Given that natural weather disasters can strike at any moment and have the ability to cause unprecedented damage and destruction to construction projects, contractors should carefully review their contracts and insurance policies as they plan recovery strategies following catastrophic weather events.

Contractual Concerns

Project participants should review and understand their contractual rights and obligations in the event of a severe weather event to ensure they are well equipped to get the project back on track. These contractual concerns can include:

• Claim submission requirements. Because many jurisdictions strictly enforce provisions that require the submission of claims and notice of claims within mandatory established time periods, it is critical that project participants strictly comply with contractual procedures for asserting claims and all associated notice requirements. Parties should also ensure that claim notices are properly submitted to sureties, if applicable.
• Increases to costs of the work. In many jurisdictions, contractors are entitled only to time and not additional compensation as a result of adverse weather events. Contractors performing under fixed price contracts therefore assume significant risk for increased costs of cleanup, correcting and/or replacing damaged work, increases in the cost of construction materials and other related costs. This underscores the importance of obtaining appropriate insurance coverage to protect against losses from catastrophic weather events.
• Delays. Under many construction contracts, delays caused by hurricanes and other severe weather events may be treated as “excusable delays,” i.e., the contractor is entitled to additional time to complete the work but not additional compensation. Delays are generally compensable only if they would not have occurred but for the action or inaction of the owner, or where the delays arose as a result of a condition that the owner was originally responsible for, such as differing site conditions. However, some contracts do contain provisions expressly addressing extreme or catastrophic weather events, so project participants should carefully review the particular terms of the agreement.
• Termination. Whether a contractor is contractually entitled to terminate a contract is complicated and depends on the particular terms of the agreement. If it appears unlikely that the project can achieve completion, the contractor should not assume it is contractually entitled to terminate. If a contractor is considering termination it should exercise the utmost care and caution because terminating a contract regularly leads to disputes.

Insurance Considerations

Project participants should carefully review as soon as possible following a catastrophic weather event all insurance policies, including property, casualty and builders risk policies, determine the scope of available coverage and identify issues that may affect a policyholder’s ability to collect on a claim.

Insurance-related questions that project participants should address when drafting recovery plans must include whether the project owner maintains coverage for flood damage and/or for windstorm damage. The policyholder will likely need to identify the causes of all potentially covered property damage, for example whether damage was caused by wind-driven rain, wind, storm surge and/or flooding from rain, and review how the policies define key terms such as “flood,” “wind,” etc., to determine whether the language is sufficiently broad to cover property damage caused by these elements.

Other concerns include whether any builder’s risk policies cover natural disasters; whether policies cover any expected business interruption losses caused by delays, or “contingent” business interruption losses; and how project participants will collect and preserve materials necessary to substantiate claims.

Lastly, after a natural disaster hits, companies should consider whether it is necessary to engage a forensic accountant or other consultant to develop a claim for business interruption or other losses. In some cases, the cost of these services may be covered in a policy. Project participants must also know how to comply with notice requirements of the relevant policies—which is generally a mandatory condition precedent to a claim—and provide timely notice to all carriers whose policies potentially provide coverage.

It is important for project participants to carefully review their construction contracts and insurance policies to ensure they are covered in the event of a severe weather event, and to understand their rights and responsibilities so, if a disaster does strike, they are prepared to get the project back up and running as quickly as possible.