Business Loss or Interruption Caused by Hurricane Harvey? What You Need to Know

Hurricane Harvey tore through the Gulf Coast, exposing just how catastrophic natural disasters can be at their peak strength. Flooding in the area knocked out businesses, released dangerous chemicals, and destroyed buildings. Communities were left without electricity and even drinking water.

As the community rebuilds, business owners are doubly affected. Damage to their homes and livelihoods has serious long-term consequences for the economy and the community. Without these pillars in society, it is impossible to get back to normal. Unfortunately, damages from the storm have delayed efforts to rebuild, and business owners are struggling to find a way to keep their businesses financially afloat.

Business interruption claims have traditionally been the most challenging insurance claims. The insurance companies often contest them, and it is challenging to forecast accurate numbers where all parties agree. When wide-impact natural disasters are involved, the task becomes even more complicated. Usually, the performance of business before the storm is a good indication of how it would succeed if no damages had occurred. However, with a storm like Hurricane Harvey, the area of impact was so large that it was difficult to tell exactly how companies will recover.

For instance, a difference in demand could result from population changes as people flee the disaster area and relocate somewhere else. Alternatively, local economies could see a big boost in business from an influx of workers and helpers, responding to the call to rebuild. Companies that typically deliver goods by truck or receive shipments by sea are having to consider alternative systems for delivering their products now. The difference in costs and sales will ultimately affect their bottom line.

Relief efforts are underway, but it is impossible to claim with certainty just how long it will take for things to get back to normal. Consequently, the time element of any business interruption claim is the most heavily disputed, especially after a wide-impact storm like Hurricane Harvey.

Two ways to determine financial loss

Economy Ignored: This method looks at the history of business before the disaster and uses the information to project what the business might look like if there was no damage. However, there is no consideration for the future economy. The business could still suffer from a sharp increase in costs to operate or a significant drop in their product’s demand. Courts that decide to take this type of approach are usually concerned that a business stands to gain significantly in the post-disaster economy. The term used to refer to this is a “windfall” advantage.

Economy Considered: An alternative method that looks to the future economy and tries to place the policyholder in a position that they likely would have obtained, if not for the natural disaster. The interrupted operations are projected as real numbers in the actual post-disaster economy, and also looks to prevent companies from a windfall.

Other Factors

  • Major contracts and the companies involved
  • Marketing plans before and after the disaster
  • New product launches (announced or expected)
  • Developments in the current economy that affect the market
  • Changes in direct or indirect competitors

The greatest challenge for policyholders is calculating practical and convincing projections for their lost revenue. Building a substantial business interruption claim relies on these numbers, and can prove to be especially tricky in a volatile, post-disaster economy.

Things to consider

  • Did your gap in the marketplace change drastically after the disaster? Business trends prior the disaster may not be relevant to the current market and could present a strategic advantage for your company. Competitors that were grievously affected may be a new opportunity for your business.
  • Are there any contracts that support predicted sales for your claim? Documents supporting sales agreements before the disaster can establish legitimacy when claiming positive sales, even when market data shows competitors’ sales decreasing.
  • What is unique about your product or service that protects it from the chaotic, post-disaster economy? Comparing sales data to competitors before the natural disaster can be used to make a claim that the integrity of your business was established in an already dropping market. Demonstrating that your company was beating competition before the storm can help support the notion that your business would have been performing strongly, regardless of the natural disaster.
  • Does your business provide a relatively new product with limited sales history? This may present a challenge for your claim. To support your projections, find current sales data on similar products, and highlight particular advantages for your company, such as advanced orders, sales contracts, and promotional plans.
  • Were there any recent upgrades to your business that would indicate an expected performance boost? An update to your company’s procedures and processes, resulting in an expected increase in productivity, is an excellent way to support strong sales forecasts in a dumpy economy.
  • Do you notice any significant disparities in your company’s supply chain or costs of goods necessary to create your product? Dramatic changes in these areas can significantly affect your product’s price point, resulting in a necessary price increase, and potentially disrupting your overall sales output.

Business interruption claims have varied wildly in the past between benefiting the policyholder and benefiting the insurance company. Instead, courts rely heavily on individual circumstances for each case. If you are a business owner, it is critical that you consider the potential consequences, and it may be in your best interest to seek legal counsel before submitting your claim. The risk is the future of your business.

Get the Help Your Business Needs

With the risks being so high, you owe it to yourself and your company to only work with experienced professionals. The attorneys at Williams Hart have the dedication and knowledge it takes to navigate through the delicate procedures when making a business interruption claim. With resources in Houston and across the Texas Gulf Coast, we have a particular interest in working with business leaders in our community. Our friends and family were hit hard by Hurricane Harvey, and it is times like these that bring us all together to rebuild. We want to see you succeed, and we understand how uniquely challenging the recent devastation is for business owners. Call us today at (713) 352-0031 to find out how we can help your business recover following this devastating hurricane. You can also chat with us live on our website or email us at any time by filling out a contact form on our site.

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