked access to company facilities.


In addition to understanding the type of coverage provided by a given policy, it is imperative for business owners to understand what is not covered. Policy exclusions are the cause of many a coverage denial—and they often come as a surprise to the unsuspecting policyholder.

One of the most common exclusions found in first party property policies precludes coverage for damage related to flooding and “storm surge.” Even though a policy may purport to cover hurricane-related losses, if those losses take the form of rising water, then all hope of coverage can be washed away. What’s worse, many policies contain “anticoncurrent causation” provisions. These provisions are designed to broaden the reach of policy exclusions. They hold that if multiple factors contribute to a given loss—and one of those factors is excluded from coverage—then all factors are excluded from coverage. In the hurricane example, if wind-related damage is covered and storm surge is excluded, then any losses resulting from the combination of wind and rising water could be excluded. Not surprisingly, insurance carriers continue to assert that every bit of damage caused by Sandy resulted, at least in part, from flooding/storm surge.

Finally, business owners must clearly understand the financial terms of their policies. Specifically: the precise properties covered; the per-occurrence policy limits; the sub-limits that may exist for certain types of losses and locations; and the applicable deductibles/retentions. Aggregate limits are usually the largest numbers on a declarations page. But business owners should take little comfort from those figures, because the amount ultimately paid for a given loss is often well below that limit.
The overarching goal of Step 1 is to understand your policies so that you can improve them. And, because you can’t renegotiate your coverage after a storm hits, it is imperative that insurance portfolios are reviewed and improved long before hurricane season begins.

Step 2: Don’t Wait to Establish Your Contingency Plan