Disasters strike, which is why businesses have insurance. Nonetheless, a lack of other preparation and an inadequate response can leave companies further exposed in a crisis.
In a series of interviews, attorneys who counsel businesses on insurance matters outlined some pitfalls for companies that aren’t prepared – from being underinsured to facing regulatory penalties to being ill-equipped for a rebound.
Planning can pave the way for smart action immediately after an event, the attorneys said. That means studying in advance the regulatory and claims issues that might surround an event.
A fire, for example, is going to require different action plans than a roof that has been ripped off by a storm or an employee injured on the job, noted William D. Christ, a partner with Phillips Lytle, a law firm based in Buffalo, New York.
Federal and state agencies, such as the U.S. Occupational Safety and Health Administration require immediate responses when a worker is injured, so that should be top of mind for a company, said Christ, who also is the firm’s litigation practice group leader.
“The reporting requirements can be within a matter of days or even hours,” Christ said.
At such sensitive times, companies must balance the human element of dealing with a worker or a worker’s family while simultaneously taking steps to ensure compliance with regulations, as well as insurance policies, he and others said.
“Planning for such things is first and foremost,” said Joseph S. D’Amico Jr., a senior shareholder in the litigation department of the Lehigh Valley, Pennsylvania-based firm of Fitzpatrick Lentz & Bubba.
The attorneys said companies often fail to completely understand the fine print of their insurance policies, which might cause issues when filing a claim. Boilerplate language is designed to be one-size-fits-all, but a company must make certain that its unique circumstances would apply. That might mean adding riders and notes to policies, they said, which might seem obvious, but issues can be missed. It’s important that policies be reviewed by an attorney – but most importantly an attorney who understands the details of how a company operates.
“I tell clients to share insurance coverage with us,” Christ said. “Sometimes it looks like Swiss cheese – there are a lot of gaps and holes.”
That due diligence might also extend to contract language, D’Amico said. For example, a manufacturer facing days or weeks of lost operations might have thought to have business-interruption insurance but might not have thought through how its contracts address obligations for filling orders, he added.
“Businesses need to at least have an appreciation for what could happen,” he said.
One common mistake by companies is a failure to secure a property after an event, D’Amico said. If a fire or windstorm severely damages a building, companies should strive to ensure that no additional damage is caused by subsequent weather, vandalism or thefts, he and others said.
Further complicating matters, the stress of a situation also may cause companies to make rash decisions.
D’Amico recalled one company that didn’t react quickly after a disaster and a municipality signed a demolition order, which the owner fought because he could have done the work for less. The owner would have avoided higher costs and subsequent litigation if he simply had responded immediately.
Within the bounds of safety, companies should “deal with any emergency situation as quickly as possible in order to minimize the potential loss,” said Kelly Smith Watkins, an attorney with Norris McLaughlin, which has offices in Allentown, Pennsylvania, New York and New Jersey.
“If a tree falls through the roof in a storm, arrange for a temporary fix as quickly as possible to avoid further damage from rain pouring in for an extended period,” she said.
A lot of times, owners are reluctant to report a claim right away, out of fear they will incur higher premiums down the road. That decision can be harmful, said Dana Windisch Chilson, an attorney with the Harrisburg, Pennsylvania office of McNees Wallace & Nurick. Policies routinely include language that requires a response within a given time frame. If those deadlines are not met, coverage issues might end up in litigation, she said. That can be avoided if a company and its attorneys understand the rules and limitations before issues arise.
“Don’t be afraid to ask,” Chilson said. “If you are covered, if you have a coverage issue, you are better to check before an event.”
And once an event occurs, documentation becomes critical. That means lining up accident reconstruction experts, consultants who understand loss issues and others who can be on call well before a storm, fire or flood, Christ said. Experienced consultants will be sure to get photos and other evidence that can help when questions arise, such as whether a roof blew off because of faulty installation, poorly constructed materials or another factor entirely.
“That is why it is important to preserve evidence,” he said. If a case goes to court, “a jury can decide who, if anyone, is at fault.”
Watkins put it this way: “Don’t go it alone.”
“Contact your broker as soon as possible to report the loss (perhaps even prior to taking any temporary measures, if circumstances permit), and contact your business attorney, as well,” she said in an email. “Both your broker and your attorney can assist you with reporting the claim, documenting the loss and making sure that you don’t inadvertently take steps that might jeopardize or limit your coverage.”
She added that attorneys can help translate an insurer’s findings.
“Coverage – and denial of coverage – letters are often confusing and convoluted, and frequently cite even more confusing and convoluted policy language on which the insurance company is basing their decisions,” she said. “A typical insurance policy might seemingly grant coverage in one place, then later exclude it an attached endorsement, but then perhaps grants it back through a series of definitions contained in yet another section of the policy.”
Preparations will help prevent compounding headaches caused by the actual disaster. But even the most prepared companies still might end up in a dispute with an insurer.
“The biggest thing is to make sure you have the right coverages and the right amounts,” Christ said.