INCLUDED IN THIS GUIDE

• Tips to prepare for a hurricane
• Managing your business after an event
• Documenting your claim
• Know your insurance policy
• Types of property covered
• Examples of extra expenses
• Reimbursement from the Insurance Company
• Considerations for preparing the claim
• Information required to document property damage claims
• Business interruption considerations
• Documentation required for Business Interruption losses
• Policy Conditions and Proof of Loss Communications Protocols

TIPS TO PREPARE FOR A HURRICANE

Make a Plan

• Be sure that your business is prepared to withstand the damage
• Your plan should be a working document that should be reviewed and updated periodically

Be Informed:

• Become familiar with the terms used to identify a hurricane:
  — Hurricane Watch – there is the possibility of a hurricane in your area.
  — Hurricane Warning – a hurricane is expected in your area.
  — Hurricane Categories (5) Based on the Saffir-Simpson Scale:
  • Cat 1 – wind speed of 74-95 mph
  • Cat 2 – wind speed of 96-110 mph
  • Cat 3 – wind speed of 111-130 mph
  • Cat 4 – wind speed of 131-155 mph
  • Cat 5 – wind speed of 155+ mph

Evaluate Your Location(s):

• Check roofs and make repairs as needed
• Remove or brace loose equipment and debris
• Clear drains and catch basins from obstructions
• Back up computer data
• Install plywood or protective covers on windows and/or openings

MANAGING YOUR BUSINESS

• Act diligently in repairing damaged property and in restoring business operations interrupted by the storm. Let your insurer know before making significant repairs to (or other disposition of) covered property
• Seek an advancement of funds for both property damage and business interruption, particularly when some substantial quantum of covered loss and damage is known. Policyholders should keep in close communication with insurance adjusters to ensure that appropriate advances are paid in a timely manner
• Act to reasonably protect and preserve property from loss or damage. Many first-party policies have so-called “sue and labor” clauses requiring the insured to mitigate covered loss or damage, with the associated cost of this mitigation payable by the insurer to the extent of its interest

DOCUMENTING YOUR CLAIM

• Notify Risk Management Department
• Open a loss related job number or account. Set up separate jobs for separate aspects of the loss rather than capturing everything in one job
• Photograph damaged/destroyed property, documenting the scope and nature of the damage to insured property or to the operations of the insured’s business
• Inventory and store damaged/destroyed property and assets
• Do not speak with insurance adjuster without a representative of Risk Management present
• Track any property put into service to continue operations on a temporary basis
• Instruct foreman/supervisors to be as detailed as possible with time reporting, specifically, making sure the loss related job number is properly charged
• Maintain documentation relating to all statistics generated, such as pre-loss and post-loss production records
• Capture all costs (including internal labor hours and management labor hours) relating to emergency, temporary and permanent repairs
• Permit the insurer reasonable access to inspect and review the damaged property or records relevant to your claim
• In the event that third-parties are responsible for some portion of the insured’s loss or damage, the insured must not compromise claims against such third-parties without the insurer’s consent

KNOW YOUR INSURANCE POLICY

• Review your policy with your insurance broker, counsel or other insurance professional to understand what is covered, what is excluded and what obligations you have as a corporate policyholder
• Be familiar with the attendant limitations, such as deductibles (or waiting periods), and sublimits to take full advantage of available coverage

TYPES OF PROPERTY COVERED

• Buildings, including electrical, mechanical and other systems
• Production facilities
• Raw materials, work-in-process and finished goods/product
• Tools, supplies
• Furniture, fixtures and equipment
• Leasehold improvements
• Valuable papers
• Electronic data

EXAMPLES OF EXTRA EXPENSES

• Overtime in excess of normal overtime
• Cost associated with using more manpower than normal
• Temporary security
• Rental of temporary equipment
• Cost associated with emergency repairs
• Cost associated with temporary repairs
• Express freight
• Travel expenses
• Increase in operating cost
• Relocation expenses (to temporary/emergency location as well as back to permanent location)

DAMAGE TO PROPERTY MAY RESULT IN REIMBURSEMENT FROM THE INSURANCE COMPANY FOR THE FOLLOWING:

• Cost associated with the permanent repair/replacement of the damaged property, including the cost to expedite the repair/replacement
• Expenses in excess of normal to continue operations (insuring the increased cost incurred to maintain business operations)
• Costs associated with temporary repairs
• Cost to secure the property (before and after the damage occurs)
• Costs associated with restoring or recreating valuable papers
• Loss of earnings from store closures or network downtime
• Debris removal
• Code upgrade coverage (insuring the increased cost of complying with building codes governing repairs)
• Expediting expense (insuring the extra cost incurred to perform temporary repairs quickly)
• Lost profits caused by damage to a dependent business, including a customer or supplier (contingent business income coverage)
• Lost profits caused by evacuation orders or other mandates from government authorities prohibiting access to insured premises (civil authority coverage)
• Lost profits caused by lack of incoming electricity, fuel, water or data/communications, as well as the lack of outgoing communications, sewer or other services (service interruption coverage)

CONSIDERATIONS FOR PREPARING THE CLAIM

• Prepare claim based on the best possible case scenario. The adjuster for the insurance company does not represent you. The adjuster is paid for by the insurance company and is often instructed on how to approach the loss measurement. The adjuster is acting in his/her client’s best interests, not the interests of your company
• Consider historical trends of actual results, as well as comparisons of actual to budget
• Allow for any other outside factors, such as weather, industry trends, competition, etc. The policy generally states that consideration should be given to historical data. That does not mean that the loss has to be measured only using historical data. It is necessary to document any factor that causes a deviation from historical trends
• Be careful when examining abated expenses. There are many instances where it appears as if an expense does not continue during the loss when in fact it is simply a matter of timing. For instance, insurance premiums may be paid quarterly or once a year
• When looking at abated expenses, also consider any expenses where actual post-loss expense is greater than projected. There may be a legitimate extra expense that was overlooked
• Be sure that the accountant for the insurance company is consistent. Unfortunately, there are many instances where they pick and choose the data that helps the insurance company and ignore/overlook data that supports the claim
• Be reasonable with projections and positions to maintain credibility with the adjuster

INFORMATION REQUIRED TO DOCUMENT/SUPPORT THE PROPERTY DAMAGE CLAIM

• A separate account or job number should be established to capture loss related costs. However, this account should not be categorized as a receivable from the insurance company. Not all loss related activity is insured. There may be upgrades that are not covered or expenses that are the result of management decisions that are not covered
• All documentation relating to the repair/replacement of damaged property, including purchase orders, estimates, quotes, and vendor invoices. All invoices should be coded to the loss related job number
• All damaged property should be stored. If the insurance company is paying for the destroyed property, they may want to take the property for salvage value or scrap. Notify Risk Management of the location of the property. If it is impractical, impossible or unsafe, please attempt to photograph the property prior to disposal
• All engineering planning documents should be maintained and copied, including floor plans, building plans, planning documents, etc.
• All documentation relating to internal labor costs, including time sheets, daily foreman/supervisor notes describing in as much detail as possible the work performed. All hours should be coded to a loss related job number. All electronic timesheets should be printed and a copy forwarded to risk management
• It is necessary to provide the insurance company the replacement cost of the property “as was” at the time of the loss. The insurance company is responsible for replacing damaged property with property of like kind and quality, unless the property is no longer available. If the property is no longer available, the insurance company will generally pay for the next step up in technology. If there is an “upgrade” of property, the insurance company will require a detailed comparison of the cost to replace “as was” to the actual replacement cost
• Keep Risk Management involved in the decision making process to make sure that management understands what will be covered and what will not be covered

BUSINESS INTERRUPTION CONSIDERATIONS

• In general, the business interruption loss coverage is intended to make the company whole for its losses as if no loss had occurred
• To calculate the loss, it is necessary to measure the following:
  — Sales value of lost production
  — Lost sales
  — In most instances, the loss will be limited to the lesser of the two figures
• When lost sales is less than lost production:
  — If existing inventory is used to satisfy sales demand – insurance company will pay for any extra expense tore-build inventory levels
  — If finished good can be purchased from a competitor – generally this is at a higher cost than internal cost. The insurance company will pay the cost in excess of normal
• Once the lost sales value is determined, it is necessary to subtract abated costs, such as the variable cost of goods, other variable costs and any other abated expenses, such as typical labor that is sent home without pay
• The insurance company will project expenses as if no loss had occurred and compare the projection with actual expenses incurred to determine the saved/abated expenses
• The Business Interruption claim is the difference between the lost sales value and saved expenses

DOCUMENTATION REQUIRED FOR THE BUSINESS INTERRUPTION LOSS

• Information will be requested for a significant period of time, typically two years of monthly data before the loss. This will allow the parties involved to analyze business trends in order to properly project what would have happened if no loss occurred. Also identify any seasonal adjustments that need to be made. The exception to this is a very short loss period, where more recent data is more likely to reflect operations
• Plan on compiling two years of the following data – if multiple locations/divisions are involved, this data will need to be provided for everything:
  — Monthly profit and loss statements – actual and budgeted
  — Monthly sales journals
  — Payroll journal
  — Production records by production facility and by production line
  — Monthly sales budgets
  — Monthly production plans
  — Other monthly or periodic management reports
  — Production or sales backlog data
  — Perpetual inventory records
  — Physical inventory records
  — This data will also be required for the post-loss period

  The following additional data will also be requested:
  — Contracts with major customers/suppliers
  — Leases for any leased facilities that are involved in the loss
  — Leases for any leased equipment that is involved in the loss

COMPLY WITH POLICY CONDITIONS REGARDING NOTICE AND PROOF OF LOSS

• Be aware of what events require notice to the insurer, what information needs to be submitted with your claim and what specific deadlines the policy includes for providing this information
• If you are unsure whether notice is appropriate or what information should be included with your notice, contact your insurer, your insurance broker, counsel or another insurance professional
• Many policies require not only “notice” to an insurer, but the submission of a formal proof of loss. For property damage claims, this submission will include details regarding the scope and value of the damage claimed by the insured
• For business interruption claims, the proof of loss will include the value of the lost income for which the insured is seeking payment. In complex claims, preparation of the proof of loss may take months of work and often requires the assistance of one or more professionals, including accountants, architects, auditors, engineers or others
• Check to see if your policy insures the cost of professional fees incurred by the insured to prepare and certify the details of an insured’s loss or damage
• Take note of the deadline to submit the proof of loss, as well as other deadlines imposed by your policy. In the event that such deadlines or other policy conditions cannot reasonably be met despite the insured’s reasonable diligence, the insured should obtain advance consent or other relief from the insurer, which should be documented in writing
• Many policies will include contractual limitations periods requiring insureds to bring suit within a certain number of years from the date the insured discovered the loss. Note that under Texas law, a contract that purports to impose a limitations period that is less than two (2) years is void

ESTABLISH AND FOLLOW A COMMUNICATIONS PROTOCOL WITH YOUR INSURER

• Establish and follow a clear communications protocol with the insurer regarding the claim
• Communicate regularly with the insurer regarding the claims process, either directly or through an intermediary (broker or counsel)
• Identify one point of contact to communicate with the insurer, through whom all communications will be directed upon appropriate review by the necessary stakeholders
• Determine from the insurer’s adjuster exactly what the insurer’s expectations are, including requests for information and the anticipated timing for fulfillment
• Establish and document corresponding expectations regarding the anticipated schedule for receipt of insurer’s position regarding coverage and any payments
• Confirm all substantive communications from the insurer promptly and in writing, including (1) requests for information; and (2) positions regarding coverage
• Respond to requests for information from the insurer on a timely basis and confirm receipt of the requested information in writing
• Do not speculate regarding either the cause or amount of property damage or related business interruption loss in internal communications among the stakeholders responsible for managing the insurance claim
• Keep attorney-client communications confidential. Any materials prepared in anticipation of litigation, including documents created on behalf of the insured by brokers, consultants or other agents, should be kept confidential

Contact your CRC Group producer for more information.