Business interruption insurance claims could account for half of the commercial losses from Katrina, but many owners are still struggling to get payments
WORLD, INTERRUPTED
September 17, 2006
by Rebecca Mowbray
When the twin towers of the World Trade Center came down in the Sept. 11, 2001, terrorist attacks and the surrounding area of the city was destroyed, New York lost an expensive piece of real estate, costing the insurance industry billions.
But what may come as a surprise is that the largest single source of insurance payout in the terrorist attacks was not the property claims, but business interruption insurance.
In today's dollars, business interruption payouts made up $12.1 billion, or 33 percent of the $35.6 billion in total insured losses from the world's costliest terrorist attack ever, according to the Insurance Information Institute. By contrast, the World Trade Center towers and all other insured property combined cost $10.6 billion, or 30 percent of total damage.
Perhaps more surprisingly, business interruption claims from Hurricane Katrina will be in the same ballpark as those from the 2001 terrorist attacks on the financial centers of New York and Washington, because of the long path to restoring a city that was completely shut down.
Business interruption claims from Katrina are expected to cost about half of the $20.8 billion in commercial losses. The figure is all the more stunning when one considers that flooding does not trigger business interruption coverage, so the thousands of small businesses that were displaced by flooding probably wouldn't be eligible for business interruption claims.
In both New York and New Orleans, the issue is the complete shutdown of a commercial area and the long road to rebuilding.
"It's because restoring the destroyed property is going to take so long," Finley Harckham, a New York attorney whose firm, Anderson Kill & Olick, is working on both Sept. 11 and Katrina business interruption claims. "The BI claims are shaping up as the most contentious issue for businesses" after Katrina.
The terrorist attacks refined and developed a body of law surrounding the duration of business interruption claims after the many small service businesses and retailers located at the towers argued that the unique sales environment of the bustling transportation and commercial center could not be duplicated elsewhere, and that payments should continue until the World Trade Center was rebuilt. Some suits still are being litigated.
Similarly, in New Orleans, many of the disputes will tackle the question of when a temporary location becomes the new permanent location, and when an insurer's responsibility should end. In many cases, the length of time that businesses are away from their original premises may be related to difficulty repairing the property because of slow payment or disputes with their insurer over property claims. "This is shaping up as a big battleground," Harckham said.
Louisiana Insurance Commissioner Jim Donelon said he thinks many of the insurance claims that are still in dispute — or possibly, now in court — are business interruption claims.
United Policyholders is a non-profit organization founded in 1991 and dedicated to educating the public on insurance issues and consumer rights. UP publishes educational materials and serves as a resource for individual and business policyholders and residents of communities with insurance problems. UP’s Amicus Project provides information to courts of law to support policyholders’ legal rights. UP unites policyholders and their advocates by sharing information. Write to UP at 110 Pacific Ave., PMB 262, San Francisco, CA. 94111, call us at (510) 763-9740, or visit our website at www.unitedpolicyholders.org.
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