Hurricane Harvey: Weathering the Storm of Business Interruption
On Friday, August 25, Hurricane Harvey made landfall and brought torrential rains along Texas’ Gulf Coast from Corpus Christi to Houston. As a result, Houston, the nation’s fourth-largest city, is experiencing widespread flooding, and businesses are feeling the impact.
For instance, according to CNBC, “the Houston metropolitan area is a major driver of auto sales in the state of Texas and the entire Gulf Coast (with more than 500 dealerships). Given the widespread flooding that will swamp dealerships and kill potential sales, analysts are bringing down estimates for the August new vehicle sales in the U.S.”
Businesses, even those outside of Texas, can experience business interruption and contingent business interruption due to Hurricane Harvey. A business can experience contingent business interruption even without a physical location in Texas. Reasons for contingent business interruption include not being able to travel to Texas, not being able to ship goods to Texas, not being able to receive materials from Texas to make goods, as well as many others that cause lost profits.
If a business has a physical location in the damaged area but no physical damage to the property, it could still have a contingent business interruption claim if profits are lower because of the widespread damages in Texas.
If a business does experience actual physical harm to a property, a business will probably also experience business interruption and loss of profits aside from the actual damage. For example, a company that experienced damage to one-quarter of its building from a natural disaster did not file a business interruption claim because the company was able to get right back into business. The staff worked overtime and extra people were scheduled, but the sales did not meet expectations for a month after the disaster. An independent insurance consultant pointed out that this was a business interruption loss and suggested filing a claim. The consultant assisted the client with the claim presentation and the company collected $175,000.
Physical Business Damage
Businesses in Hurricane Harvey’s path that experience physical damage to their property might have a property policy that covers floods, but not all polices are created equal. Additionally, organizing the necessary information needed to value an insurance claim is time-consuming – during an already stressful time. Most insurance policies have a provision that the insurance company will pay for some or all of the fees for an independent firm to help organize and value a physical damage claim.