Historic Rainfall in South Carolina Leaves Questions about Insurance Availability
Much of South Carolina was inundated with more than 20 inches of rain between September 30 and October 5, 2015. News outlets have reported that more than 20 rivers flooded and at least 12 dams collapsed resulting in the closure of more than 300 roads and bridges for nearly two weeks, including portions of Interstate 95. While Interstate 95 has reopened, it will take much longer to evaluate and repair the damage to South Carolina’s infrastructure.
As with most weather events of this magnitude, loss of life is the most devastating impact. It is reported that 19 people died in South Carolina as a result of this storm, which experts have deemed to be a “thousand-year flood event” (meaning that in any given year there is a 1-in-1,000 chance of that much rain falling). Additionally, as South Carolina attempts to return to normal over the next several weeks, the extent of damage to homes and businesses will need to be evaluated. Some estimates say damage will exceed $1 billion. South Carolina farmers, heavily impacted by this storm, were already looking at reduced harvests because of a withering summer drought, and now forecasters predict their harvest will be even lower by approximately an additional 20 percent.
Administration Declares Much of South Carolina a Disaster Area
On October 6, 2015, President Obama issued a disaster declaration for much of South Carolina that will provide federal aid to supplement state, tribal and local recovery efforts. Assistance can include grants for temporary housing and home repairs, low-cost loans to cover uninsured property losses, and other programs to assist individuals and businesses. As the nature and extent of damage is determined, it is likely many homeowners and businesses will look to their insurers to provide coverage for their losses. Those without flood insurance will be left to assert claims against their business owner and homeowner policies.
In addition to property damage, many businesses will have losses resulting from the inability to operate normally as a result of damage to their property. Business Interruption coverage typically reimburses the policyholder for profits that would have been earned but for the interruption of business, less expenses that were not incurred while the business was not operating. Coverage is generally provided only when physical loss or damage to the insured property caused by a covered peril results in interruption of the insured’s business. Therefore, a determination that the property damage was caused by a covered cause of loss will be the first step in analyzing business interruption claims flowing from this event.
Contingent Business Interruption coverage also may provide coverage for companies that did not suffer direct physical loss or damage, but were impacted because companies that supply them sustained damage and were unable to meet their delivery obligations. In addition, issues may arise regarding the calculation of lost earnings when the business struggled immediately prior to the loss, when the business is subject to seasonal fluctuations, or when records regarding the business were destroyed in the loss. Coverage is usually limited to the period of time it would take a diligent policyholder to return to business or a set time stated in the policy and disputes can arise regarding the amount of time taken by the insured to resume “normal” operations.
Standard Business Interruption coverage typically includes Civil Authority coverage for business income losses caused by an insured’s inability to gain access to their property as a result of a government mandate. The prohibition of access by the civil authority generally must be the direct result of physical loss or damage to property away from the insured property. Additionally, the action of the civil authority must be mandatory and not simply a request or recommendation.
Commercial and Homeowner policies often contain exclusions for water damage caused by flood and surface water. South Carolina also employs an efficient proximate cause analysis when determining coverage for a loss that may have been caused by a combination of covered and excluded perils. Coverage will exist for a loss if the covered risk was the efficient proximate cause of the loss and the excluded risk was only a remote cause of the loss. Coverage will not exist if the excluded cause of loss, such as flood, was the proximate cause of loss.
South Carolina Courts also enforce anti–concurrent cause provisions. A standard anti–concurrent cause provision provides (1) that coverage does not exist for loss or damage caused by specifically identified perils and (2) that loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. Flood is generally one of the perils specifically identified in an anti–concurrent cause provision. As such, coverage issues may exist for loss or damage when flood is not the efficient proximate cause, but one of a number of contributing causes.
Based on the amount of rain involved in this event, there is a high probability that claims for mold damage will be submitted. Some policies contain absolute mold exclusions that would preclude coverage. Other mold exclusions would need to be examined to determine whether mold that was an ensuing loss caused by a covered peril may be covered.