A Texas judge has ruled that Hunton Andrews Kurth is entitled to coverage from Great Northern Insurance Co., a unit of Chubb, Ltd. (“Chubb”), for losses its predecessor firm suffered when Hurricane Harvey closed its Houston office and disrupted business in 2017. The decision illustrates that law firms, like businesses in virtually every other economic sector, including the labor and employment industries, are susceptible to widespread damage caused by storms and other natural disasters.  The decision also stands as a reminder that businesses must be ready to enforce their right to receive the benefit of their insurance when a covered loss occurs.

Hunton’s case centered on the duration of coverage for Hunton’s post-storm diminished business earnings.  The court agreed with Hunton’s position that the policy covered its business income loss for as long as it took to restore the firm’s operations to their pre-loss levels.  The court rejected in its entirety Chubb’s argument that coverage lasted only until the physical damage that closed the building had been repaired.  Rather, siding with Hunton, the court found that the policy language affords, in addition to ordinary business income coverage during the damage period, “extended period” coverage that commences after the damaged property is repaired and after the firm’s operations resume.

From August 27 to August 31, 2017, the firm was forced to close its Houston office due to flooding and damage caused by Hurricane Harvey. While employees were permitted to return to the office on August 31, income did not return to its pre-loss level until September 14, 2017. The firm submitted a claim to Chubb for the loss sustained from August 27 to September 14, but Chubb paid only for income loss suffered during the 3-day closure period, and refused to cover the loss suffered after the building reopened.

Chubb argued on summary judgment that loss sustained by Hunton after the building reopened was not caused by “direct physical loss or damage” under the terms of the policy. Hunton responded explaining that Chubb ignored the policy’s “extended period” provision and that by doing so, Chubb imposed an absurd standard on Hunton that does not exist under the plain language of the policy.  Under Chubb’s position, Hunton argued, the firm would effectively have to resume business operations at pre-loss levels instantaneously, the moment repairs are completed, thereby defeating the purpose of the “extended period” coverage.

The court’s decision is a significant win for all policyholders, including employers, whose businesses have been affected by Hurricane Harvey and other hurricanes like Michael, Maria and Irma.  In the wake of widespread damage and business interruption, insurers search for reasons to not pay claims.  In instances like this, it is particularly disingenuous for an insurance company to contend, after the fact, that any extended interruption is the result of damage in other parts of the city, thereby putting the burden of proving causation on the policyholder.  Such a burden may be difficult to meet, especially in the aftermath of a devastating storm.  Where an insurer agrees to cover damage and financial loss resulting from hurricanes, it should cover the loss caused by the hurricane and not contest causation after the storm, especially where, as here, the insurer already conceded that physical loss occurred to covered property.