Insurance Law

The Napa Earthquake – The Time To Think About Insurance Coverage Is Now

By David Smith

Last month's Napa earthquake served as a wake-up call for everyone living and working in the Greater Bay Area. As with all natural disasters, after the immediate clean-up is over the analysis will begin as to how to make buildings safer and how to prevent and minimize injuries and damage.

But if you have a business that was affected by the earthquake, now is the time to be looking at your insurance policies, even while you are still sweeping up the debris and are wondering what the extent of the damage is.

If you have earthquake coverage, your insurance company can be an important resource. Insurers have experience handling disasters of all types. They have a large pool of consultants and experts who can help minimize the effect of the earthquake on your business – by providing resources to help with clean-up, estimating the extent of the damage, finding contractors quickly, and generally helping you through the crisis period.

However, insurance companies don’t know your business or your premises nearly as well as you do. Insurance adjusters – particularly in times of disasters when they are flooded with claims – will sometimes try to impose “cookie-cutter” solutions on unique situations. This could be especially true in the Wine Country, given the unique nature of the items damaged, such as historic buildings or high-quality wine. An area such as Napa, replete with wineries and specialty boutiques, restaurants and businesses, is ripe for coverage disputes over the value of damaged property, even after the scope of the damage has been agreed.

Of course, property insurance policies often cover more than just direct physical damage to your property. They may also cover “business interruption” or “business income” losses – i.e., profits that your business lost because it was not able to operate during the post-earthquake period. (Note that you typically need to have earthquake coverage for the more standard business interruption coverage to be triggered, but policy wording can vary.)

These types of claims are always complex and tend to spawn more disputes than most other types of property insurance. Business income coverage is non-standard and policy wording should be checked very carefully by a coverage expert or attorney so that you can maximize your legitimate recovery. Policy wording can vary from insurer to insurer, and even from policy to policy written by the same insurer. But, depending on the scope of your policy’s coverage, you may be able to recover both lost business income and other types of business interruption losses. For example, these types of policies often provide coverage for the extra expense incurred in expediting repairs to your building and business equipment.

Remember the burden of proof is on you, the insured, to prove the magnitude of your loss. Accounting records, budgets, invoices and receipts, inventory records, sales projections and payroll records are all relevant and should be collected and saved. Keeping accurate records from day one is an essential part of ultimately being able to properly present your claim.

Moreover, valuation clauses in property and business interruption policies can be highly complex, particularly when it comes to business income losses or losses of high-value goods or stock-in-process, such as wine.

For these reasons, an insured suffering a business interruption loss should consider retaining insurance coverage counsel and/or accountants who specialize in valuing business interruption losses on behalf of policyholders. Bear in mind that the insurer will likely hire its own accountants who specialize in valuing business interruption losses, and who work exclusively for insurers.

Carriers deal with these issues every day, whereas the insured hopes he or she never has to. Therefore it’s important to get these consultants in quickly so that they’re not battling from behind when they do get involved. It is completely understandable that insureds facing potentially catastrophic loss would be reluctant to spend money on lawyers and accountants at this time. However, moving quickly now to identify your coverage and document your loss may prove to be invaluable later.

If you have questions regarding earthquake coverage, please contact us at napaearthquake@fbm.com.

Read additional articles on legal developments that affect policyholders at the Policyholder Perspective blog.

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