Commercial property owners are familiar with the myriad of weather events like hurricanes, severe storms, and floods that can result in property damage. However, the potential impact a severe drought can have often goes overlooked. Commercial property owners must be aware of the risks a major drought can have for properties, as well as their bottom line, and know how to prepare for a potential period of drought.
The Impact of a Drought
A drought is a period of time during which an area or region experiences below-normal rainfall. According to the U.S. Environmental Protection Agency (EPA), droughts can occur in any part of North America. In fact, at least one region in the continent will experience drought conditions during any given year.
For many, droughts are not thought of as natural disasters. This misconception is often because the overall impacts of a drought are not as clear to the naked eye as those of a flood, fire, or tornado. Despite this, droughts are considered to be the second most costly weather event after hurricanes. As of 2022, in fact, damage from droughts were found to have cost $11.7 billion per event according to the National Centers for Environmental Information.
One of the reasons for their costliness is that unlike other natural disasters and severe weather events, it is incredibly difficult to predict when a drought has started, when it will end, or when it has ended. It can take weeks or months to determine a drought has begun. Droughts can also last for long periods, sometimes even decades or more in a single region. The longer it lasts, the more harm it can cause to businesses and people. This is especially true for farms and ranches, as droughts often deplete water sources like rivers, lakes, streams, and even groundwater. In fact, data from the U.S. Department of Agriculture highlights that drought accounts for more crop insurance payouts for Texas farmers than any other weather phenomenon.
Drought Property Damage
While droughts can kill off agriculture and cause mass water shortages, they can also cause unanticipated damage to homes and commercial buildings. For instance, while Texas is known to have incredibly expansive soil, it is primarily composed of clay. When a drought occurs, water is drained from the soil, causing it to shrink around buildings and other structures. This results in uneven settling and can damage a building’s foundation. While this damage may not be obvious at first, signs of foundation cracking will eventually become apparent.
When the soil shrinks, it can leave the foundation unsupported. Even deep foundations like caissons for bridge piers or drive piles for larger buildings can be affected, as they rely on the friction created by the soil and concrete to remain stable. When soil has low moisture, it contracts away from the foundation, compromising this bond. This results in not only foundation cracking, but also in damaged pipes, sloping floors, and warped window and door openings.
Aside from buildings themselves, other aspects of the property can be damaged due to a drought. Retaining walls, bridges, sidewalks, and pavement are all vulnerable to drought damage. Even asphalt is subject to stresses imposed by expansive soils due to drought. This can cause cracks as deep as three feet to develop over time, along with pavement warping, which causes billions of dollars in damage to streets and highway systems.
Additionally, dry and dead vegetation from a drought can increase the risk for wildfire activity. This can cause real estate investments and businesses located in wildfire-prone areas to face higher insurance premiums to cover the increased risk. This has led some insurers to withdraw home insurance offerings in California and other states prone to wildfire activity.
While protecting commercial property from drought damage can be daunting, there are a few steps Texas business owners can take to mitigate the effects. Irrigating and watering the perimeter of the property evenly can help the soil around a building’s foundation retain moisture. It is also important for commercial property owners to have their building’s foundation regularly inspected for signs of damage. While drought may not be covered in some commercial policies, it’s important to have the policy regularly reviewed for possible policy endorsements by experienced legal counsel.
Commercial Insurance Claim Recovery
Commercial property damage from drought is a reality countless business owners deal with year after year. Because of the huge impact these and other unexpected events can have, it’s pertinent that commercial property owners know how to navigate the claims process so they can successfully fully recover what they’re owed under their policy. Unfortunately, because of the nuanced language in most insurance policies and the complexities involved in the insurance claims process, it can be easy to fall victim to a variety of pitfalls that can delay a full claim recovery.
Some of the most common pitfalls commercial property owners may encounter, which must be avoided to help ensure a smoother path to full claim resolution, include:
Delaying Claim Submission
Commercial policyholders should submit a claim for property damage after ensuring they have all the information needed to prove the cause. But, despite having many similarities, each insurance policy is ultimately unique to the needs of the policyholder and the language of the carrier used in drafting. This makes it imperative for the insured to review the policy language in order to understand what is and isn’t covered.
Although policyholders can wait up to two years in some cases to get in contact with their insurer after property damage has occurred, they have a much greater chance of avoiding a claim underpayment or denial if they file in a timelier manner. And, both state law and the terms of various insurance policies may require it.
Not Preserving Evidence of Damage
When damage to a commercial property occurs, policyholders must begin to document all areas of the property that have been damaged. Photos and videos of the damage, any receipts for purchased items that have been damaged, and any other relevant documents are all imperative to have on hand to avoid any issues with the claim investigation. Organizing the information in a way that is easy for the insurer and its advisors to understand, and being prepared to address grey areas, inconsistencies, and possible questions, can help the investigation progress more smoothly and efficiently.
Policyholders should also be proactive in mitigating any further damage to the property, and many policies require it. This does not include making any substantial repairs to the property, however. Rather, making temporary repairs, such as setting up tarps and/or blocking off any areas of the property that could be exposed to further damage, can help to contain the damage to the areas being investigated in the claims process.
Commercial Property Insurance Claim Attorneys
Even if a valid property damage claim for a drought has been filed, the insurer has been properly notified, and the parameters of the policy are well understood, the insurer can still choose to undermine the claims process for its benefit.
At Raizner Slania, our insurance coverage attorneys are well-versed in the multitude of ways insurers attempt to devalue, delay, and deny the valid claims of commercial policyholders. If you are a business owner and believe your valid commercial property damage claim has been underpaid, delayed, or wrongly denied, we can help.
