Insurance and Disaster Preparedness:
Lessons from Hurricane Katrina
Anthony C. Valiulis, a Principal and former Chair of the firm's Litigation & Dispute Resolution practice group, has more than 30 years of experience in a broad range of state and federal civil trial and appellate matters, with concentrations in non-compete agreements, financial-related disputes and insurance coverage issues. Tony can be reached at 312.521.2691 or tvaliulis@muchshelist.com.
By Anthony C. Valiulis
The recent devastation caused by Hurricane Katrina has touched businesses and individuals everywhere, no matter how far they may be from the region that was directly affected. Whether at the hands of Mother Nature or some other cause entirely, a disaster of this enormity reminds us that tragedy can strike at any moment, with unexpected magnitude and far-reaching repercussions. Therefore, companies of virtually every type and size must take steps to be as prepared as possible for those risks that can reasonably be anticipated.
As the families and businesses along the Gulf Coast struggle to rebuild, far too many will find that the insurance coverage they purchased to hedge against financial ruin is either inadequate or nonexistent due to limitations or exclusions they did not anticipate. Compounding the destruction, the winds and floodwaters that damaged or destroyed their homes and businesses may have also destroyed their legal documents and other important records. Thus, many will be forced to rebuild without benefit of the insurance settlements they were expecting to receive and without many of their critical records: a formidable, if not impossible task.
Ask Questions, Be Prepared
All too often, businesses fail to learn from the mistakes and misfortunes of others. Once you acknowledge that you and your company are not immune to disaster, you can begin to take proactive measures to minimize the harm when disaster does strike. As a businessperson, you must ask yourself several key questions:
- When is the last time we reviewed our insurance policies thoroughly?
- Do we have the appropriate types of insurance and does it provide adequate coverage, in terms of scope and amount, for the risks that are reasonably foreseeable?
- Do we understand what is covered and what is not?
- Does our insurance coverage incorporate limitations that could substantially reduce recovery?
Unfortunately, most insurance policies are not clearly written and organized. As a result, they are often some of the most confusing and difficult documents for even the most savvy businessperson to comprehend. This problem is compounded by the insurance industry's use of "fine print." Often buried deep within a policy, there may be exclusions and endorsements that actually take away coverage that otherwise appears to apply. When faced with reviewing and assessing important insurance documents, businesses frequently need the help of a professional, either an attorney or an insurance broker, in order to thoroughly understand what protections they might or might not have. Here are some of the questions you should ask in order to gauge the adequacy of your insurance coverage:
Exactly what is the extent of our coverage and does it protect the company from employee theft, embezzlement, business interruptions, employment practices liability or other reasonably foreseeable risks?
- Are there specific limitations that curtail coverage in certain areas?
- Are all affiliated companies covered?
- Have changes been made to coverage in renewal policies?
- Have we been given proper notice of such changes?
- Do we have or need director and officer insurance, commonly known as a D&O policy?
- Do we have coverage for the destruction of documents and, if so, what are the limitations of our policies?
Safeguard Important Documents
Just as important as the coverage you have in place is your ability to safeguard important documents, including your insurance policies themselves. How would your business be affected if there were a fire tomorrow that destroyed every piece of paper, every computer, every hard drive and every other electronic storage medium in your office or home? Could your business continue to function? What would happen to you and your employees? Although every business should be asking these questions, most have not taken adequate precautions to protect against a disaster like Hurricane Katrina.
At the very least, you should identify and thoroughly review the documents that you believe you would need in order to stay in business after a disaster. With respect to those documents, you should make sure you have adequate copies, either paper or electronic, safeguarded and stored off site. Unfortunately, that basic level of precaution may not be enough, even in preparing for a less severe disaster. At a minimum, you should consult with an attorney, accountant and/or insurance broker in order to analyze your particular situation and determine what level of precaution makes sense for you and your business.
What is the bottom line? Put together an internal team, get input from outside sources and tackle these important issues now. Don't ignore the situation or assume that a disaster could never happen to you. Hurricane Katrina reminds us that it can. Smart businesspeople who recognize the risks and invest the time and money to prepare their companies are the ones who will overcome tragedy and ultimately succeed.
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