Insurance Recovery in Connection with Property ... - King _ Spalding by pengxiuhui


									Insurance Recovery in Connection
    with Property Damage and
     Interruption of Business
                   Meghan H. Magruder
                    Michael M. Raeber
                    Anthony P. Tatum
                      Rita B. Barker

                     Tuesday, August 15, 2006
                   12:30 – 1:30 p.m. Eastern time

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                              Speaker Biographies
                      Meghan Magruder is a partner in King & Spalding's Atlanta office and is a member of the firm's
                      Tort and Environmental Litigation Practice Group.

                      Ms. Magruder has more than twenty years of experience handling complex commercial litigation
                      matters with particular emphasis in insurance coverage, environmental, mass tort and product
                      liability litigation. She handles multi-party, class action, and multi-jurisdictional litigation and
                      various forms of dispute resolution. She also provides clients with counseling on preventative
                      litigation strategies, and advises policyholders on a wide variety of insurance matters. Ms.
                      Magruder is listed in The Best Lawyers In America.
 Meghan H. Magruder
                      Prior to joining King & Spalding, Ms. Magruder was a Senior Partner at Wilmer Cutler Pickering   Hale and Dorr LLP where she was Chair of the Insurance Coverage Practice and Vice Chair of
    404.572.2615      the Environmental Department. She has been involved in ABA leadership for a number of years
                      and serves on the Council for the ABA Section of Litigation.

                      Ms. Magruder received her J.D. from Emory University School of Law in 1983 and her B.A. from
                      Emory College in 1980. Ms. Magruder is a member of the Massachusetts, Georgia and the
                      District of Columbia bars. She is a recipient of the ABC News Working Woman Award for
                      outstanding contributions to her profession and community.

                              Speaker Biographies
                      Michael Raeber is a partner in King & Spalding's Business Litigation Practice Group and is based
                      in the firm's Atlanta office. He has litigation experience in state and federal courts at both the trial
                      and appellate levels. He has experience on a variety of civil matters, including insurance
                      disputes, business torts, securities and shareholder litigation, real estate litigation, and accounting
                      litigation. Mr. Raeber has extensive experience with arbitrations, both domestic and international.
                      He has served as trial counsel in large, complex insurance arbitrations involving property and
                      casualty insurance and business interruption coverage, including an insurance arbitration resulting
                      in one of the largest arbitration awards in U.S. history. He also has experience involving internal
                      corporate investigations.
  Michael M. Raeber
                      Mr. Raeber is a graduate of The University of the South in Sewanee, Tennessee and graduated,    cum laude, from The University of Georgia School of Law. In law school, he was published in the
    404.572.4733      Georgia Law Review and served as Editor-in-Chief. Following law school, Mr. Raeber served as
                      Law Clerk to the Honorable Stanley F. Birch, Jr. on the United States Court of Appeals for the
                      Eleventh Circuit. He is a member of the International Bar Association, the London Court of
                      International Arbitration, the American Bar Association, the State Bar of Georgia, and the Atlanta
                      Bar Association. Mr. Raeber is a fellow of the Lawyers Foundation of Georgia and a member of
                      the Lawyers Club of Atlanta. He serves on the Board of Directors of the non-profit Kids in Need of
                      Dreams Foundation and serves as a volunteer lawyer for the Truancy Intervention Project.
                            Speaker Biographies
                    Tony Tatum is an associate in King & Spalding's Business Litigation Practice Group and is based
                    in the firm's Atlanta office. Mr. Tatum's practice focuses on complex commercial litigation, with an
                    emphasis in insurance coverage litigation and consultation as well securities and shareholder

                    Mr. Tatum has represented leading companies such as Ardent Health Services, Central Georgia
                    Health Systems, Inc., Kimberly-Clark Corporation, Serologicals Corporation, and The Coca-Cola
                    Company, and has litigation experience in state and federal courts at both the trial and appellate
                    levels. Mr. Tatum has litigation experience in a wide range of securities and shareholder litigation
                    matters, including securities fraud class action litigation, shareholder derivative actions, SEC
Anthony P. Tatum    investigations, and related audit committee and other internal investigations.
                    In his insurance coverage practice, Mr. Tatum regularly represents policyholders in all aspects of
   404.572.3519     insurance coverage disputes, including complex litigation relating to comprehensive general
                    liability, directors and officers (D&O), crime and fidelity, and business interruption insurance. He
                    has assisted companies with insurance strategies in multi-jurisdictional cases and in the mass tort
                    context, such as consumer class actions and asbestos tort litigation.

                    Mr. Tatum obtained his undergraduate degree in Risk Management and Insurance from The
                    University of Georgia. Subsequently, Mr. Tatum worked as a senior analyst with two leading
                    financial services companies in the areas of regulatory insurance compliance and contracts. Mr.
                    Tatum graduated, cum laude, from Georgia State University College of Law. He was a law clerk
                    for the U.S. Attorneys Office, Department of Justice and an extern for former Georgia
                    Congressman Ed Jenkins. Mr. Tatum is a member of the State Bar of Georgia, American Bar
                    Association and Atlanta Bar Association.

                            Speaker Biographies
                    Rita Bolt Barker is an associate in the firm's Tort Litigation and Environmental Practice Group.
                    Rita has experience in environmental litigation matters involving the Endangered Species Act and
                    the Georgia Coastal Marshlands Protection Act. Rita has also assisted clients with obtaining
                    environmental permits, seeking insurance coverage for litigation costs and assessing
                    environmental risks in transactions.

                    Rita graduated from Clemson University, summa cum laude, and Harvard Law School. At
                    Clemson, Rita was elected Student Body President and was awarded the Norris Medal presented
                    to the most outstanding graduate. In law school, Rita was an Executive Editor of the Harvard
                    Women's Law Journal and was elected as a Class Marshal. Rita served as President of the
  Rita B. Barker    Board of Student Advisers and taught legal writing and research workshops to first-year law   students. During law school, Rita also worked with the Massachusetts Attorney General's
                    Environmental Crimes Strike Force.
                    Before practicing at King & Spalding, Rita was a law clerk to Judge Beverly B. Martin on the
                    United States District Court for the Northern District of Georgia, where she assisted with complex
                    civil litigation matters, including several insurance coverage disputes. Rita is a member of the
                    State Bar of Georgia.
Insurance Recovery in Connection
    with Property Damage and
     Interruption of Business
                       Meghan H. Magruder
                        Michael M. Raeber
                        Anthony P. Tatum
                          Rita B. Barker

                        Tuesday, August 15, 2006
                      12:30 – 1:30 p.m. Eastern time


         General Topics For Discussion
I.    Identifying Types of Claims and Steps to Take When
      a Loss Occurs

II.   Determining The Scope of Loss Associated with
      Property Damage

III. Determining The Scope of Loss Associated with Interruption
     of Business

IV. Avoiding Problems That Can Defeat or Diminish Your
    Insurance Recovery

   Identifying Types of Claims
     and Steps to Take When
          a Loss Occurs


Before A Claim Arises Confirm That The
 Company Has The Coverage It Needs
 Lawyers working with risk managers can be helpful in
 placement and renewal of coverages

 Conversations will be privileged

 In-house lawyers will be able to give up-to-date information on
 pending claims, as well as potential future exposures

 Consider whether new insurance products should
 be purchased

     Once The Policies Are In Place —
      Know Your Policy Provisions
If a large claim arises, insurers will look for any flaws in the
underwriting submissions

In corporate transactions insurance coverage is an important
and often overlooked issue

Confirm that policies issued to predecessor corporations
provide coverage to the successor entity


Insurance Policies That Cover Property
    Loss and Business Interruption
Property insurance policies generally provide coverage against
unforeseen losses to your own property, resulting for example
from fire, lightning, vandalism or hurricanes (also referred to as
first-party policies)

Property insurance can be in the form of:
 •   A "named-peril" policy – the loss must be within the scope of
     covered perils identified in the policy
 •   An "all-risk" policy – will cover the loss, unless a specific exclusion
     in the policy precludes coverage

Also review flood, automobile, comprehensive general
liability and other specialty policies to determine whether
these policies may provide property loss or business
interruption coverage
           Timely Notice Is Critical
Even if your policy provides for providing notice "within a
reasonable time," some courts have held that "reasonable" can
be as short as 30 days

Property loss policies often require a verified proof of loss to
be submitted within 60 days after the loss—know what your
policy requires

Establish an internal system to track claims, including
identification of the person responsible for determining which
policies to put on notice and the form in which notice will
be provided


 Determining When There Is A Claim
With a property or business interruption loss, there is generally
an event—such as an explosion or hurricane—causing the
damage, so that the time the claim arose is easy to determine

Be aware of policy language that may require notice of
"circumstances" that may give rise to a claim such as cracking
or slow collapsing of structures—and report those events to
carriers if required by your policy

Track All Communications With Insurers
 Maintain a log of your communications including all calls,
 emails and letters

 Carriers may try to argue that delay prejudiced their ability to
 investigate claim or that policyholder failed to cooperate as
 required by the policy


     Promptly Collect All Documents
 All information relating to the cause and extent of the loss must
 be immediately collected in order to prepare the proof of loss

 Retain the services of an accountant to assist in preparation of
 the proof of loss

 It is frequently advisable to consult with counsel to understand
 the scope of available coverage

Requirement of Physical Loss or Damage
 Insurers argue that first-party policies contain a requirement of direct
 or physical loss or damage that means there is no coverage if the
 insured’s property does not suffer an actual change in physical

 Policyholders argue that physical loss or damage includes loss of use
 or diminished value of the property.

 Board of Education of Township High School District No. 211 v.
 International Insurance Co., 720 N.E.2d 622 (Ill. App. Ct. 1999)
       » Issue: Did presence of building materials containing asbestos constitute
         physical loss or damage to property?
       » Decision: Yes—asbestos fiber contamination constitutes damage to real

 Courts have also found loss of use or diminished value did not
 constitute physical loss or damage

              Number of Occurrences
 The number of occurrences at issue for a given loss can be
 relevant to at least two issues:
  •   Applicability of deductibles
  •   Available limits

 For example, the issue of number of occurrences was central to
 the litigation between the lease holders and their insurers over
 the World Trade Center disaster.

 Per occurrence limits totaled $3.5 billion, but losses greatly
 exceeded that amount.

      Number of Occurrences (cont'd)
The insurers argued the events of September 11 were one
insurance loss (limiting coverage to $3.5 billion)

The policyholders argued the events constituted more than one
occurrence (so that more than one application of the $3.5
billion limits would apply)

The Second Circuit agreed that the September 11 loss was one
occurrence under the definition in the policy. See World Trade
Center Properties v. Hartford Fire Ins. Co., 345 F.3d 154
(2d Cir. 2003)


        Anti-Concurrent Causation
Insurers argue policies exclude damage caused directly or
indirectly by two causes where one is a covered peril and one
is not.

Policyholders argue loss should be covered if even one
covered peril involved.

Most states employ the "efficient proximate cause test" to
determine whether loss was result of excluded peril or
covered peril.

    Anti-Concurrent Causation (cont'd)
For example, in a recent case involving loss due to Hurricane
Katrina, where the policy covered losses due to wind or storm
surge from hurricane—but not damages from floods, the Court
decided in addressing a Motion to Dismiss that the jury would
decide the issue.

The Court held that under Mississippi law, where there is
damage caused by both wind and rain (covered losses) and
flood (an excluded loss), the amount due under the policy
depends on determining the proximate cause of the loss.


    Anti-Concurrent Causation (cont'd)
The insurer sought to enforce the anti-concurrent causation
language in the policy but the Court held it was contrary to
settled law that looks to the proximate cause of the loss to
determine coverage and it was invalid and unenforceable.
See Tuepker v. State Farm Fire & Cas. Co., 2006WL 1442489
(S.D. Miss.).

                            Bad Faith
In Acquista v. New York Life, 285 A.D.2d 73 (2001), the First
Department recognized:
    "that a fundamental injustice may result when a traditional contract
    analysis is applied to circumstances where insurance claims were
    denied despite the insurer's lack of a reasonable basis to deny them."

Consequently, the Court found that in addition to policy limits,
extra-contractual damages could include "the possibility of
consequential damages for mental distress or aggravation and

Some courts have disagreed with the Acquista reasoning and
have narrowed the availability of bad faith damages in the first-
party policy context.


         Potentially-Covered Claims
In addition to property losses, first-party policies have been
extended in some cases to include coverage for:
•   Debris removal
•   Extra expenses necessary to continue normal operations after a loss
•   Cyber losses
•   Business interruption
•   Interruption in power supply

     Determining the Scope of
      Loss Associated with
         Property Damage


Establishing The Scope of Property Loss
 Preserve evidence of damage

 Protect property from further damage

 Cooperate with the insurer

 Negotiate funding arrangement

 Develop consistent accounting system

 Assess property damage

 Submit timely proof of loss

  Preserve Evidence of Property Damage
   Record evidence of property damage immediately

   Consider all possible types of property damage, such as
   damage to:
    •   Buildings
    •   Business equipment
         » May need to amend policy to include coverage for computer
         » Some policies may have exclusions for certain causes of computer
           damage (Providence Washington Insurance Co. v. Volpe & Koenig,
           P.C., 2005 WL 2860021 (E.D. Pa. 2005) (excluding damage
           resulting from change in temperature))


Preserve Evidence of Property Damage (cont'd)
    •   Raw materials
    •   Product inventory
    •   Intangible property (e.g., software, data)
         » May need to amend policy to include coverage for data
         » Retail Systems, Inc. v. CNA Insurance Cos., 469 N.W.2d
           735 (Minn. Ct. App. 1991) (ruling that data constitutes
           tangible property); St. Paul Fire & Marine Insurance Co. v.
           National Computer Systems, Inc., 490 N.W.2d 626 (Minn.
           Ct. App. 1992) (ruling that data does not constitute tangible

                    Protect Property
Secure your property as soon as you are allowed access to
prevent further damage
•   Make temporary repairs
•   Board windows
•   Cover holes in the roof
•   Partition the building
•   Secure the building from casual entry


               Protect Property (cont'd)
This step is important if your policy excludes certain types of
damage (e.g., flood, mold)
•   Sammons v. State Farm Fire & Casualty Co., 2006 WL 1547102 (S.D.
    Ind. 2006) (excluding from coverage damage caused by mold that grew
    during time between water leak and proper repair)
•   Slow clean-up after Hurricane Katrina resulted in extensive mold

        Cooperate With The Insurer
Schedule a site visit

Schedule an initial conference with the insurer and include key
members of your internal recovery team (e.g., risk manager,
facilities manager, financial officer, counsel, accountants and


    Negotiate Funding Arrangement
If you need an advance payment for property losses, negotiate
a funding arrangement with your insurer

Be careful not to negotiate a final settlement during this
process unless you have accurately accounted for all
property losses

        Develop Accounting System
Develop a consistent internal accounting system to assess
property losses

Methods for calculating the value of lost or damaged
property vary:
•   Actual cash value – cost to replace item less accumulated depreciation
•   Replacement cost value – cost to repair or replace item
•   Functional replacement cost value – cost to replace item with similar item

Educate accounting, engineering, sales and other department
staffs on how losses will be accounted

If your property damage claim will be complex, consider hiring
outside consultants


           Assess Property Losses
Itemize property damage in a clear, consistent manner

Property values may be ascertained from business records
•   Receipts
•   Credit card statements
•   Inventory records
•   Vendor quotes
•   Expert estimates

             Submit Proof of Loss
Be mindful of prescribed time limit for submission of proof of
loss (e.g., 30 days)

If your proof of loss documentation must be submitted before
you are able to fully assess property losses, request an
extension in writing

Outline total damages in a list or schedule

Provide sworn statement

Attach supporting documentation


    Determining the Scope of
      Loss Associated with
    Interruption of Business

Types of Business Interruption Insurance
  Commercial insurers offer several different types of business
  interruption coverages that vary depending upon the cause of
  the interruption to the insured’s business.

 Today we will discuss:
  a) Traditional Business Interruption (“BI”) – coverage for business income
     loss caused by damage to property at the insured’s business.
  b) Contingent BI – coverage for business income loss caused by damage
     to property at a customer or supplier for the insured.
  c) BI from Order by Civil Authority – coverage for business income loss
     caused by an order of a government agency that prevents access to
     the insured’s business.
  d) BI from Lack of Ingress/Egress – coverage for business income loss
     caused by denied access to the insured’s real and personal property.

      What Is Lost Business Income?

A. Traditional Business Interruption –
“Physical Damage” to the Insured’s Property

 Traditional BI covers the insured for the risk associated with an
 interruption of the insured’s business as a result of damage to
 the insured’s property. Often, this loss of business revenue
 that results from covered property damage is greater than the
 physical damage itself.

 Typical Insuring Agreement:
    The insurance company will pay for the actual loss of Business Income
    you sustain due to the necessary suspension of your operation during
    the period of restoration. The suspension must be caused by direct
    physical loss of or damage to property at premises described in the
    Declarations and for which a Business Interruption Limit of Insurance is
    shown in the Declarations.


    Traditional Business Interruption
 Required Elements to Trigger BI Coverage:
 1. The insured sustained “physical damage” to property that is covered
    under the policy;
 2. The physical damage was caused by a covered cause of loss;
 3. There was an interruption to the business (a "suspension” of
    operations) which was caused by the property damage;
 4. There was an actual loss of business income during the period of time
    necessary to “restore” the business; and
 5. The loss of income was caused by the interruption of the business—
    and not by some other reason.

    Traditional Business Interruption
Element of “Physical Damage”
•   The most fundamental and often disputed element is “physical
    damage” to the insured’s property.

Element – Interruption “Caused By” Physical Damage to Property
•   If the lost revenue in fact was not caused by the physical damage to the
    covered property, BI coverage will not be triggered.
•   As an example, in Harry's Cadillac-Pontiac-GMC Truck Co., Inc. v.
    Motors Ins. Corp., S.E.2d. 249 (N.C. App. 1997), a snowstorm
    damaged the roof of an insured’s auto dealership, making it almost
    inaccessible for a week. Nevertheless, a North Carolina appellate court
    denied recovery under the dealership's BI policy, finding that the lost
    revenue did not result from property damage at the premises.
    Proximate cause of the loss was the property owner’s inability to
    access the dealership due to the snowstorm.

    Traditional Business Interruption
Element of “Suspension”: A common coverage dispute is
whether the “suspension” due to the physical damage must be
total—or if a partial suspension in business operations will suffice to
trigger coverage for loss of business income.
a) “Partial” Suspension – American Medical Imaging Corp. v. St. Paul Fire
   & Marine Ins. Co., 949 F.2d 690 (3rd Cir. 1991); Datalab, Inc. v. St.
   Paul Fire & Marine Ins. Co., 347 F.Supp 36 (S.D.N.Y. 1972); Maher v.
   Continental Cas. Co., 76 F.3d 535, n 1 (4th Cir. 1996).
b) “Complete” Cessation – Home Indemnity Co. v. Hyplains Beef, 893
   F.Supp 987, 991-2 (D. Kan. 1995), aff’d, 89 F.3d 850 (10th Cir. 1996);
   Howard Stores Corp. v. Foremost Ins. Co., 82 A.D.2d 398, 401 (N.Y.
   App. 1981); Royal Indemnity Ins. Co. v. Mikob Properties, Inc., 940
   F.Supp 155, 160 (S.D. Tex. 1996).

   Traditional Business Interruption
Element – What Is the “Period of Restoration?”: Many BI
policies define the “period of restoration” to end when the premises
should be “repaired, rebuilt or replaced with reasonable speed and
similar quality.”
a) Rebuilding at Same Site? – Restoration period ended when an insured-
   store—which was destroyed by 9/11 attacks—"could resume
   operations in a permanent location reasonably equivalent to the site of
   its former store at the WTC.” Duane Reade, Inc. v. St. Paul Fire &
   Marine Ins. Co., 411 F.3d 384 (2d Cir. 2005).
b) “Repair Rebuild, or Replace” – provides BI coverage until pre-loss
   operations are fully restored, but does not extend the time until the
   insured is restored to pre-loss profits -- the latter typically being an
   extension of coverage. Duane Reade, 411 F.3d at 392-93.


   Traditional Business Interruption
Element – Property “Covered” Under the Policy
   The policyholder should be careful to make sure it has insured all
   properties from which it derives significant business income—otherwise
   there may be a gap in the coverage.
   For example, in Gregory v. Continental Ins. Co. 575 So.2d 534 (Miss.
   1991), the insured bought BI coverage for a pro shop, office and
   restaurant adjacent to a golf course, but not for the course itself.
   Hurricane damage forced a two-week closure of the course and all
   facilities. The insured sought lost revenue from operation of the
   course as well as from the related closure of the pro shop and
   restaurant. Coverage for the office/pro shop/restaurant did not extend
   to loss from the entire golf course being shut down—which was not
   “covered” BI property.

B. Contingent Business Interruption –
  “Physical Damage” to the Property of a
Contingent BI provides coverage for the insured's loss of income
resulting from physical damage—not to its property—but to the
property of its suppliers (or customers) that therefore causes an
interruption in the insured’s business.

How Contingent BI Fills the Gap: Most BI forms contain an “Idle Periods”
exclusion which excludes loss “for any period during which business would
not have been conducted for any reason other than insured physical
damage.” See Air Liquide America Corp. v. Protective Mutual Insurance
Co. No. 96-16661, 1997 U.S. App. LEXIS 35860, at *2 (9th Cir. Dec. 18,
1997) (where both supplier and insured sustained physical damage at their
premises from an explosion, BI claim not triggered because part of the
reason for the insured’s loss was a slowdown in obtaining raw materials
from the supplier. The court noted, however, that if the insured had
purchased contingent BI, the result would have been different).

   Contingent Business Interruption
Key Elements to Trigger Contingent BI Coverage: Similar
insuring provisions to the traditional BI coverage, but with some
notable differences. In order to trigger coverage, the following is
typically required:
 a) There is “physical damage” to property of a “type” insured under the
    policyholder’s policy;
 b) To a direct supplier or customer’s property (either specified property or
 c) By a peril covered under the insured’s policy; and
 d) Which causes an interruption to the insured’s business operation.

   Contingent Business Interruption
“Written Contract” with Supplier/Customer: Another disguised
element that can defeat coverage is that “Supplier” and “Customer”
are often defined to require that there must be a written contract for
services between the insured and supplier. Read your policy

Complete “Suspension” Not Required: Most policy forms do not
require that the supplier’s property be totally shut down to cause a
contingent BI loss. All that is necessary is that an insured loss
occurs at the type of location covered under the policy and that the
insured’s business be interrupted as a result.


   Contingent Business Interruption
Time Element Deductible: Typically, the policy will include a “time
deductible” in that the “period of restoration” begins a specified
number of hours after the time of direct physical loss or damage
resulting from any covered cause of loss at the premises of the
dependent property.

Claims Documentation—A Practical Consideration: Unlike a BI
claim, these losses can present a great challenge for the insured.

All of the documentation that would evidence “physical
damage” at the supplier’s property AND that would show that
the interruption resulted from “physical damage”—reside
with the supplier. Be diligent in requesting supporting

C. Business Interruption from Order by
           Civil Authority
Purpose: Coverage for business income loss caused by acts of civil
authority in response to “physical damage” occurring away from the
covered premises.

How Civil Authority Extension Fills the Gap: In Roundabout Theatre
Co. v. Continental Casualty Co., 751 N.Y.S.2d 4, 5 (App. Div. 2002), the
insured was a theatre located near a new building under construction.
Scaffolding on the new building collapsed into the street, causing the
City of New York to close the street for nearly a month. The policyholder
theatre—which had not purchased civil authority extension of
coverage—was forced to cancel 35 performances. BI coverage was
not triggered, however, because the closure and resulting cancellations
had not resulted from “physical damage” to the theatre’s property.


 Business Interruption from Order by
           Civil Authority
Typical Insuring Agreement: We will pay for the actual loss of Business Income
you sustain and necessary Extra Expense caused by action of civil authority that
prohibits access to the described premises due to direct physical loss of or damage to
property, other than at the described premises caused by or resulting from any
Covered Cause of Loss.

Element – Prohibit Access to “Your Premises”: Where business income loss
from acts of civil authority occurs, the order prohibiting access must be specific to the
insured’s covered property.

See 730 Bienville Partners v. Assurance Co. of America, 67 Fed. Appx. 248, 2003
WL 21145725 (5th Cir. 2003) (unpub.) (“To recover for business losses under the
Civil Authority Extension, the loss of business income. . . must be 'caused by action
of civil authority that prohibits access to your premises...' While the FAA's closure of
the airports . . . may have prevented many guests from getting to . . . to plaintiffs’
hotels, the FAA hardly 'prohibited' access to the hotels.").

D. Business Interruption from Denied
Typical Insuring Agreement: Loss of Ingress or Egress: This policy covers loss
sustained during the period of time when, as a direct result of a peril not excluded,
ingress to or egress from real and personal property not excluded hereunder, is
thereby denied.

No “Physical Damage” Requirement: Note that "physical damage" due to a
covered peril is typically not an element of coverage under most ingress/egress
coverage extensions. See Fountain Powerboat Industries v. Reliance Ins. Co., 19 F.
Supp.2d. 552, 2000 U.S. Dist LEXIS 20644 (E.D. N.C. 2000) (rejecting insurer’s claim
that only physical damage can trigger a BI claim, finding that the “clause is
exceedingly clear” and does not require physical damage to property).

Recent Forms Add Temporal Limitations: For example, “[t]his coverage is limited
to within five (5) statute miles of the insured location to which ingress/egress is
prevented.” See County of Clark v. Factory Mutual Ins. Co., No. CV-S-02-1258 (D.
Nev. Mar. 25, 2005) (no coverage under ingress/egress for lost business income
following FAA 9/11 ground halt order because damage did not occur at an insured
location or within 1,000 feet of it, as required by the policy).

      Avoiding Problems That
       Can Defeat or Diminish
      Your Insurance Recovery

   A. Don't Get Caught By Policy
 Technicalities – Read The Fine Print
Read the policies . . . again!

Get complete set of all applicable policies with all

Review policies carefully for reporting deadlines

Understand mitigation requirements and subrogation


         Schedule of Insured Values
Typical property/casualty policy provisions:
 "In the event of loss hereunder, liability of the Company shall be limited to
 the least of the following in any one 'occurrence':
     a. The actual adjusted amount of the loss, less applicable
     b. 100% of the individually stated value for each scheduled item of
        property insured at the location which had the loss as shown on the
        latest Statement of Values on file with this Company, less
        applicable deductibles. If no value is shown for a scheduled item
        then there is no coverage for that item. . . ."

    Schedule of Insured Values (cont'd)
Cases limiting liability to schedule of insured values:
Simon v. National Union Fire Insurance Co., 782 N.E.2d 1125, 1127-29
(Mass. App. Ct. 2003) (affirming denial of recovery for fire loss to vacant
building where schedule of insured values did not include value for
Fair Grounds Corp. v. Travelers Indemnity Co., 742 So. 2d 1069, 1073-74
(La. Ct. App. 1999) (affirming judgment limiting insurance recovery to
schedule of values on file with insurer)


               Notice Requirements
Typical property/casualty policy provisions:
"The insured shall give immediate written notice to this Company
of any loss . . . ."
Insured shall give notice of any loss or damage "as soon thereafter
as practicable"

           Notice Requirements (cont'd)
Cases finding late notice:
 Pandora Industries, Inc. v. St. Paul Surplus Lines Insurance Co., 188
 A.D.2d 277, 277 (N.Y. App. Div. 1992) ("Plaintiff's good faith belief that the
 loss was not covered does not excuse the late notice, which was not
 received until 31 days after the initial loss and after the offending elbow
 pipe had been replaced and the damaged stock removed.")
 Republic New York Corp. v. American Home Assurance Co., 125 A.D.2d
 247, 248 (N.Y. App. Div. 1986) (finding that notice 45 days after loss did
 not comply with policy provision requiring notice of loss or damage "as
 soon thereafter as practicable")

Note: Different states have varying laws governing whether
insurer must show prejudice caused by late notice.


Deadlines for Submitting Proof of Loss
          and for Filing Suit
Typical property/casualty policy provisions:
 "[W]ithin sixty days after the loss, unless such time is extended in writing
 by the Company, the insured shall render to this Company a proof of loss,
 signed and sworn to by the insured . . ."
 "Suit. No suit or action on this policy for the recovery of any claim shall be
 sustainable in any court of law or equity . . . unless commenced within
 twelve months next after inception of the loss."

Note: Provisions in policies for filing suit can be different than
usual statutes of limitations

                Mitigation Provisions
Typical provision covering "pure" Extra Expense:
    "This Policy covers necessary Extra Expense incurred by the Insured in
    order to continue, as nearly as may be practicable, the normal conduct of
    the Insured’s operations during any period following a physical loss . . . ."

Typical provision covering Expenses Related to Reducing Loss, but only
to the extent of the reduction to the loss otherwise payable:
    "This Policy . . . also covers such expenses as are necessarily incurred by
    the Insured for the purpose of reducing actual loss under the Coverage
    Part . . . but in no event shall the total of such expenses exceed the
    amount by which the loss otherwise payable under this Coverage Part is
    thereby reduced."

Typical provision requiring mitigation:
    "It is a condition of this insurance, that as soon as practicable, the Insured
    shall resume normal operation of the business and shall dispense with any
    Extra Expense."

             Subrogation Provisions
Typical subrogation provision:

"Any recovery as the result of subrogation proceedings, after expenses
incurred in such subrogation proceedings are decided, shall accrue to
Insurers and the Insured jointly in the proportion of the amount of loss borne
by each."

Such provisions might be trumped by "make whole" doctrine:

"[A]n insurer has the right to ‘stand in the shoes’ of the insured and seek
recompense from the third-party tortfeasor for the amount paid to the
insured, provided that the insured has been made whole." USF&G v.
Maggiore, 299 A.D.2d 341, 344 (N.Y. App. Div. 2002)

“Georgia public policy strongly supports the rule that an insurer may not
obtain reimbursement unless and until its insured has been completely
compensated for his losses." Duncan v. Integon Gen. Ins. Corp., 482
S.E.2d 325, 326-27 (Ga. 1997) (emphasis added)
 B. Don't Let A Lack of Coordination
       Undermine Your Claim
Different parts of business often have different and sometimes
conflicting objectives

Avoid premature estimates of loss

Avoid problematic terminology


        C. Carefully Monitor All
     Communications With Insurers
Comply with reasonable requests for information
and documents

Respond in writing to all communications

Acknowledgement of Correspondence
"In the ordinary course of business, when good faith requires an
answer, it is the duty of the party receiving a letter from another
to answer within a reasonable time. Otherwise, he is presumed
to admit the propriety of the acts mentioned in the letter of his
correspondent and to adopt them." O.C.G.A. § 24-4-23
(emphasis added).

"Generally where two persons have carried on correspondence
in reference to a particular subject and one of the parties has
written a letter to the other making statements concerning the
subject matter of the correspondence which the person receiving
the letter would naturally deny if not true, the latter's failure to
answer the letter is evidence which tends to show that the
statements in the letter are true." Wieder v. Lorenz, 99 P.2d 38,
44-45 (Ore. 1940) (quoting 20 Am. Jur., Evidence, p. 809, § 961).

D. Avoid Potential Claims of Waiver of
     Privilege or Confidentiality
Internal communications: Disclosure to insurer
•   Use of claim consultants

Insurer-policyholder communications: Disclosure to
adverse party
•   Claims presentation vs. settlement discussion


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