Hurricanes can have a devastating financial impact on businesses, particularly through business interruption losses. When companies are forced to close due to hurricane damage, they may suffer substantial financial losses, raising the question of whether insurance will cover all or part of those losses. Each case needs to be individually evaluated, as they can be fact-sensitive. The basic issues concern coverage and the amount provided.

Coverage Issues

Business Interruption Insurance

The first question is whether the company had business interruption insurance, which is generally sold as a rider or separate policy. Many business owners in a hurricane’s path often do not purchase insurance beyond standard business protection, such as coverage for floodwaters or business interruption. If there is a policy, one must examine its provisions and coverage. If not, the question arises whether business losses are included within general coverage or subject to a policy exclusion.

Was the Business Completely Closed?

Many businesses were closed during Hurricane Sandy (2012), as well as other major hurricanes like Harvey (2017), Irma (2017), Maria (2017), Florence (2018), Michael (2018), Dorian (2019), Laura (2020), Ida (2021), and Ian (2022). Generally, there can be no recovery under a business interruption policy if a covered peril merely causes a reduction in the volume of the insured’s business rather than an actual business suspension.

Exclusions

Policies sometimes contain exclusions, and businesses should review their actual terms. Companies cannot easily mislead the insured, and any exclusionary clauses are generally construed against the insurer to meet the insured’s reasonable expectations of coverage.

Notice

Most policies have provisions requiring the insurer to be notified of the loss and afforded an opportunity to inspect the premises.

Amount and Damages

Purpose and Policy

Assuming the insurer agrees to provide coverage for the loss, the question becomes the amount of compensation. The purpose of such insurance is to protect the payment of profits and legitimate continuing charges or expenses in the event of loss or destruction of the property.

Lost Profits

A basic formula is to take the company’s past profits and, if the policy provides for lost profits reimbursement, utilize a historical amount to calculate it. However, if the business had been operating at a loss, many courts permit recovery through competent proof, notwithstanding prior losses.

Mitigation of Damages

The company must usually take reasonable steps to return to business and limit the insurance company’s obligation. The typical policy or endorsement includes a “resumption of operations” provision, making it a condition of the insurance that if the insured could reduce the loss by resuming operations at the covered location, whether damaged or not, or by making use of merchandise, stock, or other property at the covered location or elsewhere, such reduction must be taken into account in arriving at the amount of the loss.