Home > Property & Casualty > Law firms learn the importance of off-site power in wake of Sandy

Law firms learn the importance of off-site power in wake of Sandy

Tuesday’s AmLaw Daily highlights the significant impact many law firms have suffered since the arrival of Sandy.  The impact of the super storm is being felt all along the east coast and many firms’ disaster recovery plans are being put to the test. The advancements in technology in recent years have allowed firms to easily conduct business at remote locations, therefore the impact with such a storm to daily workflow is not given much attention.  In general, the idea is that if the office is closed, attorneys and other employees can just work from home by linking into firm servers remotely.  However with such widespread power outages impacting such a large region all at once, the revenue streams of many east coast firms are at risk.

The majority of losses for law firms will have two potential areas to recoup loss of revenues due to Sandy. The first is Business Interruption coverage (also known as Business Income Insurance or “BI”). Business Interruption covers the loss of income that a business suffers after an event while its facility is being repaired and/or rebuilt. The Property Damage section of the Property Insurance policy only covers the physical damage to the business, while the Business Interruption policy section of the Property policy covers the profits that would have been earned if the business had been able to continue to operate. This policy provision is designed to put a business in the same financial position it would have been in if no loss had occurred. BUT the Business Interruption insurance will only pay out if the cause of the loss is covered by the overarching policy, in effect direct damage to covered property.

A second area of potential reimbursement for loss of revenues is Service Interruption (or Off Premises Power) coverage.  When the lack of utility services such as incoming electricity, gas, fuel, steam, water, refrigeration or outgoing sewerage service causes physical loss or damage or business income/extra expense loss to the insured, there may be coverage available under this extension. Such lack of incoming or outgoing service must be the result of direct physical loss or damage to the premises or facilities of such utility provider AND must be the result of an insured peril such as flood.

We expect there will be several potential peril triggers associated with Sandy.  Potential peril triggers appear to be windstorm, flood, storm surge, sewer backup.  Since the industry is not consistent with the definition of these perils, it will be important to refer to your policy or your insurance professional.

William Gallagher Associates is a leading provider of insurance brokerage, risk management and employee benefits services to firms with complex risks and dynamic needs, within industries that include technology, life sciences, financial risks, health care, renewable energy & clean technology, and environmental services. WGA has offices in Boston, MA; New York, NY; Hartford, CT; Princeton, NJ; Columbia, MD; and Atlanta, GA.

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