As the frequency and intensity of hurricanes continues to rise, commercial businesses face increasing challenges — not only in protecting physical assets but also in navigating the often complex insurance landscape in the aftermath of a storm. While many companies focus on storm preparedness with checklists and contingency plans, risk managers also can gain important strategic insights by understanding how recent hurricanes have played out. Hurricanes Ian, Helene and Milton have revealed important possible loss scenarios that businesses should consider in formulating their broad risk management strategies.
Utility interruption
Hurricane Ian, a powerful and wide-reaching storm, caused massive damage across Florida and the Carolinas, knocking out power to more than 2 million in Florida alone. As a result, many businesses experienced prolonged shutdowns not due to direct storm damage but because of extended power outages caused by off-site utility infrastructure failures. The same lines that carry power also often carry phone and internet, and often repairs to one set of lines can impact other services.
Ian illustrated an important question that those in hurricane-prone regions should ask: Does my policy cover business interruption losses arising out of lost utility services? While some courts have held that policies covering contingent business interruption losses provide coverage for lost power, many modern policies contain specific exclusions for loss of utility service due to damage away from the policyholder’s property. In effect, policyholders have to buy back that coverage, for additional premiums, and possibly with low sublimits or excessive deductible time periods.
Businesses should consider how storm-related damage to their utility services — power, phone and internet — could impact their operations, and how the geographical limitations and deductible time periods can restrict coverage.
Hurricane Helene and wind vs. water disputes
Hurricane Helene, though less publicized than Ian, presented complex causation scenarios in coastal regions. A number of claims were delayed or denied because of disputes over whether wind or water was the primary cause of damage. This was particularly prevalent in structures where storm surge coincided with tornadic winds, creating mixed perils.
This is often referred to as the problem of “concurrent causation,” because two perils, one covered and one excluded, “concurrently” acted to cause the loss. After courts held that policies continued to provide coverage where an excluded and a covered peril acted in concert, the insurance industry began deploying anti-concurrent causation clauses. These clauses typically remove coverage if an excluded peril, such as flooding, contributes to the loss — even if a covered peril, like wind, also played a role.
Such clauses are often buried in boilerplate language at the start of a list of exclusions — language policyholders often do not focus on; or they may be introduced in a renewal policy without adequate notice. Such provisions can vitiate expected coverage, and policyholders should consider the impact of these clauses on the coverage provided by their insurance programs.
Importantly, many states now, by statute, prohibit or limit the use of such anti-concurrent causation clauses, and policyholders are well-advised to understand the law of their jurisdiction.
Hurricane Milton’s urban disruption
When Hurricane Milton appeared headed toward densely populated areas, many local governments issued mandatory evacuation orders, resulting in business interruption losses for companies outside the storm’s ultimate impact zone.
Business interruption coverage triggered by civil authority orders often requires physical damage to nearby property. To trigger coverage, the order may need, for example, to result from damage within a nearby area. Because Milton ultimately spared many evacuated areas, the absence of nearby property damage also often meant that policyholders learned their claims for business interruption losses were being denied.
Businesses should consider modeling potential time-element losses from pre-emptive government action and explore endorsements that can address such proactive closures.
Cascading supply chain vulnerabilities
All three storms highlighted an important risk: Supply and distribution chains today are much longer than they once were. And disrupted supply chains can cause significant losses. For example, businesses in unaffected inland areas suffered revenue loss because suppliers in hurricane zones were offline for weeks. The problem becomes more complicated when one considers that some of those suppliers were offline not because of property damage but due to lack of power.
Contingent business interruption coverage, which insures against loss due to damage to suppliers or customers, is often underutilized or poorly understood. Even when present, an insurer may demand detailed documentation of the damage to a supplier’s property, materials the policyholder may not be able to obtain.
Businesses should map their critical supply chain dependencies and assess CBI coverage accordingly. Ensuring that upstream and downstream partners are adequately insured and resilient is also part of prudent risk mitigation. Ensuring, as part of any deal, that business partners will provide reasonable assistance when prosecuting a CBI claim also can be a prudent, proactive step.
Avoiding the claim process bottleneck
Two important issues across all recent storms are the challenge of adequately documenting losses and handling insurance claims with the same diligence and forethought a business would bring to any material transaction.
Delays in filing, poor recordkeeping and disputes over lost revenue calculations have left many claims underpaid or mired in months-long negotiations. Insurers are increasingly scrutinizing business interruption claims, requiring granular pre- and post-loss financial data. Businesses that lacked real-time accounting systems or failed to engage forensic accountants early in the claims process found themselves at a disadvantage.
Readiness must include not just physical preparations but financial documentation protocols. Consider establishing relationships with forensic accounting firms before disaster strikes to advise on robust records that can substantiate loss-of-income claims under scrutiny.
Equally, policyholders who lack experience reading insurance policies — or are not fully informed about the legal precedents that govern those policies — can miss important opportunities to avoid coverage denials or disputes. Claims handlers often say, for example, that insurance policies are not supposed to make people better off than they were before the loss. But most businesses today buy replacement cost coverage. By definition, such policies leave one better off: You’re getting a new replacement for older, depreciated property.
Consider asking coverage counsel to review insurance policies as part of the placement process — to ensure that you understand those contracts. Involve experienced coverage counsel early on after a disaster to help navigate potential minefields.
Conclusion
Hurricanes Ian, Helene and Milton made clear that the most impactful business continuity lessons stem not from windspeeds or rainfall totals, but from how insurance policies respond — or fail to respond — when tested by real-world complexity. Commercial enterprises must approach hurricane readiness as more than a checklist. It’s a strategic endeavor involving risk transfer, policy analysis, supply chain resilience and claims preparedness. Only then can businesses weather the storm not just physically, but financially.
Rukesh Korde is a Washington-based partner at Covington & Burling. He represents policyholders and specializes in first-party and business interruption coverage. He can be reached at [email protected]. John Petzold is New York-based national practice leader, forensics insurance and recovery, at BDO. He can be reached at [email protected].