Perspectives: Best practices to adopt, red flags to look out for in hurricane claims

The 2024 hurricane season got off to an ominous start: Hurricane Beryl, which struck in late June and early July, was the earliest Category 5 hurricane in the Caribbean since records began. Tropical Storm Debby dropped more than a foot and a half of rain on Florida. July hurricanes tend to be worse than those in earlier months, and those in August and September are worse still.

Given this, companies with significant assets or supply chains in the Caribbean, on the Gulf Coast and on the Eastern seaboard should assess their insurance coverage and implement plans to protect their properties, prioritize employee safety and respond to catastrophic damage.

There are important practices that warrant close attention to manage exposures and respond to catastrophic events. It is equally important to recognize red flags in the claim recovery process. Here are the steps that policyholders can take before and after a catastrophic event, though they may need to take a back seat to safety or operational concerns.

Pre-loss steps

Understand your coverage: Carefully review your policies to confirm coverage for potential risks. Maintain complete hard copies of all policies and assess the scope of coverage for potentially affected locations, operations, and supply and distribution chains. Discuss with your broker the availability of endorsements that eliminate or narrow problematic terms. Pay attention to sublimits because, if low, they may function as exclusions. Ensure premium payments and schedules of values are up to date.

Document assets: Maintain up-to-date records of at-risk real and personal property. Should a location fall in a storm’s path, promptly designate employees to document in detail, by photo or video, the pre-loss condition of that property and promptly back up those records offsite. Such records often prove useful to prevent or minimize claim adjustment disputes.

Take reasonable steps to limit impending damage: Many insurance policies cover costs to secure insured property facing actual or imminent harm and often require policyholders to make reasonable efforts to do so.

Post-loss measures

Assess your coverage: Carefully review how your policies apply to your circumstances. Do not rely on generalities, policy summaries, assurances or oral statements about coverage.

Notify your insurers: Notify your insurers of any loss in writing as soon as practicable, requesting that each confirms receipt. Most policies state when and to whom notice must be sent, and some have tight deadlines. Record when and how you gave notice and any related communications. Schedule and comply with all other policy deadlines and request extensions in a timely manner and in writing as needed.

Mitigate losses: Property insurance policies often require policyholders to take reasonable steps to mitigate or prevent further damage, such as sealing wind-created openings. They typically also cover mitigation costs.

Set up a recovery team: Establish a team, including risk management, finance, operations and legal, to manage restoration and insurance efforts. Ensure that all communications with insurers and claims adjusters flow through that team.

Document losses: Record the extent of damage using photos or videos. A hotel, for example, should photograph the damage to every room and structure. Maintain purchase orders, invoices, receipts and repair contracts. Set up accounting codes to track all expenses related to the disaster and recovery efforts, including employee time, overtime and expenses.

Assess the root cause of any damage: The cause or causes of the loss, such as wind or flood, often affect the availability of coverage and which, if any, sublimits and deductibles apply. When there are questions about which peril or perils caused a loss, it generally is prudent to conduct your own independent causation investigation and document the findings.

Assess and quantify the extent of any damage: Consult professional forensic accountants, engineers and others who can validate and quantify losses and prepare comprehensive claim submissions. Many policies cover such claim preparation expenses.

Navigating the adjustment process

Cooperate with insurers: Policies typically require cooperation in the claims adjustment process. This involves keeping insurers apprised of relevant developments, promptly responding to reasonable information requests and facilitating inspections of damaged locations. Meeting these requirements can help limit friction.

Communicate carefully: All employees working on restoration and insurance efforts should understand that internal discussions and communications with consultants often come to light. Those communications should be limited to objective facts, be temperate in tone, and should avoid speculation and legal discussions. This includes emails, texts and chat apps. Maintain records of all communications with your insurers and their adjusters, including notes of any oral discussions.

Request advances and interim payments: Claims adjustments can take time, especially after catastrophic events. Many insurers will agree to interim payments or advances.

Watch for red flags

Be mindful of signs that the adjustment process may be going off track and that your insurer may be questioning your cooperation or disputing coverage. These typically signal that the claim has reached an inflection point, possibly warranting the involvement of professional policyholder advocates, coverage counsel or, for significant claims, both.

Excessive information requests: Although insurance policies generally require policyholders to respond to reasonable information requests, excessive, duplicative or highly detailed requests should raise concerns.

Examinations under oath: Many policies permit an insurer to examine policyholder witnesses under oath outside the context of a lawsuit; however, insurers infrequently invoke this right as a practical matter. A request for an examination under oath should likewise raise concerns.

Denial letters: A coverage denial does not necessarily mean your claim is not covered. It may be premised on incomplete or incorrect facts and assumptions or overlooked or misinterpreted policy language. Policyholders should respond promptly but thoughtfully and deliberately and after consulting trusted advisors.

As risk managers brace for a difficult hurricane season, adopting best practices for preparing can help pave the way for successful recovery efforts. Understanding the warning signs of deteriorating adjustment processes can help to limit friction and expedite recovery.

Rukesh Korde is a Washington-based partner at Covington & Burling LLP. He can be reached at [email protected]. Erica J. Dominitz is Washington-based senior vice president-U.S. property coverage officer at Aon PLC. She can be reached at [email protected].