1 Recovering from IKE! Mike Thompson, CPA/ABV, CFE

2 Only a Category 2 storm at land fall with sustained winds of 110 mph Estimated $12 billion dollar in insurable damage not including flood (the third largest hurricane event and fifth largest insurance event) Nearly 4 million people without power across seven states in the U.S. 71 dead and between 200 & 300 missing

3 Handle the claim with your agent (or broker). o Best when you have a small claim (under $20k) and the policy is not complex  #1 Pro – It is free  #1 Con – You may not get all that is rightfully yours under the policy

4 Hire a Public Adjuster o Best when policy issues are not in question. Usually works for 10% of claim value, not hourly.  #1 Pro – You have an insurance expert that can assist in fully valuing your claim  #1 Con – Could be expensive if your loss is large

5 Hire an Attorney o Best when claim is complex, policy issues are in question, or policy is not clearly understood.  #1 Pro - You will get the best expertise and your claim will be methodically laid out  #1 Con – Could be even more expensive if goes to litigation (costs can be hourly or as much as 40% of claim)

6 Business Interruption Contingent Business Interruption Extra Expense Civil Authority Service Interruption Ingress/Egress

7 “Few generalizations about business interruption endorsements can be made… because the nature of the coverage varies widely. In any given case, the particular terms and conditions of the policy in question must be examined to determine whether a specific business interruption loss falls within… coverage.” Prot. Mut. Ins. Co. v. Mitsubishi Silicon Am. Corp., 992 P.2d 479, 481 (Or. Ct. App. 1999)

8 “…the purpose of a business interruption policy is to indemnify the insured for loss caused by the interruption of a going business due to the destruction of the building, plant or parts thereof.” Quality Oilfield Prods., Inc. v. Michigan Mut. Ins. Co., 971 S.W.2d 635, 638 (Tex. App. – Houston [14 th Dist.] 1998, no pet.)

9 Gross Earnings Business Income → Revenue Non-Continuing Costs Business Income → Continuing Costs Net Income

10 Revenue Cost

11 What is paid? o An estimate is paid – How much income would have been earned had no loss occurred? o The actual experience of the business prior to loss. o The probable experience during the period of interruption had no loss occurred.

12 Tropical Storm Allison o “had no loss occurred” o “post-loss surge in business cannot be used to offset losses Finger Furn. Co. v. Commonwealth Ins. Co., 404 F.3d 312 (5 th Cir. 2005)

13 A.Must be direct physical damage to insured property caused by covered peril. B.That physical damage must itself result in an interruption of insured’s business that causes actual monetary loss. C.The monetary loss must occur during the “Period of Restoration” – defined by the policy.

14 “…the loss caused by the interruption of a going business…” Complete suspension v. partial suspension v. mere slowdown Texas – complete suspension is required Quality Oilfields Prod., Inc. v. Michigan Mut. Ins. Co. Trend is (probably) away from complete suspension

15 “This policy covers against loss of earnings… from necessary interruption of business… caused by damage to… property, by the perils insured against…, of any supplier… which results in the inability of such supplier to supply an insured location.” Archer-Daniels-Midland Co. v. Phoenix Assur. Co. of N.Y., 936 F. Supp. 534, 540 (S.D. Ill. 1996) “by the perils insured against…” o Must be covered cause of loss under insured’s policy o Need not be covered loss under property owner’s policy

16 “Regular business-interruption insurance replaces profits lost as a result of physical damage to the insured’s plant or other equipment; contingent business-interruption coverages goes further, protecting the insured against the consequences of suppliers’ problems. Regular business-interruption coverage did [AMD] little good in 1993, for the flood largely spared its plants, but contingent business-interruption coverage was just the ticket.” Archer Daniels Midland Co. v. Hartford Fire Ins. Co., 243 F.3d 369, 371 (7 th Cir. 2001)

17 “This ‘policy’ …covers the necessary Extra Expense incurred by the Insured during the ‘period of restoration’ in order to continue as nearly as practicable the “normal” operations of the Insured’s business following a ‘covered property damage loss.’” Travelers Indem. Co. v. Pollard Friendly Ford Co., 512 S.W.2d 375 (Tex. Civ. App. – Amarillo 1974, no writ) “Extra Expense” is defined as: o “the …cost incurred during the ‘period of restoration’ …over and above the total cost that would normally have been incurred to conduct the business …had no loss or damage occurred.”

18 Examples… o Renting temporary space o Security o Overtime wages o Meals

19 Kingwood – lack of basic utilities “…this Policy is extended to cover the actual loss sustained caused directly by the interruption of the specified incoming services… Gas, Water, Electricity, Telephone[,] by reason of any accidental [occurrence]…” Prot. Mut. Ins. Co. v. Mitsubishi Silicon Am. Corp., 992 P.2d 479, 483 (Or. Ct. App. 1999)

20 Covers: o Insured’s own property not damaged, but BI loss due to order of civil authorities because of damage to other property.

21 “Loss of Ingress or Egress: This policy covers loss sustained during the period of time when, as a direct result of a [covered] peril, ingress to or egress from [covered] property is… prevented.” Fountain Powerboat Indus., Inc. v. Reliance Ins. Co., 119 Supp. 2d 552, 556 “The court cannot find, and neither party has provided, any case in any jurisdiction that interprets an ingress/egress clause…” “Loss sustained due to the inability to access the Fountain facility and resulting from a hurricane is a covered event with no physical damage to the property required.”

22 Requirements for Ingress/Egress Coverage: Ingress or egress must be wholly impaired. Not sufficient that ingress or egress is simply more difficult. The event preventing ingress/egress must be an insured peril. Lack of ingress/egress must be the cause of the BI loss. Physical damage may not be required – policies differ.

23 In summary… Consider actual claim. BI from a downtown Houston business due to Tropical Storm Allison.

24 Getting it Right from the Start o Good Policies – Good Claim Outcome o Bad Policies – Bad Claim Outcomes  ADM case - $19,000, premium savings cost $50,000,000 in uncovered losses – Result = ($49,981,000) Understand and thoroughly review your coverages with your broker. Make sure your Statement of Values properly reflect both all potential values including B. I., Contingent B. I., Extra-expense, etc. Consider your future payroll burdens and outstanding contractual requirements in the event of the interruption.

25 Not Like Liability Claims Initial Steps o Notify Carriers (followed by formal proof of loss) o Assess Coverage and determine if you need experts o Assess and Quantify Losses o Ask for advances! o Remember – You drive your loss, not the broker, not the insurer, not the adjuster

26 Types of Loans Available o Home Disaster Loans o Business Physical Disaster Loans o Economic Injury Disaster Loans (EIDLs) Mitigation Loans

27 Business Physical Disaster Loans Economic Injury Disaster Loans AmountsUp to $2 million Interest Rates No credit available4% Credit available elsewhere 8%N/A Length of Loan No credit availableMaximum of 30 years; based upon ability to repay Credit available elsewhere Maximum of 3 years; based upon ability to repay N/A CollateralRequired for loans greater than $14,000 Required for loans greater than $5,000

28 Uninsured or otherwise uncompensated disaster losses only Certain ineligible property Previous noncompliance with SBA loans Insurance requirements

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