Post-Sandy Snowstorm Complicates Business Insurance

Businesses in New York and New Jersey that were preparing insurance claims for losses from Superstorm Sandy have a second headache: how to deal with new losses from an early winter snow storm that hit the East Coast Nov. 7.

Insurance experts say the nor’easter will only complicate what was already going to be a difficult and prolonged negotiation between commercial policy holders and insurance companies over what was covered, when and for how long.

“If an adjuster wasn’t already out to identify what Sandy did – and there’s probably a pretty good chance that hasn’t happened in a lot of instances – and you had damage from (the nor’easter), you wouldn’t necessarily know that,” said Rick Miller, chief broking officer for the U.S. property insurance practice at Aon Plc’s Aon Risk Solutions.

The most significant questions will be around coverage known as business interruption (my shop was damaged by the storm and so I couldn’t transact business) and contingent business interruption (my shop is fine but my supplier’s warehouse was damaged and they cannot ship me goods to sell).

Sandy was already expected to cause not only billions of dollars in business interruption losses, but also years of litigation over whether certain kinds of interruption qualified for coverage or not.

Policies typically have limits on how many hours coverage lasts once the interruption begins. Figuring out whether the nor’easter caused a new interruption or was part of an existing one, where time had expired, will be one of the thorny questions to be addressed.

For homeowners, the questions around the nor’easter are much simpler than for business owners: is my house damaged or not, and was it wind or water that caused the damage? Those questions have their own complications, but on a much smaller scale than the disputes potentially facing large corporations.

“It gets complicated because policyholders and their insurers are going to have to work out where the different causes of their property damage came from and how that implicates the provisions of the policy,” said Jonathan Cohen, an insurance litigator at Gilbert LLP in Washington. Experts like Aon’s Miller say it is almost certain that property insurance policies will treat Sandy and the nor’easter as two separate events. That means two separate deductible payments for policyholders, raising costs even further.

“It may well become impossible to separate them out,” said Robert Muir-Wood, chief research officer of CAT modeling firm RMS. “Having an extra storm like that, from what I’ve seen, it’s more that it delays everything, it adds another day or two to recovery.”