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Emerging Litigation Podcast
Wildfire Insurance Coverage for Homeowners and Businesses with Anderson Kill
00:33:55
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- [00:04]
A
Welcome to the Emerging Litigation Podcast. I'm Tom Hagee, longtime litigation enthusiast, editor, publisher and now podcaster. I'm founder of HB Litigation, which is now part of Critical Legal Content, a business I founded in 2012 to serve as a content marketing department for law firms and litigation service providers. And now here's today's episode. If you like what you hear, please give us a rating. If you want to reach me, please check out my contact information in the show notes. Well, in this episode, which we wanted to get out quickly, we wanted to talk about the insurance coverage aspects of the devastating wildfires still burning in in the Los Angeles area, currently one of the most devastating wildfire seasons in recent history. As of this moment, which is today's January 16th, these wildfires have burned more than 60 square miles, claimed at least 25 lives and just as many people are missing. At least 12,000 structures have been destroy tens of thousands of people been displaced. They're already putting the economic impact of the fires at between 135 billion and 150 billion. Our hearts go out to all the many people in Southern California today. I did want to get something out quickly to talk about insurance aspects both for homeowners and commercial policyholders. And with me to do that are three folks from Anderson Kill, which is a well known insurance recovery firm that we've been around forever. Gene Anderson and was a founder, was the founder. And with me are Dennis Ortiz. He's a shareholder at the firms in the firm's New York office. He's chair of their climate change and disaster recovery practice. With him is Marshall Galinsky. He's also a shareholder. He's located in their Boston office and he practices also in the insurance recovery and commercial litigation groups. He's also a member of the firm's restaurant, retail and hospitality group, which is relevant in this context, as you'll see. And finally, Josh Gold as a shareholder also in the firm's New York office. And he's chair of the firm's cyber insurance recovery group and co chair of the Marine Cargo Insurance group. But he's also handled coverage in the areas of directors and officers insurance, business income and property insurance. We're going to talk about giving you kind of an overview the scope of coverage, analyze some of the limitations there might be, importantly how to navigate the claims process and preserve insurance rights and then dive into business interruption. So with that, here are Dennis Ortiz, Marshall Galinsky and Joshua Gold of Anderson Kill. Hope you enjoy it. And as I said, so let's just jump right into it. If we could kind of set the stage with some, a general discussion about the types of damages and losses that are typically covered under, under policies. We can talk about homeowner and commercial property policies in the context of wildfires. So who can kick us off to understand the scope of coverage involved here.
- [03:10]
B
Either?
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A
Marshall.
- [03:10]
B
Josh, do you want to take the commercial? I can take the homeowner part of it if you'd like.
- [03:16]
C
Sure. So from a commercial perspective, there's two main components to what's covered. One is the damage to property that's physically damaged itself. The other is business interruption losses that result in the wake of physical damage. And that business interruption loss is not limited to circumstances where the business owner's own property is damaged, but it's also kicks in, in situations where there's losses to suppliers or customers that affect the productivity of the business itself. And then of course, and we'll talk about this. I'm sure there's the question of whether interruptions to business that a result of smoke related issues constitute physical loss or damage that triggers coverage. The answer to that is yes. And that's an important, a really important topic that I'm sure we'll delve into.
- [04:14]
D
A little more deeply.
- [04:15]
A
Yeah, we'll get to that one too.
- [04:18]
B
Yeah. On the, just to further to the commercial losses, Marshall's right. The two main components are building and business interruption. You also have your business personal property that's going to be covered and there'll be damage to your business personal property and there literally be dozens of additional coverages that you have to look at very closely. Building an ordinance or law and ordinance, excuse me, coverage that's going to be important in a lot of these cases where your building is built, you know, a certain amount of years ago. It's not up to code. The extent of the damage is significant enough where you're going to have to substantially rebuild that building. Now there's going to be all new sorts of codes in place and you're going to need coverage to comply with those increased costs of building because of the code requirements. Things like debris removal, the list goes on and on. But you really have to do a careful review of the literally dozens of additional coverages that may be available to you for these losses. You know, the homeowner side, it's, it's similar. Right. You have your dwelling coverage. There may be a separate limit stated for other structures, things like detached garage sheds, other other structures that are on your property. You'll have your personal property coverage just like you would in a commerc context and the sort of homeowner equivalent of business interruption could be thought of as loss of use or additional living expense. And that will probably be the most important coverage immediately for homeowners who have lost their homes in this terrible tragedy. That's going to pay essentially to maintain your standard of living while your home is being rebuilt so it'll pay for your food and your shelter. Ideally, you would get, you know, they would get you a rental, a comparable rental. That's going to be very difficult to find at this point. In the most near term, you want to get into a hotel probably, if you can't live with family, get into a hotel, maintain your receipts, any kind of food expenses that you incur because you couldn't cook at home, make sure you're keeping close track of that and submit those to your insurance company. And, you know, if you are living with family, it's probably a good idea to enter into a lease with them so that you have some documentation as to costs incurred for that expense that should be covered.
- [06:43]
A
Gotcha. Okay. You know, I was chatting on a completely separate issue and you know, there are people who actually who have lost their lives in this. And the estate lawyer I was talking to said, you know, she started kind of like, what, what would I want to happen? And she just. In that area of law, she said it would be important to have your life insurance go into a trust so your family will. Won't be delayed in getting and getting funds like that. But that's just a side note that I throw in there after happening to just be speaking with an estate lawyer about that. So next. So what about limitations? Are there. What kind of limitations might people expect that would affect their coverage?
- [07:30]
D
So I. I guess certainly on the home side, homeowners may be looking at sub limits for certain types of property, electronics, jewelry, fine arts, any kind of special or customized furnishings, furniture and the like. So they should be aware of that. It's. It's worth noting that, you know, for both businesses and for individuals, they may not have, at this time of crisis, their insurance documents handy. It may be due to the fact that they went up in flames. It may be that they've been displaced by civil authorities so they can't enter their premises even if their premises are still standing. And another issue, of course, may be that they may have just renewed their coverage and not received their new insurance documents. At Anderson Kill, we've seen situations where policyholders aren't given their full formal documentation. Weeks, months, sometimes years after binding coverage. So it's A long way of saying that policyholders will want to get their insurance documentation as soon as they can. If they don't have it handy, they can certainly request the insurance agent, an insurance broker, or even the insurance company itself to furnish that documentation. That should give you a good handle certainly on what sub limitations may be imposed into the policy. But it's certainly a good thing to look at and just to really echo the points that Dennis and Marshall made about looking at the coverages they have. One thing to remember in all of this is not to make any categorical assumptions about what is covered, what is not covered. There's a lot of variation on the property insurance side, even more so I would argue in the commercial space. So if you're a policyholder and you get your insurance on a broker form, there are likely to be far more bells and whistles and very broad grants of coverage. Whether it's on the PD side or it involves time element coverage like business interruption. And even in the individual homeowner space, there's some insurance companies that tout that they sell to high worth individuals and therefore sell a more robust package of policies. But again, try not to assume anything. Take a look at what the policies provide and try and obviously get as much coverage as you can as quickly as you can.
- [10:23]
B
Yeah, in terms of limits, I think you know, in the commercial sense when you, your, your policy will have a dollar value limit for your building coverage and in most policies, commercial policies, that's the limit. I have seen some, with some margin clauses or escalation clauses where if you, you know, inadvertently understate your the cost that it would require you to, to replace the building, they will allow some type of margin or a cushion on top of that limit may. So you have to read the policy in the homeowner context, you see more of that and it depends what type of, what type of coverage you purchased. On the building side or the dwelling side, you could have just actual cash value where you're going to get paid just the depreciated value of the building at the time of the loss. You don't actually even get the replacement cost coverage. If you have replacement cost coverage, they'll pay what it costs to replace, but only up to the stated limit. You may have enhanced replacement cost coverage that allows you some cushion on top of the limit. That stated, again, it could be 25%, it could be a dollar amount. So you have to look at that very closely. Some policies, you may even have a guaranteed replacement cost coverage. So if your homeowner's policy says you have a limit, a dwelling limit of $1 million. But you have an endorsement for guaranteed replacement cost coverage. Now you could just throw out the million dollars. If the costs actually exceed a million dollars to replace it, then that's what you get. So you know, you have to look at the coverages very carefully and the limits that are stated there.
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A
Okay. And Josh, you mentioned you know about documents and things going up in flames. I guess increasingly people are probably putting more and more on the clouds. Not everybody but. So they could access things later I would think. You know, I'm a guy who can't find his wallet half the time. So trying, trying to find documents like that. I know a lot of our documents because my wife is actually organized are up. Up on SharePoint or Google Drive or somewhere. See, I don't even know where they are exactly. So jump next into. Hold on a second. We wanted to talk next about, you know, this. These are very practical and important aspects of navigating the, the claims process. You know, for effectively managing and negotiating these claims related to the to fire damage, including documentation, as I just mentioned, dispute resolution and communication and, and preserving your insurance rights. So who can kick off the discussion about the claims process?
- [12:57]
B
Happy to do it. Unless one of you guys want to talk. No Marshall here. We'll hear from you on the smoke. Bi.
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A
You don't want me doing it.
- [13:05]
B
Yeah, so. So the most important thing first and foremost is to provide notice. Right? It seems, seems obvious enough, but there's all property policies typically require prompt notice of the law. So make sure you're reporting that to your insurance companies. You could do that through your insurance broker. Just explain that you have a loss and that you need to report it to all potentially applicable insurance companies. The next thing you need to do is they'll assign a claims adjuster. You know, this is a tragedy obviously of epic proportions. Insurance companies are going to be spread thinly. The representatives will be spread thinly. The adjuster you have today may not be the adjuster you have three weeks from now. It's going to be a trying and difficult process. So make sure you have as much of your communication in writing as humanly possible. You should be documenting everything that is occurring and everything that is not occurring on the loss. Right. You should demand and expect responsiveness from your insurance company. The fact that there are, you know, hundreds of thousands of people that have been affected by this is no excuse. They have obligations to adjust claims promptly and fairly and you need to hold them to that. And the way you do that is document everything in writing. Again, everything is happening and not happening. In the coming weeks, you will need to be documenting your loss. Right. So that might include, and I would strongly urge you to consider hiring a reputable public adjuster to serve as your advocate, that is, someone who will prepare the claim on your behalf, present it to the insurance company and fight for you. The insurance company will hire what they call an independent adjuster. In my experience, they're anything but independent. They work for the insurance company, they're beholden to the insurance company. So you want representation on your side, or at least it's something you should strongly consider. Public adjuster can help people put together the darling claim, the or in the commercial sense, the building claim, the personal property claim, the business interruption. They will facilitate all of that. And it's something to take it off of your shoulders and have a trained professional who knows the policy and knows the different coverages available to you to put together that claim. You'll present the claim, you'll file a proof of loss. Pay very close attention to your policy language as to when a proof of loss is required to be filed. Sometimes it could be 30 or 60 days from the loss. And it's very important that if you're not, if you, you know, if you're not going to meet that deadline, at a minimum, you get an extension in writing agreed to by the insurance company representative or you file a partial proof of loss, 30, 60 days, you likely will not know the extent of your loss. So you want to put in a partial proof of loss to have met that requirement and make very clear in there that other additional amounts are to be determined and that it's without prejudice of your right of recovery for an additional amount under the policy. Other things to be aware of. Sometimes there is a deadline by which you must give notice of your intent to rebuild that might be six months from the loss. There may be a deadline by which you need to actually replace your damaged property. That could be 18 months or two years. Read your policy very closely because it varies and make sure you're complying with that. Again, to the extent extensions are needed, make sure you're getting them in writing. The most important, one of the most important deadlines you need to concern yourself with is any suit limitation in the policy. That is basically a contractual limitations period in which you have to sue the insurance company. You know, general statute limitations, maybe three years, six years. These are much, much shorter. And they're by contract. And they, some of them say you need to sue within A year of the loss. I think California has a statute that extends it to two years, but you want to check that to be in, in the, in the context of fire losses like these, I believe it's extended to two years under Florida in the. Excuse me, under California law. But you want to be very careful to make sure you're complying with that. Otherwise, document your loss as fully, thoroughly as possible. Don't wait for the insurance company to prepare their estimates and tell you what they think it's worth. You know, do what you need to do to get the building laws valued. The business interruption was valued. Present it to them. And if you can't get agreement, you should consider filing what we call a hostile proof of loss, where you don't necessarily have an agreement with the insurance company on the amount of loss yet. But in order to get them to, you know, accept or deny or take some other action with respect to your loss, you have to file that proof of loss. At that point, they then have either 30 or 60 days to respond to it. And should they reject it, then you need to know you need to take the next step. And those next steps could be some sort of alternative dispute resolution, maybe it's mediation, maybe it's an appraisal process to get valuation issues worked out. Or it could be litigation.
- [18:37]
A
Yeah. From a human and practical standpoint, if I could pause for a second, I mean, just, you know, a friend sent me a photo of her house. I mean, she literally was watching it burn during the day and then the later ones were just embers at night. And you know, she's got a full time job, she's an attorney working in house at a big company and she's got children. And then just like suddenly having this new project to take all the things you're saying, I mean, if you think about all the things you're supposed to be doing in life, suddenly you listed just a whole bunch of things that somebody's in charge of. And I guess I don't know how a person does it, how an individual navigates it. At a company. I'm assuming it would be like a risk manager or someone, you know, who's. This is what they're built to do. Is that, that accurate?
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B
Yeah. Risk management or misradinger, cfo, general counsel. Combination, typically. Yeah, yeah, yeah.
- [19:32]
A
And it's just the business interruption part of it is interesting. I mean, there was supposed to be a big hearing in the, in a antitrust case by Elon Musk against OpenAI and Microsoft. It was this week. Musk's attorneys lost their offices in the. In the Palisades fire. And so that's, you know, so that's been postponed. So just like a busy law practice, like many busy practices. I just. I don't know. I don't know. I have a. I don't have a question other than like, how do you get through it, you know.
- [20:03]
B
Yeah. And, you know, on that point, Tom, you think about the homeowners that lost all their possessions, right. And what a difficult process that will be for them to go in and itemize all of their personal property losses.
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A
Right.
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B
Just incredibly trying and difficult process. And some of it will be by memory, some of it will be by, you know, to the extent you have video or photographs to try to piece all that back together, but there's just this huge emotional component to it that, you know, should be considered as well. And again, to the extent you can get some assistance to help you through that and probably makes. It makes good sense to do that.
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A
Yeah.
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C
Don't answer your question. How do you get through it? I mean, don't underestimate the power of human fortitude.
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B
Right.
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C
I mean, I've talked to people there, and, you know, for the most part, the people I talk to are determined people. You know, they know what's happening to themselves, to their families, to their businesses, and they're laser focused. You know, the people I've spoken to know exactly what they need to get done, and they're determined to get it done. And. And trust me, I can speak, I think, confidently for Josh and for Dennis when I say that determination is essential when you're processing these claims and working with insurance companies. What Dennis said before, I mean, all of his advice about all the documenting everything, and just want to emphasize one thing he said, because the adjuster that came out to your play at your business or your house this week may not be the adjuster that's coming out three weeks from now. If you've documented everything, you don't have to get jerked around by someone saying, oh, sorry, I. I'm new to this. I don't know what's going on. You drop that file on them and you say, well, welcome to the file. Here's everything that's happened. We're moving to the next step. That's the determination that it takes. And I believe that the people in Southern California have exactly what takes to get it done.
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B
Sure, you're right. And.
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D
And Tom, since insurance is supposed to be that lifeline that allows you to recover financially, your, you know, rebuild your shelter, all of those things, your business, it's. I know people during this kind of heartbreaking time of crisis are understandably distracted, distraught, and every other emotion you can think of. But dealing with the insurance bureaucracy is part of the job. And to Marshall's point, whether people have that determination or they don't, they. They have to go through this process because the insurance claims process can be very unforgiving for people who miss deadlines, even during something as catastrophic as this. So we have seen so many courts uphold the fine print, deny coverage on the technicality. So to the extent policyholders can position themselves, even if it is like finding another hour in the day that they don't have, it's so essential to do just to avoid calamity down the road, to add insult to injury.
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A
Okay, well, thank you for that interruption, but I couldn't help but think about that as, as you were talking. So why don't we move next to more about business interruption. Marshall, you mentioned it earlier, business interruption and, and smoke damage and things like that. So what can you tell us about those kinds of claims?
- [23:44]
C
Yeah, so there's a, there's a history of precedent that goes back for a while. How to frame this. In order to trigger property insurance coverage, you need to have direct physical loss or damage to property, either your property or property, someone else's property away from you, if they're a supplier or a customer. The question arises when it comes to smoke. Well, is smoke and soot and ash damage to your property that triggers coverage? The answer is yes. You know, a well known case from 2016 in Oregon held that wildfire smoke that disrupted performances at a, at a theater for a Shakespeare festival was physical loss or damage that triggered coverage for the business interruption that resulted from those nearby wildfires. The theater did not catch on fire, but when the winds were blowing toward the theater, it was too smoky to have performances. And the court held in that case, it's called Oregon Shakespeare, the court held that that is a covered business interruption loss.
- [24:53]
B
Okay.
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C
We saw during, in the wake of the COVID pandemic that insurance companies responded to the pandemic by saying that Covid doesn't cause the requisite physical loss or damage to property. And by and large, they were successful in pressing that argument, including in the Supreme Court of California. But it's notable that the Supreme Court in California in deciding that case, looked to this precedent of cases like smoke, which has been held to cause physical loss or damage. And they said Covid is different from smoke.
- [25:26]
B
Right.
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C
Again, confirming that damage caused by smoke is covered. But the Supreme Court of California held that damage caused by Covid is not covered.
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B
Right.
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C
Fast forward to these wildfires and the terrible disruptions that smoke has caused to so many businesses in the area of those fires. Those losses continue to be covered. And ironically, coincidentally, this Friday, this past Friday, a federal district court judge in San Francisco issued a ruling, a summary judgment ruling on a case that involved wildfire smoke damage from some 2017 wildfires in Napa. And what the court said in that case was that, yes, smoke does cause the direct physical loss or damage required to trigger business interruption coverage under a standard property policy. And the court, interestingly, the court even cited to the California Supreme Court's decision in the COVID case to make the point that I just made a second ago, that if smoke was covered before and Covid is different, then smoke continues to be different from COVID and it does trigger coverage. The timing couldn't be better for businesses in Southern California to show their insurance companies and to convince their insurance companies that the losses that I'm suffering now because of smoke related interruptions is something that's covered under my policies. And anyone who's being told by an insurance company adjuster or someone that they're hearing on tv, speaking for the insurance industry that smoke doesn't cause physical loss or damage should ignore that, that feedback. That's wrong. And the judge in California said on Friday, that's wrong.
- [27:14]
A
Okay, I. I assume you're writing something about this.
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C
So it's funny because I wrote something about smoke related indirect losses last Wednesday or so. We put that out. And just like clockwork, the judge's order came down on Friday, basically completely validating what I had said in the article that went out.
- [27:36]
A
Okay, we'll put a link to it. What's the name of the case?
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C
It's called Bottega versus Chicago. Came out of the Northern District of California, January 10, 2025.
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A
Okay. All right, I'll grab and go ahead.
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B
Yeah, yeah. Our partner, Cor Malone, who, you know, is also doing an article on this very subject as well. Should we.
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A
Okay, good. We'll look for that. Was there anything else you wanted to say about business interruption? There were some other. Other points that have come up before. I know, I remember from the COVID issues around contingent business interruption, civil authority, things like that.
- [28:20]
D
Yeah, I was just going to say. And then, Dennis, please feel free to follow up on it. I think that again, this hearkens back to the issue of looking at your policies, knowing that not all policies provide the same insuring agreements. So do take a look and see how your policies provide for time element losses. You know, business interruption, AKA business income coverage, is typically one variety of coverage and probably the main one that has usually the largest limit of coverage attached to it. But there are other time element coverages out there, and you know, along the lines of what you just mentioned, civil authority coverage is destined to be rather relevant to what has transpired in Los Angeles County. Certainly there are other coverages like ingress egress coverage, contingent business interruption coverage, where you yourself have not had property damage, but property of someone in the commercial stream of commerce who you're dependent or relying upon may have. So there are lots of different coverages to take a look at. Service interruption coverage is another. So multiple coverages may apply to a business claim. And certainly it's worth, you know, coming up to speed on what coverages you've purchased and what the limits are. Some of these more exotic time element coverages may have a sub limit. And I believe almost all of the time element coverages usually have a deductible of some variety, usually expressed in hours, but again, that can vary policyholder to policyholder.
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A
Okay, real good.
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C
One other, one other thing just worth mentioning, and this is kind of an interesting take on it, but attraction property coverage. Attraction property coverage is designed to compensate a policyholder whose business basically depends on other properties to attract business to their, to their location. So I think about hospitality businesses in this environment. It basically, Los Angeles is on fire. And if you have a hotel in the San Fernando Valley and you've got what basically fires on one side of you and fires on the other side of you, that's damage to basically what attracts people to your business, that is your community is on fire, that, you know, you never really seen anything quite like that. I had a case once for some hospitality companies that lost money because of landslide damage on the Pacific Coast Highway. And of course, people driving up and down the Pacific Coast Highway, Highway 1 is an attraction to that region of the country, people that drive from LA to San Diego. And that was an interesting case. So I think it's important for people to really look at their policy carefully. As Josh and Dennis said, think of all the different extensions of coverage in there and ask themselves, how have my business been affected in a way that triggers any of these coverages?
- [31:48]
B
And the broader point here is just if your business itself did not actually sustain physical loss or damage, that does not mean that you're not entitled to coverage. You may not have suffered any damage. But if you Lose business. If you lose revenue or profit because of damage in your surrounding area, there may be a coverage under which you could recoup those lost profits.
- [32:14]
A
Okay, good. That's all I had. I'm going to end it there. Unless you guys had anything else you wanted to add. Okay, well, good.
- [32:23]
C
All I would say, Tom, and you know, really from the heart and speaking on behalf of all of us, it's hard to watch the devastation that continues to unfold in la, but it's important to know that there is a community, and I think people in LA know this. It's important to know that there's a community across the country that is watching and feeling and caring about what's going on, and that we're here to help. I think we've. There's just been an outpouring of support in so many ways from people around the country. We are these insurance geeks who happen to know a whole lot about how to. How to move insurance claims forward. So we're happy to help in that way, but we're there on an emotional and just support level also because we watch these catastrophes all the time. And it's important for everyone to know that there's people, people around the country that are committed to helping.
- [33:14]
A
Real good. Well, that's a good ending. Thank you for that. All right, thank you guys for pulling this together so quickly. I want to get it out as fast as possible, so I'll let you know.
- [33:22]
B
Thanks.
- [33:23]
D
Thanks, Tom. Appreciate it.
- [33:24]
A
Thank you, guys. That concludes this episode of the Emerging Litigation Podcast. I'm Tom Hagee, your host, which would explain why I'm talking. Please feel free to reach out to me if you have ideas for a future episode. And don't hesitate to share this with clients, colleagues, friends. And if you feel so moved, please give us a rating. Those always help. Thank you for listening.