Hurricane Season: Why All Property Owners Should Consider Flood InsuranceJune 1 marked the start of hurricane season, and according to the National Oceanic and Atmospheric Administration (NOAA), the Atlantic hurricane season will be a busy one. NOAA predicts a 60% chance of an above-normal season, a 30% chance of a near-normal season and only a 10% chance of a below-normal season. Since June 1, there have already been five named storms in the Atlantic; Cristobal was the earliest “C” storm on record and its remnants tracked to Wisconsin.

Flooding is the most common and costly natural disaster in the United States. The combined cost of the Missouri, Arkansas, and Mississippi river flooding ($20 billion) alone was almost half of the total cost ($45 billion) of weather and climate disaster events in the United States in 2019. But hurricanes and other severe weather events are not the only sources of flooding. On May 20, 2020, the Edenville and Samford dams in Midland County, Michigan, were breached after heavy rains described as a “once in 500-year” event. The dam disaster impacted over 20,000 residential properties leaving many property and business owners facing vast repair costs without the coverage of flood insurance.

Natural disasters like these and the hurricane season underscore the importance of flood insurance. State agencies and news outlets throughout the country are reminding people of the many reasons to obtain flood insurance and urging property owners to purchase flood insurance sooner rather than later. One of those many reasons, which was evident in the Michigan dam disaster, is that more than 20% of flood claims come from properties outside the high-risk flood zone. Homeowners and renters insurance exclude coverage for flood damage, and the damage from just one inch of water can cost more than $20,000 to remediate.

Flood insurance may be purchased through either an insurance agent or an insurer participating in the National Flood Insurance Program (NFIP). Finally, keep in mind that typically there is a 30-day waiting period from the date of purchase until a flood insurance policy goes into effect, though there are exceptions. So, as hurricane season is already underway, time is of the essence to consider and purchase flood insurance.

Court Declines Jurisdiction Over COVID-19 Insurance DisputeThe recent procedural ruling by a Pennsylvania federal court highlights another area of uncertainty in the growing wave of insurance litigation related to COVID-19:  will these cases proceed in state or federal courts? The U.S. District Court for the Western District of Pennsylvania on its own volition remanded a Pittsburgh restaurant’s lawsuit seeking insurance coverage for business interruption losses stemming from the COVID-19 shutdown. The court questioned but did not determine whether it had diversity jurisdiction over the case, but instead exercised its discretionary authority to decline jurisdiction under the Declaratory Judgment Act, 28 U.S.C. s 2201(a). The court applied a balancing test, but the scale was tipped against federal court jurisdiction due to the novel insurance coverage issues under Pennsylvania law “best reserved for the state court to resolve in the first instance.” The court noted the lack of Pennsylvania caselaw due to the relative recency of the COVID-19 pandemic and concluded that “it is counterproductive for a district court to entertain jurisdiction over a declaratory judgment action that implicated unsettled questions of state law.” Given that insurance claims related to COVID-19 will raise novel issues of state law around the country, other federal courts may follow suit and decline to exercise jurisdiction over such insurance claims.

Is Civil Authority Insurance Coverage the Solution for Businesses Sustaining Losses from COVID-19?Many of the early insurance-related COVID-19 lawsuits seek insurance coverage under the civil authority coverage grant in commercial property policies. Restaurants filed the first cases (Cajun Conti LLC, et al. v. Certain Underwriters at Lloyd’s, London, et al. and French Laundry Partners LP, et al. v. Hartford Fire Insurance Co., et al.) quickly followed by similar lawsuits filed by the Chickasaw and Choctaw tribes in Oklahoma. Even more recently, restaurants in Chicago and Tampa filed suit including claims under this coverage. These lawsuits rely on governmental prohibitions, such as “shelter-in-place” and “stay-at-home” orders, to trigger business income coverage in their commercial property policies. No doubt hundreds, if not thousands, of insureds are submitting insurance claims under this same civil authority coverage – with more lawsuits to follow.

Civil authority coverage pays for losses when a government bars access to an insureds’ property due to a covered cause of loss some place other than the insured property. The time length can vary and can be as short as four weeks. Typical (but by no means universal) policy language is:

When a Covered Cause of Loss causes damage to property other than property at the described premises, 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.

Insurers generally insist that the “civil authority” (usually local, state, or federal government entities) must prohibit access to the business – governmental recommendations do not suffice.  So insurers will deny coverage for claims based on the early governmental orders that did not prohibit access to businesses, but instead limited capacity or recommended cancellation of conferences and conventions (for example, the D.C. Health Advisory from March 11, 2020).  Those insurer defenses erode under government prohibitions. For example, on March 13, 2020, D.C. changed its prior recommendations about limiting capacity to prohibitions of mass gatherings, and then on March 24, 2020, D.C. ordered closures of businesses such as gyms, theaters, and retail clothing stores. Insurers will likely argue that only the later government prohibitions that required business closures constitute the requisite prohibition, but this will be the subject of extensive litigation.

Most policies, as illustrated above, require the civil authority order be related to damage. For more discussion on what constitutes “physical loss or damage,” please see our previous blog posts here and here.

In what may be an effort to bolster insureds’ civil authority claims, some governments, including those in New Orleans, Louisiana, and Napa County, California, tied their closure orders to the physical damage caused by COVID-19. Napa County’s order expressly recognizes the physical damage caused by COVID-19: “[t]his Order is issued based on evidence of increasing occurrence of COVID-19 throughout the Bay Area, increasing likelihood of occurrence of COVID-19 within the County, and the physical damage to property caused by the virus.” Insurers will attempt to rebut this governmental determination that COVID-19 causes physical damage, just as insureds will rely on this language to support coverage claims under property policies.

Insurers will also attempt to foist all policy limitations and exclusions on the civil authority coverage, but not all may apply, or may create an ambiguity, thus preserving coverage. Given the complexities of civil authority coverage, and its interaction with other policy terms, insurers may race to favorable jurisdictions to generate helpful precedent. Insureds with civil authority coverage should move aggressively to protect their insurance coverage for COVID-19 by examining their policies and seeking professional advice as soon as possible.

Watch this blog for other insurance coverage developments connected to COVID-19.