In the wake of the devastating storms that swept through Houston on May 16, more than 140,000 residents lost power, grappling with widespread damage such as downed trees, broken windows and other debris. More than 100,000 windows were blown out in downtown Houston alone.

As the community begins the arduous process of recovery, attorneys advising owners and managers of affected commercial properties should instruct their clients to take immediate action under their insurance coverage to facilitate restoration and return to normalcy.

Identify Potential Coverage

Attorneys should help their clients identify the insurance policies they have purchased that may provide coverage for their losses. Commercial property policies are an obvious starting place. Confirm whether they have business interruption or business income coverage. Check on specialty coverages such as cyber policies.

If they do not have these on hand, their insurance agents should be able to assist with locating their policies. Look for the actual policy documents, not just a declaration page.

Evaluate Deductibles

Review the policy documents to determine the applicable deductibles. Many policies require higher deductibles for damages caused by windstorms.

Damages from the 2024 storms will vary greatly. It is quite possible that the damages from the 2024 storms will be below some companies' insurance deductibles. It may be futile for companies with minimal damage to make a claim, but unless the companies are certain damages will fall below the deductible they should err toward making a claim.

Make Claims as Soon as Practical

Advise your client to make a claim on all applicable policies by providing notice to the insurance company or companies. The best starting place is the insurance agent. Agents will begin the notice process typically with an Association for Cooperative Operations Research and Development industry form notice of loss. You should try to confirm the notice was provided in writing.

Some insurance companies offer electronic notice from a designated website. Unless required, it is recommended to give notice in writing or by email and not on a website. It's much easier to establish that notice was provided if you have the email record or green mailer.

Seeking Alternative Facilities and Necessary Equipment

Policies including business interruption or business income loss coverage will include extra expense coverage. This coverage is critical to getting a business back on its feet as soon as possible. Be sure to check for any special sublimits on such expenses.

A typical provision is set out below:  

The actual extra expense you incur during a period of restoration directly resulting from damage by a peril insured against to the type of property covered by this policy at a covered location. Extra expense means the reasonable and necessary extra costs: (i) incurred to temporarily continue the conduct of your business as nearly normal as possible, or (ii) of temporarily using property or facilities of yours or others. For purposes of applying the above provision, "normal" is the condition that would have existed if no covered loss happened.

Your client should educate the adjuster early in the process on how the business works, so they can appreciate what extra expenses are necessary and reasonable. For example, an insurance company may pay higher-than-normal costs for certain operations when it can be shown that those costs will reduce the amount of the ultimate business interruption claim.

Alternative operational approaches include: (1) shipment of work to third-party facilities in or out of state to avoid loss of business; and (2) use of other sister facilities to take up production slack, including adding manufacturing capacity at those locations. The use of sister or related properties can create a loss of income for the sister facility that may not be covered since physical damage from the weather event did not occur there.

Alternative equipment can be procured to cover interim production or operations. Some insurance companies will treat these costs as an extra expense or mitigation expense separate from the payment for lost equipment.

Work closely with the adjuster to secure the adjuster's buy-in on your client's plan for interim operations. This may prove difficult in the early days when resources for the insurance company are severely stretched. Therefore, it is important that your client documents what they are doing and why. Many of the early costs are mitigation costs that will likely be recoverable under the policy.

If you work with the insurance company to save on business losses, the insurance company will typically find a way to cover the charges.

Secure Property

A claim will likely take time. You should help your client to take reasonable steps to avoid further damage or losses. Water damage should be dried out as soon as practicable and your client should not wait for an adjuster. Most policies will cover expenses to prevent further damage, and it will be part of the claim.

Advise your clients to inventory and take photographs of all personal property and other items being removed for off-site storage during the reconstruction process. Items may be damaged or disappear during transport or while in storage, so photographs and an inventory may help document these types of losses.

Help your clients make sure vendors assisting with off-site transport and storage are insured and bonded.

Document Losses

Insurance companies typically require evidence of a loss before they make payments under a policy. To the extent available, locate and secure copies of any structural, engineering and architectural plans for the buildings and identifying information for equipment damaged in the storm. Also, try to locate and secure copies of any invoices, work orders and other documentation that could confirm the type, quality and cost of materials used during construction.

Locate and secure video or photographs of your client's facilities and the property inside, which were taken before the storm. This can help establish the type and quality of construction and ownership of property destroyed or disposed of as part of the post-storm
cleanup.

Help your clients develop a system to: (1) document damaged and lost items, including their date of purchase, value and receipts; (2) gather proposals, invoices and receipts for repairs and remediation expenses; and (3) collect emails showing the work performed, as well as communication with contractors, government agencies and the insurance adjusters.

Business Loss Considerations

It is helpful to have an agreed protocol with the insurance company as to how they want to approach accounting issues involved with business interruption losses. The insurance company will likely hire a forensic accountant to assist them in adjusting the business income loss claim.

The forensic accountant is not hired to represent your client — they are hired for the benefit of the insurance company. You should work with them, but it may prove necessary to engage your own forensic accountant.

An ordinary accountant or bookkeeper will seldom suffice if any conflict arises. Some policies will provide coverage for at least a portion of the costs of engaging a forensic accountant to assist with the business loss process.

Care should be taken to assess available limits of business loss and extra expense. How your insurance dollars are allocated can be important in stretching coverage to match big losses.

Some insurance companies insuring a specialty business may invite your client to serve as their own general contractor in doing the repairs. This can be a difficult and dangerous approach. Delays can become a basis for the insurance company to attempt to limit the period of restoration and, thus, the extent of the business income losses. 

Other Practical Tips

Where possible, communicate with emails or letters sent via return-receipt mail.

Also, storm damages bring with them unscrupulous vendors who may take advantage of victims by promising to inflate a claim for a percentage of the total amount received. There are many scams associated with disasters, so be careful! Work with people you know and trust where possible, and research the rest. 

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