As companies file Sandy-related insurance claims in coming weeks, experts said many won't have sufficient flood insurance to cover the full extent of their physical and economic losses — and firms that didn't buy flood coverage will have trouble collecting under standard commercial insurance policies that typically exclude flooding.
Attorney Donald W. Kiel, of K&L Gates, in Newark, is preparing multimillion-dollar insurance claims on behalf of several clients, some with flood insurance and some without. When representing businesses that don't have flood insurance, Kiel said he may argue "that the flood was not the cause of the loss, and that the proximate cause of the loss was the wind damage," which is covered on a standard policy. "If you are on the coast and (your property) gets hit by a wave, the wind drew the surge into your property," he said.
Kiel said if insurance claims from Sandy wind up in court, "you are going to have judges and juries who lived through this disaster, and hopefully will rule in favor of the policyholders."
Attorney H. Richard Chattman is a partner at the Newark firm of Podvey, Meanor, Catenacci, Hildner, Cocoziello & Chattman, and his clients include insurance companies. He said standard commercial insurance policies cover wind damage, not flooding; however, "the business may have damage for multiple reasons" — for example, water seeps into the factory basement while wind sends a tree crashing through the roof. Chattman said it is likely that "most insurance companies will say that a storm surge that causes a flood is excluded regardless of the role that wind played in it. But this is always a giant push/pull between insurers and the insureds."
Kevin P. Clancy, a partner in the CohnReznick Advisory Group who's helping clients file business interruption claims, said, "You have to determine, depending on the nature of the particular business, whether this was a permanent loss of income, or just a timing difference." For example, he said, maybe the business could not reach customers during the week after Sandy, but made up the lost revenue later.
Clients also are making claims for expenses they incurred as a result of the storm, such as renting temporary space or "if you had to pay for additional transportation costs to get your employees to work sites," Clancy said.
Paul Collins, managing partner of the insurance broker Willis of New Jersey, said a number of businesses haven't purchased enough flood insurance to fully cover their Sandy losses.
"There are a lot of large companies in New Jersey that have the ability and consciously make the decision to self insure" a significant portion of their potential flood exposure, he said. The degree of underinsurance is reflected in estimates from the insurance advisory firm Eqecat, which projects that total Sandy damages could reach $50 billion, with $10 billion to $20 billion covered by insurance.
Collins said the storm emphasizes the need for brokers to make sure their clients "are astute in the way they evaluate what (risks) they are financially capable of absorbing, versus what they need to transfer to insurance companies."
Flood is by far one of the most expensive perils to insure, said John Carlsen, executive vice president of insurance broker Napco LLC, in the Iselin section of Woodbridge.
"We have some accounts that buy a tenth of what they really need," he said. "They just buy some coverage, not anticipating the (worst) situation, and just have some coverage to protect some of their assets." He said flood insurance can be three to five times as expensive as fire insurance.
Insurance agent Glenn Tippy, president of Gerrity, Baker & Williams, in Mount Olive, said one of his clients who supplies respirators to hospitals is putting in a claim for equipment damaged by the storm, and also filing "a business interruption claim, because his income is diminished until he can replace those respirators and put them in operation."
Some clients turn down flood insurance because their property has never flooded, "and I say 'Good, then flood insurance won't cost you $40,000 a year, it will cost $400 or $1,400 — so why not buy it?'" Tippy said.
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