September 2, 2010
Written By: The NLdH Hurricane Team
This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.
As Hurricane Earl strengthens in force, causing mandatory evacuations in coastal North Carolina and threatening the rest of the East Coast, residents and insurers are bracing themselves for what could be a very damaging storm. In addition to physical damage, hurricanes result in disputes regarding the scope of insurance coverage, liability of third parties for certain damage, and the insurance industry's efforts to recover some portion of its claims payments.
Initial Investigation: Get It Right Once a hurricane hits, time is of the essence. Claims adjusters must undertake a careful initial investigation, including conducting an expedient, but thorough, inspection of the property, obtaining a detailed statement from the insured about the nature of the loss, and determining the extent of damage to nearby structures. The insurer should also utilize its resources to ascertain the wind velocity near the insured structure as well as the heights of storm surges and/or flooding. Since insurance for losses can be provided under many different types of policies (including homeowners, renters, and commercial policies), it is important for insurers to review these policy types to ascertain the potential extent of its potential coverage obligations.
As opposed to their standard lines counterparts, surplus lines and London Market insurers should also stress the individualized language of their policy forms to all independent adjusters investigating hurricane losses. Since surplus lines insurers are generally not subject to regulations regarding policy forms, these carriers can create manuscript policies or modify and limit the language existing in most standard policies to reduce the risk of loss under the policy, including the exclusion of wind and hail damage. Given surplus lines insurers' reliance on independent adjusters to investigate claims, they should ensure that their coverholders and third-party administrators actively communicate the coverage available under the policy so that the adjusters can accurately investigate the claim without incurring unnecessary costs or failing to investigate pertinent coverage areas.
Coverage Implications Although many standard policies afford coverage for damage caused directly or indirectly by wind and/or hail, they exclude surface water damage caused by a flood. This leads to a dispute as to the cause of the damage-wind or flood. If the policy contains a concurrent causation provision, its enforceability will be determined based on the jurisdiction in which the claim is brought. Obtaining the right expert is often key in successfully addressing these coverage disputes. Meteorologists can provide evaluations of the storm activity and wind speed. Experts in hydrology are skilled in analyzing the effect of man made conditions on flooding issues. Engineering experts can give guidance as to building codes, the extent of damage and the structural expectations in the face of weather events. In addition, retaining counsel at this point can help to ease the burden of this initial task and assist the insurer in focusing more quickly on relevant information.
Additional issues that arise with respect to hurricane litigation include mold damage and business interruption losses. Some policies provide coverage for mold, fungi and other microbes, provided the cause of the mold is linked to a covered loss; thus, the cause of mold damage is usually hotly contested. Hurricane Katrina also gave rise to considerable litigation of business interruption disputes. While some of these high profile business interruption cases were decided in favor of the insured, it is uncertain, whether courts in other states along the East Coast will adopt those rulings.
Liability Claims Will Spike Insurers should also expect a spike in liability claims following a hurricane. Examples of several types of cases that have been litigated in recent years include: construction defect, damage and personal injury from unsecured property, premises liability, environmental claims, and professional liability claims against insurance agents for failure to recommend adequate policy limits or flood insurance.
Do Not Overlook Subrogation While a hurricane may be classified as an act of God, how it affects property losses is often due to acts of man. It may seem impossible to put together the pieces of a subrogation case out of the havoc wreaked by a hurricane. However, subrogation may be one of the most overlooked-and lucrative-potential recovery areas for insurance companies following a catastrophe. Historically, insurers have been discouraged from pursuing claims against governmental entities in cases arising from hurricanes based on the perceived governmental immunity doctrine. That situation changed post-Katrina as a few high-profile cases were successfully litigated against governmental and quasi-governmental entities such as the MR-GO matters against the Army Corp of Engineers.
Critical Subrogation Factors Because subrogation claims involve third parties, who may not be immediately notified following the loss, special attention should be paid to spoliation issues and expedient identification of possible targets. Potential pitfalls of subrogation claims that should be considered include statutes of repose, which create suit limitations periods that usually begin accruing before the loss, and building codes that generally define standards for structure strength in the face of weather conditions. Additionally, the "Act of God" defense, which is founded on the argument that an event was unforeseeable, can also derail subrogation claims, but the availability of this defense differs depending on the applicable jurisdiction.
NLdH is Prepared to Assist Our Hurricane Team is prepared to assist you with this latest crisis. From the initial investigation to a successful subrogated recovery, NLdH will assist you in effectively handling the insurance issues that arise with a storm of this magnitude. As this potential disaster unfolds, we will continue to update you with critical developments that are relevant to your response. Though Hurricane Earl will hit during the holiday weekend, you can reach the members of our Hurricane Team by cell or email 24/7.
Hurricane Team Contacts:
John M. Clark Daniel J. de Luca
856-889-3260 (cell) 215-588-6800 (cell)
jclark@nldhlaw.com ddeluca@nldhlaw.com
Michael A. Hamilton John F. Mullen
610-680-6488 (cell) 610-608-8785 (cell)
mhamilton@nldhlaw.com jmullen@nldhlaw.com
Additional Hurricane Team Members contributing to this article include:
Robert T. Horst Kathryn Mellinger
Erin Nulty Scott Rybny
