© 2012 Dickstein Shapiro LLP. All Rights Reserved. Because of the variations in policy language, this alert does not address all issues. It also

does not replace, and should not be relied on instead of, legal advice. However, it does provide a starting point and serves as an aid in

understanding the maze of factual and legal issues regarding insurance. This alert may be considered advertising in some states.

Insurance Recovery for Superstorm Sandy-Related LossesSustained by Businesses and Communities in the Tri-StateArea

November 2012

Insurance for Property Damage and Business

Interruption Losses

By all accounts, businesses and communities in

New York, New Jersey, and Connecticut

suffered crippling storm-related damage in the

aftermath of Superstorm Sandy. Businesses may

be severely damaged, with some unable to

reopen for months, if at all. Other businesses

may face enormous financial losses even

without suffering any physical damage because

of power outages, evacuations, halted public

transportation, and government shutdowns or

damage to facilities of key suppliers or

customers. In addition, municipalities may

experience decreased tax revenues due to

business closures. Thus, the economic impact of

storm-related losses for businesses and

municipalities combined will be in the billions

of dollars. At least one forecasting firm predicts

that Superstorm Sandy will cost $60 billion. As

businesses and communities seek to rebuild,

their financial needs will be tremendous.

Many businesses and municipalities may have a

valuable resource available in the form of

property insurance that can play an important

role in helping them recover from this disaster.

This insurance may provide coverage not only

for physical damage to and loss of property, but

also for: financial losses arising from an inability

to conduct business (either at all or at the same

levels as before); the extra expenses incurred in

dealing with the effects of a disaster, including

expenses incurred in advance to minimize any

damages and losses; and the costs incurred in

establishing the extent of the losses.

Scope of Losses and Coverage

It is critical that policyholders assess as quickly

as possible (i) the extent of their losses and

(ii) the scope of coverage for those losses.

Insurers will seek detailed proof of the loss

claimed under the policy and documented

evidence of the expenses incurred in responding

to that loss. Policyholders will need to

understand fully the scope of coverage afforded

by their policies in order to maximize the

potential for recovering all covered losses.

Policy Conditions and Requirements

Policyholders should be wary of potential time

traps in their policies. For example, a policy may

obligate the policyholder to provide the insurer

with notice of a loss “as soon as possible” or “as

soon as practicable” after a loss or other insured

event. Some policies require that notice be given

in as little as 30 or 60 days. The consequences of

failure to give prompt notice differ, but a failure

to give prompt notice may completely bar a

policyholder’s claim.

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Property Insurance Policies

Insurance for storm-related losses can be

provided under several different types of

insurance policies, but the most common are

first-party property policies that protect a

policyholder’s place of operations and inventory

and provide coverage for lost or damaged

property. Many property insurance policies are

sold on an “all risk” basis, meaning that they

cover losses to real property caused by any peril

not expressly excluded. Because of the breadth

of coverage afforded by an “all risk” policy,

once a policyholder shows that it has suffered a

loss, the burden of proof shifts to the insurer to

show that the loss is not covered. By

comparison, a second type of property

insurance—a “named peril” policy—covers only

those perils expressly listed. Because both types

of policies may contain exclusions to coverage,

it is important for a policyholder to carefully

review all aspects of a policy to determine if

coverage for the specific loss is clearly

excluded.

Additional Coverages, Including Business

Interruption and Extra Expense

In addition to covering property damage, many

property policies also provide some or all of the

following coverages designed to help the

policyholder recover for other losses caused by

the storm:

Business Interruption: reimburses the

policyholder for the profits (i.e., the amount of

gross earnings minus normal expenses) that the

policyholder would have earned but for the

interruption of the policyholder’s business.

Business interruption coverage generally

requires that an “interruption” result from

damage to covered real or personal property.

Policyholders, for example, have obtained

reimbursement under such coverage when

widespread disasters such as Hurricane Katrina

and the 9/11 terrorist attacks caused business

interruption.

Utility Service Interruption: provides coverage

for losses that the policyholder incurs due to the

interruption of utility services that result from

physical damage to the property that supplies the

utility. For example, if a storm results in your

business losing electrical service, and your

business then incurs losses because of the

interruption of service, you could make a claim

under this coverage. This coverage usually is

provided through an endorsement to a property

policy and may require that the interruption of

service have lasted a minimum amount of

time—usually 24 hours. Utility Service

Interruption coverage also can vary widely with

regard to what types of utilities are covered.

Civil Authority: protects the policyholder from

losses caused by the inability to access its

premises when a civil authority denies such

access because of covered damage to, or

destruction of, property belonging to third

parties. Some civil authority coverages require

physical damage to the policyholder’s own

premises—others do not. A “civil authority” for

purposes of this coverage may extend beyond

federal and state governments. For example,

after the 9/11 terrorist attacks, some

policyholders successfully argued that the

baseball commissioner’s cancellation of games

constituted an order of a civil authority.

Ingress/Egress: protects the policyholder against

lost business income and extra expense when the

policyholder’s premises are inaccessible for

reasons other than an order of civil authority.

This type of coverage typically requires that the

property damage be located within a certain

radius of the policyholder’s premises. Such

coverage may be implicated if, for example,

roads or public transit providing access to a

policyholder’s premises are closed and there is

also property damage in the premises’

immediate area.

Contingent Business Interruption: protects

against economic losses caused by the inability

of the policyholder to receive a supplier’s goods

or services or the policyholder’s inability to

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supply goods or services to customers, thereby

preventing the policyholder from producing

and/or selling its product in the marketplace.

Extra Expense: indemnifies the policyholder for

the reasonable and necessary increased costs of

conducting its business operations due to

property damage caused by an insured peril. One

example of such expense would be costs

incurred in the installation and maintenance of

electric generators so the company can continue

to do business while awaiting restoration of

electric service from public utilities.

Insurer Defenses to Coverage

When a policyholder makes a claim for

coverage, insurers may raise challenges to the

availability of coverage. For example, the

insurer may assert that an exclusion, such as the

“flood” or “water” exclusion, bars or limits

coverage. The “flood” or “water” exclusion may

be very broad so as to include loss due to flood,

mudslide, and other types of water damage (e.g.,

sewer backup or seepage). A common dispute

with regard to the application of the “water”

exclusion arises when a policy covers one

common cause of loss (e.g., wind) and excludes

another (e.g., flood). Whether an exclusion

applies to a loss may depend substantially on

what the cause of loss is determined to be,

particularly when damage can be caused by

multiple forces such as wind or floods, as is

common with natural disasters. The question of

which exclusions may apply also will depend in

part on the wording of the exclusions and the

applicable state’s law.

Companies should not assume that insurer

defenses will necessarily defeat coverage. Each

policy requires a careful analysis, based on the

specific policy language involved, the facts of a

company’s particular losses, and the law of the

applicable jurisdiction. Careful advance

planning is suggested, if time permits, before

any claim is made to the insurer.

Other Coverages

Policyholders should remember to look beyond

the coverage provided under the ordinary

“property policy,” to coverage that may be

provided under other policies, such as those

providing insurance for “environmental,”

“maritime,” and “warehouse” losses. Liability

policies also may be implicated if, for example,

a third party files a lawsuit alleging property

damage or bodily injury due to overflow from a

sewage treatment plant or municipal facility. It

is important for a policyholder seeking to obtain

insurance recovery to review all of its insurance

policies to determine the extent of its coverage.

Obtaining and Maximizing Insurance

Recovery

Pursuing an insurance claim following a disaster

often is a complex and challenging process,

especially when management and employees are

faced with post-disaster challenges both at work

and at home. Policyholders should consider

obtaining the assistance of coverage counsel,

because there are many issues that can

significantly affect the existence or amount of

recovery under an insurance policy. For

example, certain causes of loss may be excluded

from coverage, while others are not. Resolution

of that issue may depend not only on the law of

a particular state that will be applied and the

facts presented by a claim, but also on the way

in which the facts are presented to the insurance

company or, ultimately, to a court, if insurance

litigation is necessary. An attorney may be able

to analyze how the resolution of these issues will

impact insurance recovery and help the

policyholder present its claim in a way that

maximizes protection under the insurance

policies in light of the coverage issues.

The following is a checklist of important factors

to consider when analyzing a potential storm-

related insurance claim.

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Checklist: Insurance-Related Steps to Take toMaximize Coverage

Consider and locate all possible insurance

policies that may be implicated by your loss;

if you cannot find them, then request a copy

from your insurance agent or broker.

Check your policy to locate the address to

which any written notice is to be sent and

provide written notice of your loss to your

insurance company.

Document property loss or damage, to the

extent possible, by photographing,

videotaping, and preparing an inventory of

damaged or lost property (check with your

insurance agent or broker for particular forms

that should be used for the inventory).

Keep receipts for all expenses incurred to

protect or repair your property and for any

additional or extra expenses.

Provide your insurance company with a list of

all expenses and determine if advance

approval is required before incurring any

expenses.

Review your policy to determine if there are

any procedural requirements or deadlines. To

the extent possible, comply with all

requirements and deadlines.

Submit proofs of loss and other documents

and submit to an examination under oath if

required by the policy to obtain coverage and

payments from the insurance company.

Request partial or advance payments from

your insurance company as needed.

Keep notes of written and oral

communications with your insurance

company, agent, or broker, including the

dates and times of the conversations and the

people with whom the conversations

occurred.

Review checks, payments, and other written

communications from your insurance

company to determine if there is any

language releasing or giving up any claims.

Follow up with your insurance company

regarding your claim.

Seek legal advice as appropriate.

Our Firm

Dickstein Shapiro LLP exclusively represents

policyholders in coverage disputes. Firm

attorneys have successfully resolved some of the

most significant coverage cases in the country.

Since the beginning of 2007, our insurance

coverage attorneys have recovered more than

$5 billion on behalf of policyholders in matters

involving a wide range of coverage types,

claims, and industries. Firm attorneys have

handled many disaster-related coverage matters,

including those related to Hurricane Katrina and

9/11. Dickstein Shapiro also works extensively

on matters involving the Federal Emergency

Management Agency (FEMA) and has the

ability to interface directly with key decision

makers at FEMA. This allows for a more

comprehensive pursuit of any claims that may

involve programs administered by FEMA.

Contact Information

We would be happy to further discuss with youthe insurance implications for disaster-relatedloss. For more information, please contact:

John E. Heintz(202) 420-5373heintzj@dicksteinshapiro.comWashington, DC

Thomas J. Freed(203) 905-4529freedt@dicksteinshapiro.comStamford, CT

Jared Zola(212) 277-6684zolaj@dicksteinshapiro.comNew York, NY