I have reviewed denial letters sent to policyholders in New York and New Jersey. Their business income claims have been denied because the “physical loss or damage” was caused, in whole or in part, by an excluded peril – power failure. Hurricane Sandy was a complex windstorm event that caused many perils – power outages, fire, flood, explosion and wind are among the most prevalent. Some of these perils may or may not be covered by an insurance policy, but if an insured property sustained damages caused by at least one covered peril, business income claims should not be denied.
A question & answer from the National Underwriter FC&S publication – a leading insurance industry reference source – reiterates that coverage should be afforded for business income losses even if the physical loss or damage was caused, in part, by an excluded peril.
Concurrent Causation Language Does Not Exclude Windstorm Loss
My client, a tenant with a businessowners policy, suffered a business income loss resulting from Hurricane Ivan. During the storm, the building had off-premises loss of power and wind damage to the roof. We were unable to determine which occurred first.
The adjuster cites the following exclusion as applying to the loss: "We will not pay for loss or damage caused directly or indirectly by any of the following…off-premises power failure." The adjuster cannot be the judge to determine which came first, power failure or roof damage.
I feel that the insured, due to water damage from the roof, incurred loss of business income. His employees could not occupy the building due to water damage and power failure. The adjuster cannot determine when the power would have been turned back on—possibly the power could have been restored after the storm, so I do not believe that she can apply the off-premises power failure exclusion.
The adjuster told me that even if the building had been destroyed by the hurricane, due to off-premises power failure, the exclusion would still stand because of the "concurrently or in any sequence to the loss" language in the policy. Based on her statement, even if power can be restored within a few days, the subsequent business income loss would not be covered.
I am confused by the concurrent language that the insurer is using to justify denying the claim.
The business income loss resulting from a suspension of operations from windstorm damage to the roof should be paid under the businessowners policy. Any suspension of operations and resulting business income loss that occurs solely because of off-premises power failure is excluded.
It does not matter whether the off-premises power failure or the windstorm came first. The concurrent causation language excludes coverage only for the loss that results from power failure and does not affect other damage that might result from a covered cause of loss. It does not say that damage from windstorm (a covered cause of loss) is not covered if an excluded cause of loss (the off-premises power failure) also occurs.
It may help to insert the words "off-premises power failure" into the concurrent causation introductory language as follows:
We will not pay for loss or damage caused directly or indirectly by off premises power failure. Such loss or damage (from off-premises power failure) is excluded regardless of any other cause or event (such as windstorm) that contributes concurrently or in sequence to the loss (from the power failure).
No matter how complex a loss appears a company or independent adjusters should not have a myopic view when inspecting the property. If there is evidence that a covered cause of loss occurred (wind), business income losses should be paid.