Daily Archives: October 30, 2024

Hurricanes Helene and Milton: Evaluating Business Interruption Claims Following a Large-Scale Disaster

Storms like the ones that recently caused widespread devastation leave behind challenging questions about business interruption insurance coverage.

Takeaways

Quantifying a policyholder’s business interruption loss is a contentious issue in the wake of wide-impact catastrophic events.
Methods of calculating business interruption losses vary by jurisdiction and policy language.

Hurricanes Helene and Milton physically damaged large areas of the South, particularly in Florida, North and South Carolina, Georgia and Virginia. Businesses in the region are also certainly suffering long-lasting economic damage as they remain closed—and they will rightly want to secure business interruption coverage for those losses.

Following such disasters, one common dispute is whether the measurement of business interruption should account for the post-loss economic conditions of the impacted area. Under ordinary, non-catastrophic circumstances, the performance of a business prior to the catastrophe can be an accurate measurement for how that business would have performed if the damage had not occurred.

But the same may not be true following a wide-impact catastrophe. For example, resulting population shifts—such as an influx of temporary workers or an exodus of residents—can cause long-lasting changes in supply and demand for commodities and services. Construction supplies might be in higher demand than before the catastrophe as rebuilding efforts begin. A business that is able to open might boom if none of its competitors are similarly able to reopen. Consequently, measuring a policyholder’s business interruption loss is one of the most contentious issues to arise from wide-impact catastrophic events like Hurricanes Helene and Milton.

Two lines of authority exist for measuring a policyholder’s business interruption loss following a wide-impact catastrophe: the “economy ignored” and the “economy considered” approaches.

The Economy Ignored approach looks backward and measures the policyholder’s loss only against pre-catastrophe business levels; it does not consider the impact of actual post-catastrophe conditions on the economy, market or demand. Consider, for example, a full-service hotel attached to a convention center that had an 85 percent occupancy rate before a hurricane. The convention center suffered massive damage that required it to close for at least one year. As a result, after the hurricane, the hotel’s occupancy sank to 15 percent. The hotel asserts that the post-hurricane economy should be ignored, and that its business interruption claim should be based on its pre-hurricane occupancy levels, while the insurer posits that the post-hurricane levels should control.

The Economy Considered approach, on the other hand, seeks to place the policyholder in the position that it would have occupied in the actual post-catastrophe environment had it been able to continue its operations. Consider the same convention center and hotel. If the carrier construes its policy as allowing the economy considered measurement, the probable loss of business due to the convention center’s closure could be argued to limit the hotel’s recovery to what it would earn at a 15 percent occupancy. But the reverse could also be true. If the hotel had been operating at an 85 percent occupancy rate for the three years prior to a hurricane, but the influx of temporary workers would have caused it to operate at a 100 percent occupancy rate if it had been open, the hotel could claim full occupancy rates under the economy considered approach. Of course, the insurer would argue that doing so would result in a windfall to the policyholder, as opposed to putting the policyholder in the position that it would have been in had the hurricane not occurred, that is, an 85 percent occupancy rate.

Neither test consistently benefits a policyholder or an insurer in every situation. The outcome instead relies on the unique facts in each circumstance, and which method to use might be based on the particular policy language.

Although policy provisions vary, common business interruption provisions generally include something like:

In determining the amount of the Time Element loss as insured against by this policy, due consideration shall be given to experience of the business before the loss and the probable experience thereafter had no loss occurred.

Following Hurricane Katrina, some insurers inserted language in their policies that they argue reduces a policyholder’s ability to recover in certain situations. These insurers attempt to limit their exposure by including measurement provisions. For example, “Business Income” is to be determined by:

The Net Income of the business before the direct physical loss or direct physical damage occurred; and
The likely Net Income of the business if no physical loss or no physical damage had occurred, but not including any net income that would likely have been earned as a result of an increase in the volume of business due to favorable business conditions caused by the impact of the Covered Cause of Loss on customers or on other businesses (emphasis added).

Obviously, this provision is designed to be one-sided in the insurer’s favor. Policyholders and brokers alike should watch out for provisions like this and seek to negotiate, at a minimum, a more balanced approach.

Knowing the case law that applies in your jurisdiction is also important. Limited recent case law in this area exists, but policyholders affected by Hurricanes Helene and Milton should at least be aware of a Fourth Circuit case that used the economy ignored approach. In Prudential LMI Commercial Insurance Co. v. Colleton Enterprises Inc., 976 F.2d 727 (4th Cir. 1992), the Fourth Circuit, applying South Carolina law, rejected a hotel’s claim for lost profits it would have earned following Hurricane Hugo due to an influx of repair and construction workers in the area. The policy provided: “In determining loss hereunder, due consideration shall be given to: a. the earnings of the business before the date of damage or destruction and to the probable earnings thereafter, had no loss occurred ….” The policyholder had recorded losses during the two-year period prior to the storm. Focusing on the “had no loss occurred” language, the court reasoned that to consider post-storm economic conditions “would be to confer a windfall upon the insured rather than merely to put it in the earnings position it would have been in had the insured peril not occurred.” The court added: “It is that an insured under a business interruption provision such as that here in issue may not claim as a probable source of expected earnings (or operational expenses) a source that would not itself have come into being but for the interrupting peril’s occurrence.” Nevertheless, the court left open the possibility of additional considerations when it stated that the policyholder “might prove that a general economic up-turn for the business had been imminent … or that a specific event had created a profit opportunity which the peril’s occurrence had thwarted.”

Courts across the country have found similarly and differently.

In American Automobile Ins. Co. v. Fisherman’s Paradise Boats Inc., 1994 WL 1720238, at *3 (S.D. Fla. Oct. 3, 1994), the policy stated that business interruption loss would be determined based on likely net income “if no loss or damage occurred.” The court rejected the policyholder’s claim for profits it would have earned due to increased post-hurricane demand for its products, holding that the policy allowed “net income projections that are not itself created by the peril” and the policyholder was not entitled to “the windfall profits.”
In Catlin Syndicate Ltd. v. Imperial Palace of Mississippi Inc., 600 F.3d 511 (5th Cir. 2010), the Fifth Circuit, applying Mississippi law rejected a casino’s claim for the increased profits it would have earned had it remained open following Hurricane Katrina while other area casinos had not. Addressing the typical “had no loss occurred” business interruption policy language, the court reasoned that while the specific “loss” to the casino was distinct from the “occurrence” (the hurricane), the two concepts are intertwined under the language of the business interruption provision, and thus the court held that “only historical sales figures should be considered when determining loss, and sales figures after reopening should not be taken into account.”
On the other hand, in Levitz Furniture Corp. v. Houston Casualty Co., 1997 U.S. Dist. LEXIS 5883 (E.D. La. Apr. 28, 1997), which involved a flood, the court held that the policy at issue “clearly and unambiguously provides coverage for earnings ‘had no interruption’ occurred, and does not exclude profit opportunities due to increased consumer demand created by the flood.”

Policyholders should therefore carefully consider their policy language and the impact of both tests before submitting their claim (and when renewing coverage next time around). Moreover, to maximize coverage, policyholders should adopt appropriate pre- and post-loss planning and claims-handling approaches. These might include, for example, determining which test courts apply in the jurisdictions in which they operate and researching what position their insurers have previously taken, so they can better anticipate possible arguments against their claim. Additionally, policyholders should consider negotiating for better and more appropriate coverage.

Post-Helene and Milton economic conditions may result in some businesses thriving and others struggling. Whether those post-storm conditions will be considered in connection with valuing a business interruption claim depends on the relevant policy language and applicable law. But one thing is certain: post-hurricane economic conditions can have a substantial impact on the value of a business interruption claim.

[View source.]

Your Online Business Could Be the Next Target for Costly Data Privacy Lawsuits

If your business operates online and uses common marketing tools, your business is at risk of being targeted for lawsuits under pre-internet wiretapping and video rental privacy laws. It is critical to address and mitigate risk before these claims are filed. 

With few exceptions, modern data privacy laws such as California’s CCPA do not give consumers the right to sue businesses directly for privacy violations. Instead, the plaintiffs’ bar has turned to pre-internet laws to assert privacy claims against websites.

The result? A huge upswing in lawsuits and demands against websites based on alleged violations of anti-wiretapping provisions of the California Invasion of Privacy Act (“CIPA”) and the Video Privacy Protection Act (“VPPA”).

Key Information on the Most Common Consumer Data Privacy Claims

The anti-wiretapping and two-party consent provisions of CIPA prohibit intentionally intercepting or accessing the content of a communication without the consent of all parties involved. The wiretapping provisions in CIPA were first passed in 1967 and are facially focused on the tapping of telephone lines. Recently, enterprising plaintiffs’ attorneys have argued, with some success, that third parties that collect data or facilitate communications with customers can be construed as “wiretappers” under the statute. Such internet CIPA claims typically target the use of “pixels,” like those provided by Meta or TikTok, chat services, and “session replay” technology, that provides information on customer behavior on a website. If your site uses common third-party tools to interact with consumers or collect consumer data, your business is at risk of a CIPA claim.

The VPPA was passed in 1988 after Supreme Court nominee Robert Bork’s video rental history surfaced during his 1987 confirmation hearings. Under the VPPA, a “videotape service provider” cannot disclose information that identifies any of its purchasers, renters, or subscribers without receiving consent that is separate from any other contract between the business and the customer. While Blockbuster locations may have disappeared, VPPA claims have recently proliferated. Plaintiffs’ attorneys are increasingly arguing that web sites and other technologies that transmit video to consumers are subject to the VPPA, and that the use of pixels, session replay, and other common marketing data tools constitute violations of the VPPA. If your site embeds video that’s served from a third-party host (like YouTube) or delivers video in a subscription form, including email newsletters, you are at risk of a VPPA claim.

The upsurge in data privacy litigation is exemplified in a recent decision in which a federal appellate court allowed a case under the VPPA to proceed against the NBA. The NBA case makes clear that courts are going to permit consumers to use the VPPA to assert data privacy claims, and that businesses need to proactively mitigate their risk and exposure under the VPPA.

Best Practices for Avoiding These Claims

Following these best practices should reduce the risk of increasingly common CIPA claims:

Full Disclosure and Consent: For CIPA, a banner or click-through consent that links to your privacy notice and user agreement can provide the basis for a strong consent defense. For VPPA, the consent provisions are narrowly drawn, so a separate consent agreement is needed.
Contracts: Ensure agreements with providers prohibit using your users’ data for anything other than fulfilling their obligations to you. A solid Data Processor Agreement (“DPA”) or CCPA-compliance clause will typically cover this.
Route Data Through You: Configure tools to collect data through your business. Routing data through your business’ servers first defeats the core interception element of a wiretap claim.
Review Your Terms: Arbitration clauses are very common and can be helpful to businesses. However, when combined with a waiver of class actions, they could cause your business to fall into the “arbitration trap” in which it is required to defend thousands of claims in a “mass arbitration” rather than consolidating them into a class action. This trap is costly because arbitration filing fees are typically charged on a per claimant basis, and in states where the business is required to pay all, or most, of the fees, a claim with thousands of claimants can yield millions of dollars just in arbitration filing fees. With a few tweaks to an arbitration provision, including providing for the batching of claims, an online business can obviate some of the risks posed by common arbitration clauses.

Nell Nolan: NOCHI 2024, Nocturne – MASNO, Tulane Business Forum 2024, PRC Hampton luncheon

Cause and Food EffectPresented by Hancock Whitney and held at 725 Howard Ave., the NOCHI (New Orleans Culinary & Hospitality Institute) Cooking for a Cause combined all the ingredients for a fine, fundraising time. Elizabeth Boh chaired the event along with her daughter, co-chair Katherine Eshleman Morales (accompanied by husband Richard), while Casey Burka spearheaded the 46-item silent auction. The top five enticements were a European Viking Cruise, dinner at Commander’s Palace with John Bel Edwards, a Chef’s Table Experience at Rosedale Restaurant with Susan Spicer, a dinner curated by NOCHI chef instructors, and a one-night staycation at the Windsor Court Hotel.

The gala’s culinary enticements were numerous and inventive, thanks to guest chefs Leonair Dorsey, NOCHI alumna Martha Gilreath, Amarys Herndon, Michael Gulotta, and eight alumni chefs. Toque thanks! Robin Bordelon Borne and board members Liz Boulware, Jim Landry, Ti Adelaide Martin and Susan Spicer served as gala committee members.

Limelighted as the honorees were Julie and Ted George and Amanda and Isaac Toups, who rated “Cause” kudos! More notables were Dr. Michael Torregano of the Ellis Marsalis Center and his Jazz Trio, and the Merry Antoinettes, who passed out Champagne.

Event planner Tessa Martinez of Contessa & Co. incorporated a colorful palette of sunset pink, peach and orange, which appeared in balloon garlands that draped the circular staircase. Further decorative accents were six-foot marquee letters spelling out NOCHI that were framed with huge paper flowers as a nod to the floral theme, and for photo fun, guests posed in front of a step and repeat. In NOCHI’s fifth-floor event halls, dining tables were dressed in lavish orange taffeta from EB Event Rentals, while cocktail tables sported a multicolor Ikat print. Hundreds of roses and hydrangeas were flown in to embellish the areas.

Relishing all this tabled revelry that trains and sustains the city’s significant and evolving hospitality industry were NOCHI founders George Brower, Ti Martin with Leslie Iwerks, and Dickie Brennan; Deb and Cary Grant; Michael and Leslie Sawaya; and from Hancock Whitney, Liz Hefler and Hartley Crunk. Also, Dook and Gretchen Chase, Emery Van Hook Sonnier and Kristian Sonnier, Margaret and Ken Beer, Mason and Megan Beer Eustis, Stan Harris, Jonathan Baynham, Jennifer Killian, Brian Kish, Katie Mularz, Celeste Baer, Greg Reggio, Ryan and Amanda Berger, and Pepper Baumer. Scores more contributed, such as Katherine (Mrs. Robert H.) Boh, mother of event chair Elizabeth.

Yet another mastheader, a musical one, was “local treasure” Paul Varisco, who with the Milestones, kept the crowds bopping in McIlhenny Hall.Piano PowerThree encores concluded the pianism of Olga Kern, internationally acclaimed pianist, at Nocturne XXI of the Musical Arts Society of New Orleans, which was festively formatted as cocktails, performance and gala dinner at the Ritz-Carlton, New Orleans. Steinway & Sons was a top supporter, along with the host hotel and Hall Piano Company. Riveting the eye was the artist’s glamorous red gown. Her respective dress and jewelry designers are New Yorkers Alez Teih and Alex Soldier.

Floral loveliness came in the form of the roses next to the piano, in different shades of white and pink and designed by “Petite Fleur by Lisa Brooking,” as well the white orchid centerpieces on the dinner tables. As guests savored the tasty meal, they discussed the just-played program of works by Liszt, Debussy, Rachmaninoff and others, including Gershwin (Three Preludes), which was transcribed by American pianist Earl Wild, Nocturne’s first artist 21 years ago. Dr. Terry Voorhies and Leo Landry (with Rand and Beth) served as the 2024 gala chairs.

More notable MASNO names were executive and artistic director Cara McCool Woolf with Vance, president Jason Burge with wife Rebekka Veith, president-elect Robert Edgecombe with Sarah, and founder Julianne Nice with spouse Herb Larson. Also from MASNO were Michael Boucree, Bruce Crutcher with Robin, and Barbara Sands with Thomas. From the LPO came music director Matthew Kraemer with Meg. Noted, too, were Steven and Gina Kinchen, Price and Christine LeBlanc, Dr. Sebastian and Vaughan Koga, and Robin and Dale Williams.

ForumThe recent Tulane Business Forum Reception unfolded in the on-campus Marshall Family Commons, Goldring-Woldenberg Business Complex. Forum co-chairs Laura Beauchamp and Bill Hudlow also figured with Taylor Gilbert and Chris Williams, president, Tulane Association of Business Alumni, on the Forum Sponsor Team. Jennifer McCausland was the forum coordinator. Further representation came from Presenting Media Partner The Times-Picayune| Nola.com and seven patrons. The forum’s morning keynote speakers were Hancock Whitney President and CEO John Hairston and Hancock Whitney Bank President Shane Loper. During the luncheon, Edison Electric Institute President and CEO Dan Brouillette spoke.

“Powering the Wave: Innovation, Trade and Economic Resilience” themed the 45th annual forum that had Galatoire’s & Galerie de Galatoire as the reception underwriter and reception purveyor; the New Orleans Ernest N. Morial Convention Center as host sponsor; Entergy Louisiana, LLC/Entergy New Orleans, forum underwriter, and Phelps Dunbar LLP, Raising the Bar Partner.

Reception brass included A.B. Freeman School of Business Dean Paulo Goes, Tim Hemphill, Mark Preston, Vanessa Claiborne, Philip Coote, Larry Smith, Brent Rosen, Ivy Robinson, Stephanie Riegel and Eric Smith, along with speakers and supporters. For table décor, white linens were accented with ties of Tulane green.

Launching LooksAn easy sell-out, the Preservation Resource Center’s Design Luncheon featured interior designer Alexa Hampton, who discussed her work (and the continuance of the legacy of her late father, Mark Hampton, also a renowned interior designer and writer), her inspirations and her new book, “Design, Style & Influence.” Linda and Gordon Kolb, Holt and Gordon Kolb Jr., Cathy and Hunter Pierson, and Peter Trapolin chaired the event, which unfolded with high style in the Audubon Tea Room, where Alexa’s favorite colors coded the tables (aubergine, vamel, etc.), hydrangea arrangements served as centerpieces, and Dickie Brennan & Co. Catering + Events fed the lovely legions.