Citrus industry losses from 2017 storms involve multiple policies, coverages

Hurricane Irma devastated 50% to 90% of Florida's citrus fruit — oranges, grapefruits and tangerines — and Florida is facing its lowest citrus forecast in more than 70 years. Shortly after the storm, the state estimated that its citrus industry lost more than $750 million. Lawmakers and the Florida Agriculture Commissioner have stated that the damage estimate may exceed $1 billion, as fruit continued to fall well after the storm passed. In addition to citrus losses, the state estimated that Irma inflicted $180 million in damage to vegetable and non-citrus fruit growers.

Serious questions remain regarding whether Florida citrus can survive without assistance. Much of the conversation is focused on emergency assistance from the government. But the citrus industry and others affected by the storms should not overlook the significant assets that may be found in their insurance portfolios. Companies should consider coverage for the destroyed fruit and for lost business income — both for growers and those whose business relies on the growers.

Potential avenues for recovering property damage

Florida's citrus growers lost millions of dollars' worth of fruit, blown away or laying unusable in the groves. Identifying the proper insurance policy from which to seek coverage will largely depend on whether the fruit had been harvested before the storm. Fruit still on the tree is generally covered under crop insurance policies, referred to as multi-peril crop insurance (MPCI). MPCI generally covers damage due to strong winds, disease, flooding, and insect damage, among other perils. (Growers should also consider MPCI in connection with citrus greening and the lice that carry it.)

Once the citrus has been harvested, it typically becomes “stock” that is covered under a standalone stock policy or by a commercial property policy. Commercial property insurance is frequently written on an “all-risk” basis, meaning that it provides coverage for all loss or damages, unless specifically excluded.

Whether it lost crop or stock, the policyholder should preserve its records demonstrating pre-loss volume and how much was lost. If the policy does not incorporate or set a value, the company will also need to value the destroyed fruit. Fortunately, the value of an orange is relatively predictable and reasonably ascertainable without an aging process. Accordingly, citrus growers may avoid valuation fights with their insurers that vineyard owners have faced in recent months.

Potential avenues for recovering lost business income

Companies may also recover lost profits stemming from physical damage to the groves or other operations. Commercial property coverage generally includes business income or interruption insurance (BI). BI typically covers lost profits due to a necessary suspension in operations caused by physical damage to the policyholder's property during the “period of restoration.” Most courts and policies define suspension to include a slowdown or cessation. That is, a company need not stop all work to qualify for BI coverage and the loss continues until the business operations are back to the pre-loss condition. Additionally, increased expenses incurred to continue operations or minimize the “suspension” are likely recoverable under the Extra Expense portion of a BI policy.

The “period of restoration” or “extended period of indemnity” often is described as the period that it takes to repair the damaged property and return the business back to its “normal” level of operation. Ordinarily, but not always, only the losses incurred during the period of restoration (or extended period of indemnity) are reimbursable under the policy's business interruption coverage. When calculating the period of restoration, policyholders should consider how long it will take for the trees to recover from storm damage and resume bearing fruit at the same levels they did prior to the storm, whether new trees must be planted and matured to achieve a pre-loss level operation, or for the soil to return to proper saturation levels. If a packing house was damaged or destroyed, the policyholder should consider how long it will take to replace the building.

Recovery for breaks in the supply chain

Recovery is not limited to those businesses growing citrus in Florida. Rather, companies that rely on citrus growers to produce fruit at a certain level and to sell at a certain price may look to their own contingent business income insurance (CBI) for recovery. CBI coverage is frequently found in commercial property insurance policies. CBI covers lost profits and extra expenses resulting from a break in the supply chain caused by a physical event that impacted a company's customers or suppliers.

For example, a food company selling orange juice may seek coverage for decreased sales if it could not obtain the necessary fruit from Florida to meet its normal need. Additionally, the food company may seek CBI coverage for increased expenses incurred sourcing substitute oranges from a grower outside of Florida.

CBI does not require the policyholder to sustain any physical loss or damage. It is only necessary that a non-excluded loss occurs at a customer or supplier, which negatively impacts the policyholder's business to some extent. Accordingly, businesses located far outside of Florida may have viable insurance claims arising from the loss to Florida's citrus businesses.

Consider all options

After any catastrophic event, businesses suffering damages should consider all potential sources of recovery, even the less obvious ones.

Those affected by the hurricanes this past season should carefully review the insurance policies in their portfolios and maintain records of the damage and any expenses incurred.

Jared Zola is a partner in Blank Rome's policyholder-only insurance recovery practice, based in the Firm's New York office. He can be reached at [email protected]. Robyn Michaelson is an associate in Blank Rome's policyholder-only insurance recovery practice, based in the Firm's New York office. She can be reached at [email protected].

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