Superstorm Sandy wreaked havoc across the Eastern Seaboard and is predicted to be one of the costliest natural disasters in U.S. history. New York’s Governor Cuomo estimates that the storm may have had a $50 billion impact on the northeastern states in damage and economic loss. Particularly because a major Nor’easter followed right on Sandy’s heals, businesses throughout the region suffered significant property damage and lengthy business interruptions.
But Sandy’s wrath may not have ended there. If Hurricane Katrina is a good model, Sandy’s direct property damage and business interruptions may be exacerbated by future environmental harms that will require costly environmental cleanup well after the flood waters subside. Companies should be aware they may be able to rely on existing insurance policies to cover these costs.
Secondary hazards from Superstorm Sandy may remain for months after the flood waters have been pumped out. Numerous communities reported that Sandy caused thousands of gallons of raw sewage to pour out from overwhelmed treatment plans into the Long Island Sound. The storm also may have affected open-air impoundments that store millions of gallons of toxic fracking waste and sludge. The humid conditions that Sandy left in many buildings could result in the growth of mold or other environmental risks. And, asbestos, which previously had been encapsulated in building materials, may deteriorate if the encapsulating materials became wet, causing deterioration that could allow asbestos to become friable and requiring environmental redress.
Companies may have coverage for these costly hazards under one or more of their commercial insurance policies. These policies may provide coverage for, among other things, the costs of cleaning up the environmental impacts, and/or property damage and business interruption resulting from those impacts. Companies also may have coverage under general liability or other policies for third-party claims alleging tort liability for environmentally-related property damage.
But watch out – these policies may contain exclusions for certain or all of these hazards, including express and broad exclusions for damage arising from mold, bacteria, and asbestos. As Sandy is expected to provoke four times the number of insurance claims as last year’s Hurricane Irene, policyholders reasonably should expect that insurers will try to invoke all possible exclusions. Policyholders should prepare now to counter the insurers’ likely coverage defenses, and they should recognize where they have strong counterarguments. For example, multiple causes of an accident may trigger coverage even if one of the causes is excluded. Companies should review their policies carefully, with insurance counsel if needed, and take steps to preserve and pursue all available coverage.