Hurricane Related Business Interruption Claims

The 2020 US hurricane season has been unprecedented after the formation of 26 named storms, including 10 hurricanes. While not all these storms made landfall, it remains one of the worst seasons for hurricane related property damage in history. Businesses impacted by the hurricanes are now in the process of assessing damage and commencing repairs to their property, plant and machinery. Coupled with the impacts of Covid-19, the impacts from the hurricane can cause crippling interruption to business operations.

Following hurricane related damage, CCi’s expertise is often called upon to assess the period of interruption related to the Incident so that Insureds can be indemnified for their losses. In doing so, CCi assesses the time required to return the property to the condition it was in prior to the damage and re-commence business operations. In some situations, the period of interruption can be extended by factors unrelated to repairing Incident related damage such as owner elected upgrades, maintenance work and permitting issues.

The high-level case study below, from a loss sustained during a recent Hurricane, illustrates such a situation.

Insured PropertyChemical production and storage plant.
Damage

  • Fire related damage due to combustion of chemicals following loss of power caused by hurricane damage

  • Flood related damage to manufacturing and storage buildings

  • Flood related damage to the plant distributed control system (DCS)

CCi analyzed the initial construction schedule and subsequent updates that detailed the works required to return the plant to service. Along with other contemporaneous information, CCi established that the drivers defining the interruption period were associated with upgrades to equipment not damaged by the hurricane. The Insured had decided to undertake works to raise the height of numerous emergency generators by installing new concrete and steel platforms. This measure was undertaken so the generators would remain above the water line in any future flood and keep power on at the plant, avoiding another fire. In addition, the Insured took the opportunity to install an upgraded DCS rather than repairing the existing damaged DCS, adding extra time for procurement and programming.

To determine the period of time associated with repairing only hurricane related damage, CCi removed the non-incident related construction activities to the generator pads and adjusted the period of time for DCS repair to include only the duration required to repair the existing DCS rather than replace with new. When the timeline was adjusted the duration of the interruption period was reduced by 2 months from the claimed value.

Summary

CCi assisted with the adjustment of the claim by-

  • Identifying the non-incident related works
  • Calculating if non-incident related works extended the interruption period
  • Determined the length of the interruption period considering only works required to repair damage caused by the hurricane
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