Wake-up Call: Understanding commercial fire insurance coverage in the wake of the Colorado wildfire – Insurance


Key points:

  • The wildfire that struck Boulder County, Colorado on December 30 was the most destructive in the state’s history

  • In an era of escalating natural disasters, businesses need to know all their coverages and be prepared to maximize recovery

  • Coverages to consider in addition to property damage include business interruption, contingent business interruption, additional expenses, and civil authority

Like so many natural disasters in recent years, the wildfire that hit Boulder County, Colorado on December 30 was a norm breaker – hitting long after the fall wildfire season and causing more damage than any wildfire in the state’s history. The blaze destroyed nearly a thousand buildings, including entire housing estates, according to a list released Jan. 1 by Boulder County officials. Insured losses will likely approach $1 billion, according to an estimate by Karen Clark and Company.

While most of the destroyed buildings were private homes, a number of commercial properties were also destroyed, including a large shopping mall, as well as a hotel and the Superior Town Hall. The extraordinary intensity of the fire and its unpredictable out-of-season occurrence should be a wake-up call for all businesses to review and assess their property insurance policies and ensure they understand the full range covers that may apply if a fire strikes their premises or surrounding area. region.

In Colorado, as discussed in more detail below, authorities have ordered insurance companies to consider the current extraordinary circumstances when responding to claims. Because Colorado law is also sensitive to bad faith claims – also discussed below – policyholders seeking to recover from the wildfire have good reason to expect and demand prompt and responsive claims handling. from their insurance companies.

In the aftermath of a wildfire, businesses of all sizes must assess not only the physical damage to their property, but also the loss of revenue resulting from blocked roads, halted shipments, evacuations and closures by authorities. civil. Affected businesses should seek coverage not only to repair physical damage to their own premises, but also for loss of revenue resulting from business interruption while the insured premises are being restored, as well as for possible loss of business interruption caused by damage outside the insured premises.

Work interruption (BI) and associated coverage extensions insure businesses against loss of revenue resulting from interruptions to day-to-day operations. BI coverage can be triggered by circumstances such as forced closure, loss of business due to damage to premises, or inability to access a factory or business premises.

Many commercial property policies include prolonged downtime coverage that extends the period that business income coverage is available – from when the physical property can reasonably be repaired and ending when operations are fully ramped up and the business is back to business levels before the loss. In some policies, however, this extension is limited in time to a few months.

Businesses that are not themselves physically damaged or forced to close can gain access possible business interruption warranty, triggered by loss or damage to suppliers or customers located outside the insured premises. Although the insured premises need not be physically damaged, it must have coverage for the type of loss or damage that has affected its suppliers or customers. Contingent business interruption is a standard provision in many home insurance policies, although small business policyholders are often unaware of it.

Also potentially at stake after a forest fire is civil authority warranty, triggered when loss or damage outside the insured premises results in a civil authority order restricting access to the insured premises. Likewise, enter exit the cover insures loss of profit when remote loss or damage itself restricts access to the insured premises. Again, damage to the property of the insured is not necessary to trigger this cover – although generally the losses must result from loss or damage of a type covered by the insurance policy. These coverages are also ones that may escape the awareness of small businesses.

Coverage of additional expenses applies to costs (other than repair or reconstruction) incurred by the insured to continue its activities as a result of material damage, such as moving to a temporary site and the equipment of this site. This coverage is often defined very broadly and very valuable.

Calculating the full range of lost business revenue due to property damage, disruption to the surrounding area, and shutdowns by order of civil authorities is a complex task. The more complete the documentation, the more likely the policyholder is to receive full or nearly full acceptance of the insurance company‘s claim – or, if necessary, rebuff the insurance company’s attempts to limit claim payments or deny the claim. To this end, the services of a public expert, knowledgeable in how insurance companies calculate losses, can be invaluable.

Although outright denials of coverage for fire damage claims are rare, delays and disputes by insurance companies regarding amounts claimed, recovery period for business interruption losses, measures taken to mitigate the damage and a host of other problems are all too common.

Current economic conditions may complicate recovery in a number of ways. Insurance companies may try to minimize losses from business interruptions, saying business has been depressed by the pandemic. Supply chain disruptions and general shortages of building materials and labor can increase reconstruction costs and lengthen lead times.

Recognizing this latter issue, the Colorado Division of Insurance has directed homeowners insurance companies to “consider all circumstances affecting the claim, including, but not limited to, labor shortages.” and material and other circumstances affecting the claim but not directly caused by the disaster. claim” and to “set the time limits in the policy for the policyholder to complete the repair or replacement of the damaged part of the property necessary for the issue of payment of the value of the replacement cost.” Although these guidelines target owner policies, they can also send a signal to business owners to be proactive in seeking such forbearance.

Fortunately for policyholders in Colorado, an insurance company can be held liable for a bad faith breach of an insurance contract when it unreasonably withholds or delays payments due under the policy. Policyholders can also assert bad faith claims under Colorado law, which provides for double damages and attorney’s fees, when an insurance company refuses or delays to unreasonable manner the payment of the claim. Collar. Rev. Stat. Ann. §§ 10-3-1115, 10-3-1116.

Dealing with the consequences of a disaster means trying under the best of circumstances. Insurance can provide crucial relief – and policyholders must ensure that they receive what is owed to them by insurance. Maximum recovery depends on understanding the full range of your coverage, working with an experienced team to help the insurance company understand the claim, and insisting that all available coverages are included and taken. taken into account in the payment of the claim.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


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