January 2015 Bar Bulletin
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January 2015 Bar Bulletin

Don't Let Your Insurance Company Freeze Your Coverage

By James R. Murray


The so-called "polar vortex" of frigid air that swept the United States in early January 2014 and then again in November (including throughout most of the Northwest) was blamed for several cold-related deaths and shattered low-temperature records that in some cases had stood for more than a century.

The polar vortex is a wind pattern that typically circles the Arctic, keeping extremely cold air centered near the North Pole. The occasional Arctic blasts into North America caused economic damages for numerous businesses, including a costly halt to the aviation and hospitality industries. Several businesses experienced major losses resulting from freezing water and fuel pipes. Preliminary estimates indicate that the polar vortex will cost the U.S. economy approximately $5 billion in 2014 alone.

Many businesses may have a valuable asset available in the form of property insurance that can play an important role in helping recover losses stemming from the polar vortex. This insurance may provide coverage not only for physical damage to and loss of property, but also for economic losses arising from an inability to conduct business at the same levels as before; the extra expenses incurred in dealing with the effects of the extreme cold, including expenses incurred in advance to minimize or mitigate any damages and losses; and the costs incurred in establishing the extent of the losses.

Businesses pursuing claims for polar vortex losses may have to assess coverage issues that insurers are likely to assert. The following are some key examples.

Physical Damage

First-party property policies generally provide insurance for "direct physical loss of or damage to property." An "all-risk" property policy insures against all risks of loss unless specifically excluded. Traditional losses under first-party property policies involve tangible property, including buildings, permanently installed machinery or equipment, inventory and fixtures.

Most property insurance policies also insure personal property. This coverage usually is provided under an "unscheduled personal property" provision, which provides coverage for unscheduled personal property that is "usual or incidental to the occupancy of the premises" or "used by an insured while on the described premises." These policies or endorsements will cover a business's personal property, including products, supplies, materials, machinery and stock.

Property insurance may exclude intangible losses. However, some cases hold that if the property is rendered unusable, such as by freezing or the presence of contaminants, a first-party property policy may provide coverage.

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