Damage from hurricanes and other extreme weather events cost $165 billion in the United States in 2022 – the third highest price tag on record – according to the National Oceanic and Atmospheric Administration. For 2023, many forecasters are predicting a more active than average hurricane season, which extends from June 1 to November 30 and peaks in early September. After a devastating storm, many business owners are unpleasantly surprised to learn that their commercial property or homeowners' insurance policy provides limited protection.
Commercial property and homeowners' insurance policies reimburse policyholders for damage to the property's structure or contents from covered perils. They typically cover wind damage caused by hurricanes and other storms, but not flood or storm surge-related damage. While some property policies cover damage from wind-driven rain, others specifically exclude it.
Even for wind damage, however, businesses and homeowners are often surprised to learn their policy has a high hurricane deductible, which typically ranges from 1% to 5% of the property's total value. Therefore, if a property is valued at $1 million, a policyholder with a 5% deductible will be on the hook for the first $50,000. What triggers the hurricane deductible varies by state and insurer; the deductible may take effect when the National Weather Service names a storm or declares a hurricane watch or warning or defines a certain intensity level, such as a category 1 or 2 hurricane. Triggers typically remain in effect for a defined amount of time, such as for 24 hours after the final warning was issued.
In high-risk areas, a separate flood insurance policy is recommended and often required for properties with an underlying mortgage. Flood insurance is available through the National Flood Insurance Program (NFIP), which is managed by FEMA and delivered directly either from NFIP or through more than 50 private insurance companies. Flood insurance can cover the building and/or the contents of the building from damage directly caused by a flood, such as storm surge, heavy rain or the overflow of a lake or river. It does not cover damage from wind-driven rain.
Business Interruption Insurance
Many companies have business interruption coverage bundled into their commercial property or business owner's policy. This type of insurance kicks in when a covered peril causes direct physical damage to the insured's premises and this damage requires the temporary suspension of business operations. Typically, the policy will cover lost profits and reasonable expenses that the business must incur to continue operating for a set amount of time following the covered event.
Insurance Company Procedures
As if deductibles and exclusions weren't enough, many insurance companies employ a number of tactics to further minimize their responsibility in the wake of a storm. They may dispute the value to repair or to replace damaged structures or they may dispute the value of damaged personal property. They may claim the damage was pre-existing, or that it resulted, at least in part, from a non-covered cause, such as wind-driven rain. They commonly slow down payouts by making policyholders jump through hoops to come up with an overwhelming amount of documentation.
Replacement Cost vs. Actual Cash Value
The terms of your policy will dictate whether you will be reimbursed for the replacement cost – the dollar amount needed to replace a damaged item with one of similar quality – or for the "actual cash value," which takes depreciation into account. For instance, if you have an actual cash value policy and you need to replace 10-year-old carpeting due to storm damage, you will be reimbursed for what the carpet was worth just before the storm, not what you would have to pay for new carpeting. Standard property policies typically provide replacement cost coverage for the physical structure while covering personal items at actual cash value. Flood insurance policies may reimburse you for actual cash value, replacement cost or a mix of both.
Protecting Your Interests
If you sustained damage in a storm, contact your insurer immediately and carefully review your policy to determine your rights and obligations. Many policies have short deadlines following an event for providing notice and proof of loss, and insurers will hold missed deadlines against you. You are also typically required to take all reasonable steps to protect covered property from further damage and to set aside damaged property to allow for its inspection by the insurance company adjuster. Prepare an inventory of damaged or destroyed items, complete with a description of the items and their estimated value, and provide this to the adjuster along with copies of any receipts. Take photos of damaged parts of your property and contents. Identify any structural damage and make a list of everything you want to show the adjuster. Document and retain receipts for all expenses you incur as a result of your losses. Keep a record of the names and phone numbers of everyone you speak to, and retain copies of all documents you submit to the insurance company and all communications you receive from the insurance company.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.