With Deepwater Horizon oil lurking in the Gulf of Mexico, it’s time for property owners and business owners to dive into their insurance policies to get a clear picture of the potential liabilities they face and the potential benefits of insurance should the oil reach our shores. Given the potential devastating impacts from the spill, owners of businesses that could be affected if parts of the regional economy shut down should prepare to make business interruption claims for economic losses. Like business owners, homeowners wonder if their homeowner’s insurance will soak up the losses should the spill damage their properties. The scope and language of your insurance policies would largely determine whether insurance would cover any damages. The experts at Wittmer & Linehan can untangle the sometimes arcane language of insurance policies and help you determine your rights.

Waterfront Homeowners

Floridian homeowners understand the risks of living in paradise. In addition to their basic policy, most carry federal flood insurance, windstorm protection, hurricane coverage, sinkhole provisions, and more on their residences. But, oil spills? “If a homeowner’s waterfront land or beach is tarred, damages usually are not recoverable,” says Sarasota attorney Steve Wittmer.

“Homeowner property policies don’t cover land,” Wittmer says. “Insurers argue that policies only cover damage to structures. Unless oil physically damages your home, your standard homeowner’s insurance policy will not cover any damages.” Furthermore, more defensive insurers may argue that raw crude oil is not a “pollutant” and may not be covered by pollution-cleanup provisions in home insurance coverage. Crude oil is “a naturally occurring substance,” not a pollutant as defined in federal and state laws, they argue. Few expect that defense to hold water.

Nonetheless, homeowners should check to see if their homeowner’s insurance policy provides coverage against explosions. If the government determines that the explosion aboard the Deepwater Horizon oil rig resulted in the spill, a homeowner with an oil-damaged home could possibly find some relief through this “explosion” coverage.

Interruption of Business

The Federal Oil Pollution Act of 1990 clearly marks BP as the party responsible for the Deepwater Horizon spill, liable for clean-up costs and for damages resulting from the oil’s release.

The $20 billion escrow fund and claims process does not preclude any aggrieved business owners from subsequently suing BP in court for damages. Nor does it exclude business owners from seeking relief through their insurance policies.For many businesses, their first party property insurance would provide the primary relief. In addition to the loss of or physical damage to property, a property policy that includes “business interruption coverage” may cover financial losses due to the inability to conduct business.”Business interruption coverage is usually found in ‘all risk’ and package policies,” Wittmer explains. “Business interruption insurance indemnifies policyholders for economic losses caused by the destruction of the policyholder’s building, or plant, or parts of one. In many policies, unless there is direct physical loss to the property, business interruption coverage may not apply.”

However, the loss or damage causing the interruption need not be loss or damage to property of the insured. Such may be the case with the destruction of the oil rig operated by BP. Policyholders should look for specific types of business interruption coverage in their policies. “Contingent business interruption coverage” focuses on the interruption to the policyholder’s business because of the loss of another. The inability to get a supplier’s goods, for example, might prevent a business from bringing its product to the marketplace. Consider the possibilities of disruptions in the supply chain of a regional seafood industry: fishing is banned in parts of the Gulf, fishermen can’t supply seafood processors, and distributors can’t supply restaurants and stores “Order of civil authority coverage” claims could qualify some businesses for mitigation of lost income. This scenario involves a government directive that denies a business operator access to its property because the property of others has been damaged or destroyed.

For example, after the Sept. 11, 2001 terrorist attacks, the government closed parts of Manhattan. Several businesses in the area sought coverage for business losses under an order of civil authority claim although there was no physical damage to their properties.Other business interruption coverage extensions include gross earnings coverage, which reimburses the policyholder for gross earnings minus normal expenses (profit) that the policyholder would have earned but for the interruption. Some cover extraordinary expenses incurred in dealing with the effects of this disaster, such as the purchase of a special generator to keep the doors open when power is lost This coverage can also apply to expenses incurred while operating the business from a temporary location.

Documentation Critical

To lay the groundwork for any claim, accurate documentation is critical. Insurance claims must include financial information documented prior to the oil spill. Compile several years of sales and related data.Right now, Wittmer advises, business owners should document the effects of the spill on sales. For instance, an hotelier should detail cancellations and document the reasons for them, including correspondence from would-be customers. “If this disaster reaches your property, document with photography and videography: oil slicks, tar balls, injured wildlife,” he says.”The right to coverage will depend on your business and homeowner policies and the impact to your property or business,” Wittmer says. “But, considering the enormity of
the Deepwater Horizon disaster, you should act immediately to investigate and protect your rights. Don’t hesitate to call us at Wittmer & Linehan if you have any questions regarding your rights.”