Insurance Recovery for Natural Disasters: Hurricanes, Fires and Earthquakes

1. Insurance Recovery for Natural Disasters: Hurricanes, Fires and Earthquakes October 19, 2017 John D. Shugrue James M. Davis Kevin B. Dreher Brad Murlick Drew Olson

2. Categories of Insurance Coverage Potentially Available for Hurricanes • Physical Damage / Other Costs • Buildings/Real Property • Personal Property (Insured and its Officers and Employees) • Property of Others in Insured’s Custody • Accounts Receivable • Electronic Data/Programs/Software • Debris Removal • Decontamination Costs/Pollutant Removal • Demolition/Construction Costs • Valuable Papers/Records • Professional Fees (excluding attorneys, public adjusters)

3. Categories of Insurance Coverage Potentially Available for Hurricanes • Time Element • Business Interruption (BI) • Contingent BI • Extra Expense • Civil Authority • Ingress/Egress • Service Interruption • Electronic Data Processing and Computer Systems

4. Key Policy Provisions and Coverage Issues • Must Trigger Policy Through Covered Cause of Loss • All Risk Policy — Typical Property Damage Coverage • Direct physical loss or damage • Property insured by this policy • Occurring during the policy period • Except as excluded • Specified Perils Policy — Enumerated Causes of Loss • Insured Property • Real property listed on appropriate schedules • Personal property at scheduled locations

5. Key Policy Provisions and Coverage Issues • Coverages Defined By Policy Language • Named windstorm • Wind and wind driven rain • Flood • Storm surge • Fire • Limits and Sub-limits Vary

6. Key Policy Provisions and Coverage Issues • Repair/replacement • “Betterments” • Change in code/statute

7. Preparing and Evaluating Your Claim

8. Preparing and Evaluating Your Claim • Business Interruption Coverage • Covers actual loss of income/earnings due to suspension of operations caused by covered loss • Coverage continues through period of restoration of operations (including Extended Coverage Period, if provided) • Lost income/earnings typically determined based on: • Likely or projected net income earnings if no loss or damage had occurred • Continuing operating expenses, including payroll, to continue same level of operations • Minus saved expenses

9. Preparing and Evaluating Your Claim • What is the length of the Period of Restoration? • When it could be repaired vs. actual date of repair • Extended Period of Indemnity • Time fixed by policy • Additional time to get business back to pre-loss status

10. Preparing and Evaluating Your Claim • Contingent Business Interruption Claims • Coverage applies even where insured’s own property is not damaged • Coverage is triggered where covered damage to suppliers, customers or “attractor properties” negatively affects your business operations • Direct/indirect customers/suppliers? • Covered Losses include: • Additional expenses incurred to obtain supplies and raw materials • Diminished revenue because of losses suffered by customers • Other expenses due to damage to suppliers or customers

11. Preparing and Evaluating Your Claim • Extra Expense • Covers necessary additional expenses incurred: • To avoid or minimize the interruption of business • To repair or replace property, systems, lost information or damaged valuable papers • Temporary facilities, extra shifts, overtime, temporary labor • Expediting Expenses

12. Preparing and Evaluating Your Claim • Civil Authority: Business Interruption Claims Caused by Acts of Civil Authorities that Impaired Access to Your Business • Applies when government acts prohibit access to covered property due to covered damage (closures, curfews, ingress/egress restrictions) • Often limited to 30 days from date of civil action prohibiting access • Often subject to geographic limitations (i.e., within certain distance from insured location)

13. Preparing and Evaluating Your Claim • Ingress/Egress • Applies when access to and exit from a policyholder’s premises are blocked • Not standard in business interruption policies • Applies even if the policyholder’s property has not been physically damaged • Typically requires damage of the type covered under the policy to non-insured locations

14. Preparing and Evaluating Your Claim • Service Interruption Coverage • Covers loss of income or extra expense resulting from interruption of utility services • water • communications • power • gas • Sewage • On premises/off-premises

15. Key Policy Provisions and Coverage Issues • Concurrent Causation vs. Efficient Proximate Cause • Majority Rule – Concurrent Causation • Where damage caused by covered and non-covered causes, all damage is covered. • Examples: • Florida – Sebo v. American Home Ins. Co., 208 So. 3d 694 (Fla. (2016)(affording coverage “where an insured risk constitutes a concurrent cause of the loss even where the insured risk [is] not…the prime or efficient cause of the accident.”) • Alabama – State Farm Fire & Casualty Co. v. Slade, 747 So. 2d 293 (Ala. 1999) • California — Garvey v. State Farm Fire and Cas. Co., 48 Cal.3d 395 (1989); Julian v. Hartford Underwriters Ins. Co., 35 Cal.4th 747 (2005) • Mississippi – Glen Falls Ins. Co. of Glen Falls, N.Y. v. Linwood Elevator, 130 So.2d 262, 270 (1961)

16. Key Policy Provisions and Coverage Issues • Minority Rule • Insured must prove the entire loss caused by an insured cause of loss; or • Insured must prove those damages resulting from covered cause of the loss • Examples: • Texas — Hahn v. United Fire & Cas. Co., No. 6:15-CV-00218, 2017 WL 1289024 (W.D. Tex. Apr. 6, 2017); Travelers Indemnity Company v. McKillip, 469 S.W. 2d 160 (Tex. 1971); • Iowa – Amish Connection, Inc. v. State Farm Fire & Cas. Co., 861 N.W.2d 230 (Iowa 2015)

17. Key Policy Provisions and Coverage Issues • Insurer Response: Anti-Concurrent Causation Language • Typically provides: • No coverage if excluded peril of loss causes a loss • Even if a covered cause of loss contributes concurrently or in any sequence to the loss • Some Courts Have Enforced: • JAW The Pointe, L.L.C. v. Lexington Ins. Co., 460 S.W.3d 597, 608 (Tex. 2015) • Boazova v. Safety Ins. Co., 462 Mass. 346 (Mass. 2012) • Lombardi v. Universal N. Am. Ins. Co., 2015 Conn. Super. LEXIS 138 (Conn. Super. Ct. Jan. 21, 2015) (collecting cases and finding an anti-concurrent causation clause enforceable in a dispute arising from Tropical Storm Irene) • Corban v. United Servs. Auto. Ass’n, 20 So.3d 601 (Miss. 2009) (holding in a dispute arising due to damage from Hurricane Katrina that the clause applies only if two or more causes occur simultaneously to cause loss)

18. Key Policy Provisions and Coverage Issues • Anti-Concurrent Causation Language • Some courts have not enforced: • Safeco Ins. Co. v. Hirschmann, 773 P. 2d 413 (Wash. 1999) (en banc) (against public policy to contract around efficient proximate cause doctrine) • Mierzwa v. Florida Windstorm Underwriting Ass’n., 877 So.2d 774 (Fla. App. 4th Dist. 2004) (holding that total loss required the wind insurer to pay face amount under Florida’s valued policy law) • Murray v. State Farm Fire & Casualty Co., 203 W. Va. 477, 492, 509 S.E.2d 1, 16 (W. Va. 1998)

19. Key Policy Provisions and Coverage Issues • Importance of Choice of Law • Does policy contain a choice of law or choice of forum? • Does policy require appraisal of disputes? • Applicable law may determine outcome of coverage dispute

20. Key Policy Provisions and Coverage Issues • Things to Consider: • Consider policy language very carefully • Consider drafting and negotiation of policy • Obtain all facts concerning development of your particular losses • Retain experts early • Protect privilege • Determine how best to characterize your losses • Consider appropriate forum for any coverage disputes • Win the race to the courthouse

21. QUESTIONS & ANSWERS

22. John D. Shugrue, Reed Smith LLP • John D. Shugrue is a partner in the Insurance Recovery Group of Reed Smith LLP, resident in the Chicago office. • John has substantial experience in handling complex litigation and insurance coverage matters involving Commercial General Liability (CGL), Directors & Officers (D&O), Errors & Omissions (E&O), and First Party Property/Business Interruption policies. He is experienced in all aspects of litigation, mediation, and arbitration with Lloyd’s of London, London and Bermuda market insurers, and all major domestic insurers. • John is the co-author of Insurance Coverage Disputes, published by Law Journal Press. • John co-chaired the Insurance Coverage Litigation Committee for the American Bar Association Section of Litigation. He writes and lectures frequently on a variety of insurance coverage topics, including D&O insurance, business interruption coverage, environmental insurance coverage, coverage for emerging areas of tort liability, use of ADR in insurance disputes, and special issues relating to Lloyd’s of London and the London insurance market. • John is recognized as a leading insurance practitioner in Chambers USA America’s Leading Business Lawyers, Best Lawyers in America, Legal 500, and Who’s Who Legal.

23. Jim Davis, Reed Smith LLP • Jim Davis is a partner in the Insurance Recovery Group of Reed Smith LLP, resident in the Chicago office. • Jim is "extraordinarily hard working, fantastic in terms of client relations and very much attuned to the cutting-edge issues," is “an extremely talented writer, whose briefs are very well written”, has “good strategic litigation skills” and “courtroom presence”, and “has an unbelievable knowledge base of coverage law and can easily identify the esoteric points," reports Chambers USA based upon interviews over several years with clients and lawyers in the insurance coverage community. • Jim’s national litigation practice focuses on representing policyholders in insurance coverage disputes involving product liability, product recall, product contamination, first party property and business interruption losses, additional insured and vendor endorsements, historic coverage for environmental and asbestos claims, cyber liability, director's & officer's liability, professional liability, employment practices liability, commercial crime and fidelity bonds, workers' compensation liability, domestic and UK insolvencies, and UK solvent schemes. • Jim is recognized as a leading insurance practitioner in Chambers USA, Best Lawyers, Super Lawyers, and Who’s Who Legal.

24. Kevin B. Dreher, Reed Smith LLP • Kevin is a Partner in the Insurance Recovery Group at Reed Smith (Chicago). • Kevin’s practice focuses on commercial litigation with an emphasis on commercial disputes and insurance coverage litigation on behalf of corporate policyholders. Kevin has significant experience counseling and litigating on behalf of clients in a wide range of insurance disputes including those involving directors and officers, professional liability, first party property, business interruption and contingent business interruption, public officials liability, products liability, environmental and asbestos liability, and more. Kevin’s insurance coverage practice is nationwide and has involved litigation and arbitrations in jurisdictions throughout the United States, Bermuda, and London. • In addition to his experience in insurance coverage, Kevin has significant experience representing and counseling Fortune 500 companies in a variety of complex commercial litigation disputes including those involving breach of contract, trade secrets violations, unfair competition, breach of fiduciary duty, fraud, and other business tort matters. Kevin also has significant litigation experience with matters involving the financial services industry, outsourcing, product liability, class action defense, white collar and corporate investigations. • Kevin writes and lectures frequently on a variety of commercial litigation and insurance coverage topics. • Kevin has been recognized as a “Rising Star” in General Commercial Litigation by Illinois Super Lawyers.

25. Brad Murlick, BDO USA, LLP • Brad Murlick is a Managing Director at BDO based in Chicago, IL. • Brad’s practice is focused on assisting clients, including their counsel and brokers with large, complex, insurance claims, specifically those related to first party and third party loss situations and disputes. During his career, he has assisted thousands of clients with the recovery of billions of dollars in connection with property/business interruption, product recall/product liability, fraud and fidelity, builder’s risk, cyber/data breach, political risk, as well as other first party and third party/casualty claims. • Prior to BDO, Brad was a Managing Director with Navigant and previously he was a Partner at Deloitte, and led its North American Business Insurance Consulting practice, as well as its Global Product Recall practice. • Brad has testified in State and Federal Court as well as in alternative dispute resolution situations on numerous occasions, and regularly assists clients with pre-trial mediations. He is widely published (John Liner, IRMI, Risk and Compliance, Risk Management Magazine, etc.) and has spoken numerous times on business insurance and claims topics in a variety of settings, including the American Bar Association, and Risk and Insurance Management Society (RIMS) national, regional and local events. He is also frequently quoted in insurance industry publications, including Business Insurance, Best’s Review, Crain’s and Risk and Management; and has appeared on CNBC, Summit TV (South Africa) and National Public Radio to discuss claim issues.

26. Drew Olson, BDO USA, LLP • Drew Olson is a Managing Director at BDO Advisory in Chicago, IL. • Drew is a Certified Public Accountant licensed in Illinois, he is experienced in assisting clients with forensic accounting and consulting services related to insurance claims, including complex property and business interruption claims for insured businesses, as well as product recall, cyber and fidelity bond claims. Skilled at evaluating interdependency losses pursuant to direct physical damage and contingent business interruption, Mr. Olson has assisted Fortune 100 companies in preparing and substantiating complex insurance claims and analyzing losses from insured catastrophic events. • Prior to joining BDO, Drew was a Manager in Ernst & Young’s Fraud Investigation & Dispute Services practice, where he provided insurance claims, forensic accounting and investigative services. • Drew has served clients in industries, including utilities, chemical and global manufacturing, food service, technology, mortgage and financial services, aviation, and telecommunications. He has served as a neutral umpire in disputes regarding complex business interruption appraisals and as an expert in mediation proceedings. He has been quoted in media publications including CNBC, E-Commerce Times, Risk & Insurance and Business Insurance.