Insurance Purchasers Beware: Florida Court Finds No Duty to Defend Data Breach Claim Under CGL Personal & Advertising Injury CoverageOn November 17, 2017, a U.S. district court in Florida narrowly construed personal and advertising injury coverage for data-breach claims under a commercial general liability policy. In Innovak International, Inc., v. The Hanover Insurance Company, the court held that The Hanover Insurance Company (the insurer) has no duty to defend Innovak International, Inc. (the insured), against a putative class action arising from a data breach that compromised users’ personal private information (“PPI”).

The court narrowly construed the policy’s definition of “personal and advertising injury” that included “[o]ral or written publication in any manner of material that violates a person’s right of privacy.” Despite the absence of a requirement that the insured publish that material, the court held that the policy only extended coverage to publication by the insured.

The court held that “[t]he act that violates the claimants’ right of privacy is the publication of their PPI, and the Underlying Claimants have not alleged that Innovak directly or indirectly committed that act.” The court rejected Innovak’s arguments that the phrase “in any manner” includes both “direct publication of PPI and negligent failure to prevent third parties from obtaining the PPI.” Following a New York state court decision (Zurich American Insurance v. Sony Corporation of America), the Florida court construed the phrase “in any manner” to refer to the medium rather that the sender of the information.

The court also rejected Innovak’s argument that the putative class action complaint alleged that Innovak indirectly published the PPI. The court held that the complaint clearly alleged that Innovak failed to protect the users’ PPI by failing to implement sufficient data security measures – which is not an allegation of publication at all. The court distinguished a California case, Hartford Casualty Insurance Co. v. Corcino & Associates, et al., because that complaint alleged that the insured posted private information on a public website, and the court did not address the same legal issues.

Finally, the court made short shrift of Innovak’s argument that Hanover waived its defense by omitting it from its denial letter, because the particular defense was included within the letter.

This case serves as a reminder that organizations should not assume that their commercial general liability policies will cover losses from data breaches – even if the organization purchases a data breach enhancement, as Innovak did. The policy’s Data Breach Form provided only data breach services and paid only data breach expenses and expressly excluded “fees, costs, settlements, judgments or liability of any kind” arising out of a data breach. The lack of coverage under the Data Breach Form left Innovak with only the personal and advertising injury coverage, which, in this instance, did not extend to the putative class action against Innovak.

As often mentioned on this blog, prudent insureds should purchase dedicated cyber insurance coverage if at all possible. Smaller organizations may rely on coverage enhancements to their existing insurance programs but should recognize the risk of this strategy. Under either a traditional or specialized cyber insurance program, all insureds should scrutinize policy language to understand the scope of coverage and –more importantly – the limitations of that coverage for data breach and other cyber-related exposures.

webinarUpcoming Event - Policyholder Insurance Webinar Series: Is That Drone Insured?Bradley’s Policyholder Insurance Group is pleased to present “Is That Drone Insured?” as part of our ongoing Policyholder Insurance Webinar Series.

This webinar will discuss an overview of available drone insurance terms and conditions, recommended contract terms, and an insurance market assessment, including market capacity and pricing presented by Bradley attorneys Katherine J. Henry and Brendan W. Hogan with guest speaker Chris Proudlove of Global Aerospace.

When: Tuesday, December 12, 2017, 11:30AM – 12:30PM CST

Where: Webinar Registration

What: Businesses are hiring third-party drone operators to provide various services, including aerial photography and mapping, with many more uses developing daily. Some businesses are bypassing third-party operators and purchasing drones for their own use. Given the rapid pace of development of this technology, risks posed by drone operations may not be adequately insured by the third-party drone operator or may be uninsured by your company’s existing insurance portfolio, and governing contracts may not include adequate insurance requirements to protect your company.

We look forward to seeing you there!

$16 Billion Debt Cancellation Gives Breathing Space for National Flood Insurance ProgramThe Senate’s vote Tuesday to forgive $16 billion in debt owed by the National Flood Insurance Program gives a much-needed boost for NFIP as it faces large payouts from recent hurricanes. Packaged with other disaster aid appropriations, the bill now goes to President Trump, who is expected to sign.

NFIP has struggled to stay solvent in the face of multibillion-dollar flood insurance losses in recent years, including $16.3 billion from Hurricane Katrina and $8.6 billion from Superstorm Sandy. Prior to Hurricane Harvey, the program was already nearly $25 billion in debt to the U.S. Treasury, with a $30 billion dollar borrowing limit. Passage of H.R. 2266 allows the program to continue paying claims in the near term, but does not implement any long-term reforms to NFIP. Nor does it extend the life of the program, which is set to expire before the end of the year absent congressional re-authorization. But Tuesday’s 82-17 vote in the Senate suggests that there is strong bipartisan support to maintain the coverage provided by the program, with or without a long-term fix.

Trigger for Hurricane and Named Storm DeductiblesRecent damage from Hurricanes Harvey, Irma, and Maria have focused attention on special “named storm” and “hurricane” deductible endorsements found in most property insurance policies issued for coastal areas. Such endorsements typically convert the insured’s deductible from a fixed amount to a percentage of the property value, such as 1, 2, 5, or 10 percent, for damage caused by certain categories of storms. These percentages are usually taken from the insured value of the property, not merely the amount of damage, so when triggered the endorsement can result in a substantial increase in the out-of-pocket cost for the policyholder.

Several names are used for these endorsements. “Hurricane” deductibles generally apply when a storm has been designated a hurricane by the National Weather Service. “Named Storm” deductibles are broader and include declared tropical storms. “Windstorm” deductibles are the broadest of all and may apply to damage caused by almost any high wind weather event.

Circumstances triggering the deductible can vary significantly depending on the policy and state in which the insured property is located, so the individual policy language and state regulation must be reviewed to determine when the deductible applies. ISO Commercial Property Endorsement CP 03 25 (“Named Storm Percentage Deductible”), for example, provides that a “Named Storm” begins at the time the National Weather Service issues a watch or warning for the area in which the insured premises is located, and ends 72 hours after the termination of the last watch or warning issued for that area.

In some states, regulations have altered the circumstances for triggering the deductible by mandating the scope and duration of a “hurricane.” For example, Florida defines a “hurricane” for residential property insurance purposes as beginning at the time the National Weather Service issues a hurricane watch or warning for any part of Florida and ending 72 hours after the termination of the last hurricane watch or hurricane warning anywhere in the state. Because of the broad scope of this definition, policyholders in some areas may pay a “hurricane deductible” even though the insured property was never subjected to hurricane-force winds.

Where the insurer contends that a percentage deductible applies on account of a hurricane or tropical storm, policyholders should carefully review the policy language and insurance regulations in their state, as well as the actual conditions that caused property damage, to determine if there is an argument against the increased deductible.

The Professional Services Exclusion: You May Not Have the Coverage You ThinkCould you be providing “professional services” that might lead to liability excluded by your commercial general liability policy? The answer may be different than you think.

A recent unpublished Eleventh Circuit opinion provides a reminder that it is important to review your CGL policy and understand whether you are covered. The facts upon which the court relied in Witkin Design Group, Inc. v. Travelers Property Casualty Co. of America appear simple enough. An intersection traffic accident resulted in the death of a young boy. The resulting lawsuit included a negligence claim against the landscape architect who designed and constructed the intersection. The landscape company called on its CGL insurer to defend and indemnify it from the claim. You can imagine the company doing so with the thought that a liability claim had been brought and its general liability policy would provide coverage for that claim.

Like most CGL policies, however, this CGL policy contained a professional services exclusion that excluded coverage for claims “arising out of the rendering of or failure to render any ‘professional service’.” Professional services were defined by the policy as “any service requiring specialized skill or training.” The CGL policy said that professional services included:

a. Preparation, approval, provision of or failure to prepare, approve, or provide any map, shop drawing, opinion, report, survey, field order, change order, design, drawing, specification, recommendation, warning, permit application, payment request, manual or inspection;

b. Supervision, inspection, quality control, architectural, engineering or surveying activity or service, job site safety, construction contracting, construction administration, construction management, computer consulting or design, software development or programming service, or a selection of a contractor or subcontractor; or

c. Monitoring, testing, or sampling service necessary to perform any of the services included in a. or b. above.

But, these are merely non-exhaustive examples. The Eleventh Circuit was clear: “the professional service exclusion applies to any service requiring specialized skill or training.” Because the claim for which the landscape company sought coverage arose out of its design and construction of the intersection, which required specialized skill or training, the court found the professional liability exclusion applied, resulting in no coverage under the CGL policy.

The Eleventh Circuit’s opinion is not ground-breaking. Whether an insured’s conduct constitutes excluded “professional services” is a frequently litigated coverage question, which turns on policy language, the insured’s specific conduct, and applicable state law’s definition of professional services. Other recent examples of cases in which courts have found no coverage because of professional services exclusions include a claim against a home inspector alleging failure to discover insect and water damage; a claim against a real estate broker who failed to disclose an adverse property condition; a claim against a property manager for failing to properly supervise construction; and a claim against an insurance company for misrepresenting insurance policies.

Simply because a professional services claim is excluded by the CGL policy, however, does not always mean that the insured is left holding the bag without insurance coverage. Many companies purchase professional liability policies, which are errors and omissions policies intended to provide coverage for claims arising from the specific professional services in which the insured is engaged. It is critical to understand, however, that these policies may define “professional services” differently than the insured’s CGL policy, and care should be taken to ensure that your professional liability policy covers what your CGL policy may exclude.

So, while the Eleventh Circuit’s recent decision is not ground-breaking, it does provide a useful reminder to think about whether you have the liability coverage that you think you have.  We suggest that you consider the following questions, and discuss them with your broker or attorney if necessary:

  • Does my CGL policy have a “professional services” exclusion?
  • Am I engaged in conduct that could expose me to liability claims and that could be construed as a “professional service” as defined and excluded by the policy?
  • Do I need to purchase a professional liability policy to protect from those claims, and does that professional liability policy cover what the CGL policy excludes?

It is better to know the answers to these questions now, rather than find out after a claim has been filed that you don’t have the coverage you thought. After all, It Pays to be Covered.™

Bradley’s Policyholder Insurance Group is pleased to present “What Blockchain Means for Your Insurance” as part of our ongoing Policyholder Insurance Webinar Series.

This webinar will discuss the applications of blockchain technology in the insurance industry, recent developments in blockchain technology, and the potential impact on policyholders presented by Bradley attorney Katherine J. Henry and Brendan W. Hogan.

When: Thursday, November 2, 2017, 11:30AM – 12:30PM CST

Where: Webinar Registration

What: Distributed ledger technology, often called “blockchain,” is rapidly emerging as a potential solution for businesses in many sectors, often with promises of increased security, reduced risk, and greater efficiency. With any new technology, however, come new risks. Risk management professionals should understand, assess, and plan for the risks that their organization will face resulting from the implementation of blockchain—not only today but in the future. In this webinar, Bradley’s Policyholder Insurance Coverage Team, led by Katherine Henry, will discuss the applications of blockchain technology in the insurance industry, recent developments in blockchain technology, and the potential impact on policyholders. Join us for this compelling introduction into the future of insurance coverage.

We look forward to seeing you there!

SC Supreme Court Says Insurers Can’t Cloud Allocation of Covered and Non-Covered DamagesThe South Carolina Supreme Court’s decision in Harleysville Insurance Co. v. Heritage Communities, Inc., modified July 27, 2017, continues a trend of decisions aimed at preventing an insurer from acting in its own interest to the detriment of its insured when the insurer controls the defense of underlying claims against the insured. Although the far-ranging opinion in Harleysville tackles a number of important coverage issues, perhaps the most salient is a renewed emphasis on the insurer’s duty to inform its insured of the need to allocate damages in underlying litigation to differentiate between covered and non-covered losses in a jury award.

In Harleysville, the jury awarded $10.75 million in actual damages against a developer in two suits arising from defective condominium construction. These damages were based on the cost to repair defects, and included costs to replace faulty workmanship, as well as costs to repair damage to the condominium from water intrusion. The verdict did not distinguish between these costs. Because replacement of faulty workmanship was not covered under the developer’s liability insurance policies, in the ensuing coverage litigation, the insurer contended that it was not obliged to provide coverage for this portion of repairs. The court, however, found that the insurer lost the right to contest this issue when it failed to notify the policyholder of the need to allocate the verdict in the underlying suits.

The problem of parsing covered and non-covered losses in a verdict is not new. Since at least Duke v. Hoch, 468 F.2d 973 (5th Cir. 1972), courts have complained that it is virtually impossible to “determine the particular amount that happened to be in the jury’s mind” in subsequent coverage litigation. Where there was no effort in the underlying suit to determine the jury’s intent in making the award, assignment of the burden of proof between the insurer and policyholder is therefore potentially dispositive of the allocation. While it is typically the insured’s burden to show that damages fall within the coverage grant, a number of courts have recognized the inherent conflict of interest where the insurer controls the defense of the litigation but fails to obtain an allocated verdict. If the burden remained with the policyholder under these circumstances, the insurer could obtain a windfall from its own failure to clarify the composition of the award.

Some courts have responded to this problem by shifting the burden to allocate covered and non-covered losses from the insured to the insurer when the insurer fails to either obtain an allocation of the verdict in the underlying litigation or notify its insured of the need to do so. In Magnum Foods, Inc. v. Continental Casualty Co., 36 F.3d 1491 (10th Cir. 1994), the Tenth Circuit held that where the insurer controlled defense of the litigation but failed to request special interrogatories or a special verdict to allocate damages, it bore the burden of demonstrating that the basis of the award fell outside coverage. In Duke v. Hoch and Harleysville, the courts did not mandate that the insurer must itself seek an allocation, but found that the insurer must provide notice to the insured of the need for allocation in its reservation of rights. Harleysville found that the insurer’s blanket reservation of rights letter did not meet this standard, as it did not “inform the insureds that a conflict of interest may have existed or that they should protect their interests by requesting an appropriate verdict.” The insurer therefore lost the right to contest this issue and was required to cover damages for faulty workmanship that would otherwise have fallen outside of the policy.

Left unresolved by the opinion is precisely how, and by whom, the allocation of the verdict will be accomplished. In Duke v. Hoch, obtaining an allocated verdict would have been fairly simple, since the non-covered damages related to a particular claim against the insured; thus, the jury could have been asked to specify the portion of damages awarded on the basis of that claim. But in Harleysville, parsing out the covered and non-covered damages would have required specific findings as to which costs were required to replace the insured’s faulty work product, and which costs pertained to repairs for water intrusion. For the jury to make an informed decision on these issues, defense counsel would need to tailor the testimony of its witnesses, and possibly even modify its closing argument.

In a given case, the facts relevant to such allocation might well be contested between the insurer and the policyholder, and it is doubtful whether defense counsel retained by the insurer will be able to navigate this potential conflict of interest. Because Harleysville focused on the insurer’s duty to notify the policyholder of the need for an allocated verdict in its reservation of rights, insurers may argue that it is the policyholder’s responsibility to engage independent defense counsel if it wants to obtain such an allocation. But if the insured must pay for its own attorneys to handle the litigation, it has been deprived of a key benefit of coverage, namely the insurer’s duty to provide a defense. The policyholder could obtain independent counsel of its own choosing, and ask the insurer to reimburse reasonable fees. A policyholder, however, can expect the insurer to resist any arrangement under which it would pay for litigation expenses exceeding those of its regular insurance defense counsel, or for expenses incurred to present evidence adverse to the insurer’s own coverage position. As insurers modify their reservation of rights letters to meet the prescriptions in Harleysville and similar cases, policyholders must be vigilant for an insurer’s communication that allocation is needed, and insist that insurers discharge their defense obligations under the policy.

Beware of Prior Act Exclusions and Retroactive Dates When Procuring or Renewing CoverageAn 11th Circuit decision issued earlier this year serves as a reminder of the importance of carefully evaluating time-based exclusions and retroactive dates when procuring or renewing coverage. Liability policies such as directors’ and officers’, private entity, and professional liability policies provide coverage for claims made and reported during the policy period (or an extended reporting period) regardless of the date of the underlying alleged wrongful act. This coverage is not unlimited, however, and an insurer selling a policy with a Prior Acts Exclusion may well deny coverage for alleged wrongful acts that purportedly “arise out of” even tangentially connected conduct that first happens before the policy’s retroactive date. Insurers will do so even though a reasonable insured would not make any connection between the otherwise covered wrongful acts and prior conduct. In Zucker v. U.S. Specialty Insurance Co., the 11th Circuit endorsed this very approach. The court relied on a broad “Prior Acts Exclusion” combined with a retroactive date to eliminate coverage for actions that occurred after the retroactive date and that led to a claim first brought during the policy period.

Zucker (the bankruptcy plan administrator) alleged that corporate officers fraudulently transferred monies from BankUnited because they transferred the money while the bank was insolvent. The insolvency and the alleged fraudulent transfers occurred during the policy period, and the officers timely submitted their claims for coverage after Zucker sued them for the fraudulent transfers. The insurer denied coverage for the lawsuit on the grounds that the fraudulent transfer claims required the insolvency, and the insolvency resulted from the officers’ mismanagement of the bank before the retroactive date. Using a broad “Related Claims” exclusion, the insurer connected the insolvency with the mismanagement and denied coverage. The 11th Circuit agreed. Broadly construing the phrase “arising out of” in the Prior Acts Exclusion under Florida law, the court described the insolvency as an “essential element” of Zucker’s claim that “has a connection to some wrongful acts” of the officers and directors that “occurred before the policy’s effective date.” The court concluded that the Prior Acts Exclusion barred coverage:  “Given that, Zucker’s fraudulent transfer claims do share ‘a connection with’ wrongful acts covered by the Prior Acts Exclusion.” The court noted that the governing Florida law broadly construed “arising out of” to encompass virtually any connection and imposes a standard that “is not difficult to meet.”

Tellingly, the 11th Circuit recounted the bank’s decisions regarding placement of the coverage. When offering the coverage to the bank, the insurer offered a choice between two policies:  “one with a Prior Acts Exclusion (barring coverage for losses attributable to conduct of the officers before November 10, 2008) and one without the exclusion.” The premium with the exclusion was $350,000; the premium without the exclusion was $650,000. Although the bank purchased other coverage enhancements and doubled the policy limits, resulting in a final premium at $700,000, the bank’s decision to accept the exclusion proved fatal to coverage.

This case should serve as a stark reminder to policyholders to carefully examine their policies and insurers’ coverage proposals. Policyholders should resist or limit as much as possible any terms designed to restrict the time period relevant to coverage, including Prior Acts Exclusions and retroactive dates. Certain seemingly innocuous terms can result in an unexpected and painful outcome that far overshadows any upfront premium savings.

The Perils of Late NoticeAs every policyholder should know, purportedly “late” notice under claims-made insurance policies can eradicate coverage – even if the policyholder purchases successive policies from the same insurer. Alaska Interstate Construction, LLC (AIC) faced this very situation, and lost coverage in a recent unpublished Ninth Circuit decision (Alaska Interstate Construction, LLC. V. Crum & Forster Specialty Insurance Company, Inc.). AIC purchased successive professional errors and omissions liability policies from Crum & Forster Specialty Insurance Company, Inc. (C&F). C&F issued an initial policy for the policy period of December 1, 2011, to May 1, 2013, and then a renewal policy with a policy period of May 1, 2013, to May 1, 2014. Thus, for the period from December 1, 2011, until May 1, 2014, C&F insured AIC. On January 10, 2013, during the initial policy period, a third party made a claim against AIC. AIC did not report the claim during the initial policy period but instead reported the claim on June 19, 2013, during the renewal policy period. The court found no coverage because AIC received the claim in one policy period but reported the claim in the subsequent policy period.

In a creative attempt to avoid this outcome, AIC argued that the policies’ vague definition of “policy period” as “the period shown in the Declarations” did not limit the “Declarations” to one specific policy period, and that the policy period could reasonably be interpreted as encompassing both the initial and renewal policy periods. The Ninth Circuit unequivocally rejected this argument and instead treated the policies as two separate contracts without a continuous policy period.

Ironically, AIC’s renewal of the policy placed it in a worse position than had it walked away. The initial policy, which expired on May 1, 2013, included a 90-day automatic extended reporting period (ERP) when the policy “is canceled or not renewed by [C&F] for any reason except non-payment of premium.” AIC argued that if the policies are viewed separately for purposes of determining the policy period, then the initial policy was effectively cancelled when its policy period ended, thus invoking the automatic ERP, which was in effect when AIC reported the claim to C&F. The Ninth Circuit rejected this reasoning: “the plain language of the policy states that cancellation and non-renewal are the events that trigger the ERP. Thus, because AIC renewed its policy, the ERP did not apply.”

This case is just one of many decisions depriving policyholders of coverage under claims-made policies due to the timing of notice. To avoid this outcome, commercial policyholders should ensure that they report all claims asserted against them during the operative policy period. They should also carefully evaluate potential liabilities to determine whether to give notice of circumstance under a policy before the end of the policy period. This due diligence is essential – for with claims-made policies, late is not better than never.

House Bill 1774 Requires Urgent Action by Texas Policyholders to Preserve Coverage for Hurricane Harvey Flood ClaimsEven as Hurricane Harvey’s effects continue to unfold, Texas policyholders face another imminent threat. On September 1, 2017, a new Texas law becomes effective that dramatically limits insurance recoveries for Texan individuals and businesses. House Bill 1774 requires policyholders to provide more details when disputing insurance company coverage determinations and substantially reduces the penalties imposed on insurers who unfairly deny, slow pay, or underpay insurance claims filed after August 31, 2017. This anti-policyholder law also imposes additional (and potentially onerous) pre-suit notice and inspection requirements on policyholders; these requirements are all designed to minimize policyholder insurance recoveries. While policyholders may file claims after August 31, 2017, the penalty for insurers who fail to fully honor their obligations will be reduced. This law applies to homeowners and commercial policyholders on all commercial insurance programs (only government insurance programs fall outside the scope of this onerous law).

In light of this upcoming restriction on insurance recoveries, Texas policyholders should immediately ask their brokers or insurance agents to submit their insurance claims on all potentially responsive insurance policies no later than Thursday, August 31, 2017. If your broker or agent’s office is closed due to Hurricane Harvey, ask any affiliated office to immediately submit your claim. If your broker or agent does not have another office or you do not have a broker or agent, immediately submit your claim directly to your insurance company. Use any means available to document your notice submission in writing – whether by email, text, or letter – but undertake all efforts to comply with your policies’ notice requirements as your insurers may use any purported failure to follow the requirements against you.

Submitting notice of a claim will help you preserve your rights in the event of a covered claim.  It is better to risk a denial of a potentially uncovered claim than it is to lose coverage rights for an otherwise covered claim, so err on the side of notifying your insurers now.

Once you have dealt with the immediate notice issues created by the impending change of Texas law, you should take these additional steps to obtain any available insurance coverage for the damage caused by Hurricane Harvey:

  1. Gather all potentially applicable insurance policies.

Without copies of your insurance policies, it is very difficult to identify potentially responsive coverage. If you do not have copies of your insurance policies available, or your copies have been destroyed, obtain a copy from your broker or your insurance companies. Coverage may be available under a number of different policies and coverages, including property, named windstorm, flood, business interruption, contingent business interruption, loss of utilities, civil authority, automobile (commercial and personal lines), and homeowners’ policies.

  1. Identify potential coverage triggers.

Once you have obtained the potentially applicable policies, determine whether coverage is potentially triggered for the losses sustained as a result of the storm. Potential coverage triggers include:

  • Property damage or loss (to real or personal property) caused by:
    • Flood, if your policy includes flood coverage
    • Wind
    • Burst pipes
    • Sewer backup
  • Extra expenses for mitigation of damages
  • Business interruption due to shutdown of your facilities
  • Contingent business interruption due to shutdown of your supplier or customer facilities
  • Damage or theft by looters
  • Loss of power
  • Restricted access due to government shutdowns and restrictions
  • Damage to automobiles or other equipment

The particular losses incurred may trigger coverage under different policies depending on the structure of your insurance portfolio.

  1. Provide notice of claims if you have not already done so.

Once you have identified potentially responsive polices, provide notice of your claims if you have not already done so. Certain policies have strict notice requirements that require the policyholder to provide “prompt” notice as a condition precedent to coverage. Texas requires insurers show prejudice to deny coverage for late notice under a property policy and has historically allowed significant leniency for policyholders providing late notice under property policies. Last year, however, a federal appeals court upheld an insurer’s late notice defense under a property policy where the insured’s failure to provide notice until 19 months after incurring damage caused by a hail storm caused prejudice because the insurer was prevented from investigating the loss. Coupled with similar cases holding that delays of six weeks, three months, and six months are unreasonable as a matter of law, policyholders should be wary of delaying notice of loss, notwithstanding Texas’s historically favorable notice-prejudice case law.

  1. Document and mitigate losses.

Depending on the type of coverage, you may be required to provide proof of loss to demonstrate the extent of the insurance recovery. This process can be demanding, so you should be aware of necessary proof of loss documentation when you begin the mitigation and recovery process.

Take necessary, reasonable steps to protect property from further damage. Document the extent and nature of the damage suffered, making extensive use of photographs and video where appropriate. Make back-up copies of documents and photographs. Retain subject matter experts and forensic accountants when appropriate to calculate the cost of repairs and replacements, document extra expenses, and determine lost profits. Where possible, identify and preserve documentation supporting valuation of personal and real property, and avoid costly appraisal disputes with insurers.

Additionally, be aware of your insurer’s right to investigate your property to make its own determinations regarding coverage and the extent of the damage. Often insurers will have a right to physically inspect the property upon request “as often as reasonably required.” Insurers may also have limited rights to sample damaged and undamaged property and a general right to “cooperation” in the investigation and settlement of any claim. Your insurers may also have the right to take your testimony under oath; this process is known as an examination under oath or an EUO. While some amount of cooperation is required, your policy should not grant an insurer carte blanche to review records, interview your employees or experts, or enter your property.  Policyholders need to strike a balance between unfettered access and cooperation.

  1. Prepare for potential exclusions.

While many insurance policies could provide coverage for losses arising out of Hurricane Harvey, policyholders must be prepared for potential coverage disputes as insurers deny coverage based on restrictive policy language. For example, the special cause of loss form (sometimes called “all-risks insurance”) includes a broad form “water” exclusion that removes coverage for loss or damage “caused directly or indirectly by…flood, surface water, waves (including tidal waves and tsunami), tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not drive by wind (including storm surge).”  See ISO Form CP 10 30 09 17. This exclusion applies regardless of “any other cause or event that contributes concurrently or in any sequence of the loss.”  Policyholders can mitigate the impact of similar exclusions by carefully documenting losses and limiting claims submissions to exclude losses potentially implicated by broad exclusionary language.

  1. Lobby your legislators.

Texas commercial and personal policyholders should urge their lawmakers to repeal this upcoming onerous law, which is particularly ill-timed in light of Hurricane Harvey. Texas law should protect Texans – not penalize them when faced with a disaster. In addition, insurers may argue that the new law’s pre-suit requirements apply even to claims submitted before the law’s effective date – thus further impairing policyholders’ rights.

Have Questions?

These are particularly difficult times for all of Texas, particularly Houstonians and other Texans impacted by Hurricane Harvey. Bradley’s experienced team of policyholder attorneys is available to answer your questions as you grapple with this historic weather event.