Proactive Disaster Recovery Strategies for Business Continuity Success

1. TOPIC: Disaster Recovery / Business Interruption- Arnold F. Mascali, Executive Vice President & Chief Commercial Officer - InStar Services Group, LP - Jeffrey M. Pollock Esq. – Partner, Fox Rothschild, LLP- Frank Russo, Managing Director - Aon Global Risk Consulting, Property Risk Consulting

2. Presentation Overview • Pre-loss Planning • A Loss Occurs • The Property Claims Process • Selecting a Recovery Vendor • Tailoring Response to Policy Terms & Conditions • Understanding of how to work with your insurance company and their experts • Legal Pitfalls to Avoid

3. 2011 - Highest Loss Year on Record for Economic Losses Globally • $380 Billion • Economic Losses Globally (New Record), exceeding the previous record of $270B in 2005 • $105 Billion • Insured Losses Globally 2011 losses were 2.5 times 2010 insured losses of $42B • $72.8 Billion • Economic Losses in the US - Represents a 129% increase over the $11.8 billion amount through the first half of 2010 • $35.9 Billion • Insured Losses in the US Arising from 171 CAT Events Fifth highest year on record. Represents 51% increase over the $23.8 billion total in 2010 Source: Munich Re; Insurance Information Institute.

4. Severe Weather Reports in New Jersey,January 1—December 31, 2011 There were 172 severe weather reports in NJ in 2011 (none so far in 2012) Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 4

5. The improbable is becoming the norm • A devastating Earthquake and Tsunami in Japan • A US East Coast Earthquake • Hurricane Irene directly hits New York City

7. Documentation of Japan CBI losses are complex... • Earthquake? • Tsunami? • Nuclear? • Aftershocks? • Power Outage? • Rolling (Intentional) Power Outage? • All of the Above?

11. Complacency sets in…

12. A hurricane in New York City? We were lucky this time…

13. Pre-Loss Preparation • Identify • Your insurance adjuster, Insurance coverage and limits, deductibles, sub-limits, exclusions • Valuation of Assets and Potential Lost Income (per location) • Key revenue generating activities that may be impacted • Critical delivery points • Any cash flow and financing concerns • Internal/External team that will lead the documentation of potential losses • Develop • Comprehensive Business Continuity and Disaster Recovery Plans • Agreements with restoration and other vendors • Internal claims manuals and timely reporting measures • Reporting & tracking claims procedures • Interviewing and selection process for other required vendors • Track • Loss history

14. Presentation Overview • Pre-loss Planning • A Loss Occurs • The Property Claims Process • Selecting a Recovery Vendor • Tailoring Response to Policy Terms & Conditions • Legal Pitfalls to Avoid

15. Ready? What’s your plan…? • For getting back to business • For accessing critical recovery equipment and/or specialists • For coordinating insurance recovery efforts • For ensuring timeliness & accuracy of information from the loss site(s) • For committing significant time to comprehensively monitor and manage the claim process • For monitoring and managing your vendors and experts • For monitoring and managing insurers’ vendors and experts • For adequately documenting your loss • For expediting your financial recovery

16. Following a Loss Event – Resilience Requires Coordination of Many Resources and Swift Action RestorationContractor Architect/Engineering BuildingContractor RoofingConsultant IndustrialHygienist LossAdjusters InsuranceCompany Risk Manager Media Staff CEO/Board Other 3rdParties NormalOperations

17. Presentation Overview • Pre-loss Planning • A Loss Occurs • The Property Claims Process • Selecting a Recovery Vendor • Tailoring Response to Policy Terms & Conditions • Legal Pitfalls to Avoid

18. Surveying the damage with your adjuster • Be careful, take safety precautions • Photograph and video footage are key • Survey the damage with your adjuster • Sets the tone for the settlement process • Discuss measurement of the loss period: • Strategies to expedite or mitigate • Betterments • Start-up problems • Provide a preliminary loss estimate / order of magnitude • Request a partial payment based on expected short-term expenditures and supportable costs

19. Vendors Restoration Contractor Building Contractor Architect/Engineering Roofing Consultant Industrial Hygienist Your Catastrophe Teams/ /External Partnership/ Loss Consultants Your Local Facility Operations Your Finance/Risk Management Dept Insurance Company/ Third Parties “One Voice” Lead and Control the Loss Adjustment…

20. Loss Reserve is Key Major fire at a retail distribution center

21. How claims become complex • Delays in repair / reconstruction • Cause & Origin Investigations • Subrogation analysis • Result from delays • Mold • Additional damage from rainfall & other perils • Second event prior to completion of repairs • Difficult to quantify / segregate • Code upgrade issues • Identifying code issues can take time • Delays in analysis and adjustment of damage by insurers occurs during widespread catastrophes • Pricing and timing of repairs increase significantly following widespread events

22. Business Interruption – What is Usually Covered? • Physical damage by an insured peril to insured property triggers the time element coverages • Contingent BI for insured damage to direct suppliers and customers • Interdependency losses between internal operational areas • Service interruption - damage to property of the type insured, by an insured peril (that is not excluded for SI) • Civil authority – limited to a number of days • Ingress/Egress – limited to a number of days • Other exposures in your organization (ex. H1N1 Flu) – insured or not insured? 22

23. Recovery and Settlement Expedited by Aligning the Appropriate Experts Insured Team Insurer(s)Team Loss Mitigation Consultant Salvor Shareholders/Investors CFO Insurer Claims Dept. Reinsurers Risk Manager Insurer Claims Manager Estimator/ Engineering Estimator/ Engineering Operations Insurer Account Executive Project Manager Adjuster Construction Underwriters Forensic Accountant Auditors Legal Legal Accounting Specialty Consulting Specialty Consulting Other Experts

25. Presentation Overview • Pre-loss Planning • A Loss Occurs • The Property Claims Process • Selecting a Recovery Vendor • Tailoring Response to Policy Terms & Conditions • Legal Pitfalls to Avoid

26. Restoration and Remediation – The Basics Coverage Areas – national, regional, local Equipment – owned, leased, rented Services Offered – emergency response, restoration, rebuild

27. Restoration & Remediation – Beyond the Basics • National Network – Local Response “black dots vs. black hole” • Specialty Certifications • Project Management & Subcontractor Standards • Continuing Education Requirements • Financial Strength (timing of payments) • Leverage of Relationships- fuel, power, & access • Accounting Methods and Billing Processes • Look for Innovation

28. Presentation Overview • Pre-loss Planning • A Loss Occurs • The Property Claims Process • Selecting a Recovery Vendor • Tailoring Response to Policy Terms & Conditions • Legal Pitfalls to Avoid

29. Restoration & Insurance = Hand-in-Glove Marrying Terms & Conditions with Disaster Response • Ex. Extra Expense vs. Expediting Expense vs. Expense to Reduce Loss • Number of Deductibles • Sue & Labor Collaboration Not Confrontation - Work with insurance adjuster and carrier on scope - Demonstrate loss mitigation mindset Act with Due Diligence & Dispatch - Reasonable conduct under the circumstances - Period of Indemnity – Actual vs. Theoretical

30. Presentation Overview • Pre-loss Planning • A Loss Occurs • The Property Claims Process • Selecting a Recovery Vendor • Tailoring Response to Policy Terms & Conditions • Legal Pitfalls to Avoid

31. Planning for Catastrophe • Types of Coverage to Consider: • Business Interruption Coverage • Contingent Business Interruption Coverage • Contingent Extra Expense Coverage • Legal Expense Insurance • Claims Preparation Coverage • Civil Authority Coverage • Ingress/Egress Coverage • Punitive Coverage

32. Areas Requiring Immediate Consideration You will be addressing claims under bad conditions—get some help from an insurance professional • Providing Notice • Bermuda Form Coverage (be careful) (Integrated occurrence trigger) • Preserving claim while repairing damage • Claims preparation is complicated

33. Front-End Litigation Considerations • Notice • Forum—in tough cases, forum is decisive • Documentation (counsel should coordinate with broker and client. Don’t repair without documenting!) • Think team (risk manager/claims adjuster/counsel must work together)