Hurricane Sandy claim denials are starting to be issued. This is typical; hurricane claim denials usually start four to six weeks after the catastrophe. I cannot overemphasize the value of FC&S materials and other insurance industry reference sources when researching whether Hurricane Sandy denials can stand up to challenge.
Insurance defense attorneys argue the exclusionary language of the anti-concurrent causation clause should be broadly interpreted because they have to get their insurance company clients “off the hook” for making wrong coverage interpretations. It is important for those attorneys representing policyholders to have a full library to combat these arguments. One such source is the FC&S publications. Those clever defense counsel are sometimes out of luck, despite their ingenious arguments, when insurance industry sources indicate that they are wrong.
The December 10, 2012 FC&S Bulletin had a coverage denial question posed about another hurricane that could be relevant to a number of food distributers in New York and New Jersey who are not able to deliver food to customers following Hurricane Sandy:
The loss occurred as a result of Hurricane Isaac. The insured was making normal purchases at the time of the storm. These items are date stamped for delivery, and if not sold by that date, have to be disposed of. The insured reports he did not lose power at his location during the storm. Yet, throughout Louisiana, especially New Orleans, Baton Rouge, and other areas, there was a loss of power. As the schools and restaurants were closed, he was unable to make deliveries. Therefore, he lost his product.
We denied this claim, and the insured is now stating there is coverage under the Spoilage Coverage endorsement, CP 04 40, Section C 3b. How do you interpret?
The answer, while not helpful to the policyholder with that specific policy language, is instructive:
The loss would not be covered. If the insured has a causes of loss form with the same or similar exclusions as the ISO CP 10 30, the loss would fall under the delay/loss of market exclusion, which is what caused the loss, not spoilage. The insured lost the items because the customers were not open for business to receive the products. The spoilage endorsement would not come into play for this loss. That endorsement adds perishable stock as covered property and adds the following causes of loss: change in temperature or humidity resulting from mechanical breakdown, contamination by the refrigerant, or power outage. None of these perils caused the insured’s loss—it was the inability to deliver the goods that caused the products to reach their expiration dates.
Hurricane Sandy claims denials make a second catastrophe for victims trying to rebuild their businesses and homes following the physical devastation. While case and statutory research is important, it needs to be supplemented by insurance industry reference materials that sometimes show that claims denials are wrong.