getting a few words edgewise – cats, claims standards, levees, mitigation, perils, profits, providence, termites, and others that come to mind

As one might guess, the title of this post was inspired by my bulging drafts file and the incredible interest in Sop’s coverage of what first appeared a simple case of insurance lagniappe in Jefferson Parish.

First up, a collection of news stories that remind us risk is not limited to the states on the Gulf Coast.

Feb. Snow Storms Designated CATS, Insured Loss Exceeds $2 B

Two snow storms that hit the United States this month will cause insured damages in excess of $2 billion, according to a catastrophe risk modeling firm…Meanwhile, Gary Kerney, assistant vice president of  Property Claim Services, a unit of Insurance Services Office in Jersey City, N.J., said he expects PCS to have loss estimates for the storms sometime next week. He said PCS is classifying both storms as catastrophes, meaning each storm should have insured losses in excess of $25 million.

"Insurer Zurich noted that snow has been present in 49 of 50 states in the past week, and some states not used to facing this risk could be exposed to losses."

AIR Worldwide issued a statement on Feb. 10…noting that business interruption is likely to be another major driver of insured losses. Regarding roof collapse claims, Tim Doggett, principal scientist, AIR, said the combined storms could cause havoc for roofs, particularly light metal, long span, low slope and flat roofs.

According to the Insurance Information Institute, winter storms are the third-largest cause of catastrophe losses, behind hurricanes and tornadoes, and result in about $1 billion in insured losses each year. I.I.I. said winter storms resulted in more than $7 billion in insured losses from 1999-2008.

Well, &#*% happens, snow melts, and levees may fail to provide protection from flooding.

New data released by Levees.Org shows that the majority of U.S. population lives in counties protected by levees, and that those counties are wealthier.

While the hurricane barrier protecting Providence, Rhode Island isn’t what we traditionally think of a levee, the folks there came up with a plan to save millions without giving up their protection – Feds take over hurricane barrier; Title handed to U.S. Army Corps of Engineers:

Providence officials estimate the transfer will save the city $500,000 annually and millions more in upkeep over the course of the coming years…In addition [to the legislation authorizing the transfer], [U.S. Senator Jack] Reed helped secure $4 million in federal funding for the Corps to make repairs to the barrier’s pumping system and has arranged nearly $1 million to operate the barrier over the last two years.

Mississippi may not be the only place termites cause problems for homeowner attempting to meet higher elevation requirements and mitigate flood damage. 

No telling what Montine Lanier Lang would have said about the collapse Monday morning of her Biloxi River home…Her son, Lanier Lang, was having her home elevated to regulation FEMA height — 23 feet.

The house had been raised and support columns prepared to put into place. Neighbors heard a loud crack.

A main support beam broke from hidden termite damage.

“(The house) started slipping and the floor caved in,” said James Hinton of Tri-Star, the Moss Point company hired for the work.

Photographs from the Sun Herald show the termite damage to main support beam that caused the floor of the home to cave in and the resulting collapse of the home during the lifting to meet elevation standards.

The front of the house facing the river collapsed to the ground, while the rear sat on pilings still in the air. Cracks ran down the walls and along the roof line. The house appeared to be a total loss.

Hinton, who said his company is bonded and insured, said insurance coverage will take months to sort out, but he plans to do what he can to help the family.

Anita Lee has the full story and a gallery of pictures in Neighborhood legend’s riverfront home collapses during renovations

Last, excerpts from a collection of three posts from Chip Merlin’s blog:

Wrongful Claims Practices Provide Cheating Insurers with a Short Term Market Advantage

The reason much discovery in claim practice litigation centers on internal claims management goals, reports, performance analysis, and objectives is because “efficient operations” in the claims department easily translates to paying less on claims to policyholders. When an insurer pays less on claims as a result of wrongful claims practices or a sharp claims culture, it can easily gain a competitive edge. From this view, honest insurers should support valid claims practice lawsuits and strong consumer protection laws.

Failure to Have Specific Written Claims Standards is Bad Faith

An insurance claims blog, The Claims Spot, sponsored by an insurer claims consulting firm, Lanzko Consulting, made a point that the failure to have specific written claims standards could lead to a claim of bad faith. This is the same finding I suggested in Should Insurance Companies Have Claims Manuals Explaining Procedures and Standards for Adjustment?:

From a policyholder’s advocate viewpoint, I think an insurer would be crazy not to have a claims manual or claims procedure guidelines. Most state unfair claims trade practice laws generally require insurers to adopt and implement those standards and procedures.

Lanzko, who is an insurer’s advocate, comes to a similar conclusion, regardless of whether the lack of standards apply to reinsurance claims or other claims in Absence of procedures to notify reinsurance is a basis for bad faith:

There is an ongoing debate in the insurance industry about maintaining claim policy manuals as a potential risk in a bad faith action. The view is that if you have specific written procedures, and your claims staff does not follow them, then that could be used against them in a bad faith action. Here a court specifically states that failing to have procedures could be considered bad faith in the reinsurance notice situation….

Since insurers have the obligation to have written claims standards and procedures when reporting to their reinsurers, why shouldn’t they have the same obligations to their customers?

Citing…language from Unigard Sec. Ins. Co., Inc v. North River Ins. Co., 4 F3d 1049 (2d Cir. 1993), Lanzko suggests that by not having controls and standards, an insurer will be hard pressed to argue that a failure to act was a mere mistake…

Snow is Causing Roofs to Fall — Is There Coverage After the Insurer’s Engineer Says the Roof was of Faulty Design?

Snow is falling all over the United States. So much that roofs are falling from the weight of snow and ice. Can you imagine the policyholder outrage if the insurance company’s engineer says the roof was designed wrong and coverage is denied on that basis?

This was the scenario in Driscoll v. Providence Mut. Fire Ins. Co., 69 Mass. App. Ct. 341 (Mass. App. Ct. 2007), where the judge found that “both faulty design and the weight of snow and ice caused the damage.” The insurance company denied the loss, citing, in part, the following standard exclusion: Negligent Work: Faulty, inadequate or defective:

The Driscoll Court got it right when it noted:

Here, the physical damage caused by the weight of snow and ice is nowhere excluded…

Furthermore, no other exclusions apply. This includes the exclusion for settling, cracking, shrinking, or expansion under paragraph B.2.k.(4)…which the judge specifically and correctly found did not occur, and the exclusion for faulty workmanship or construction under paragraph B.3.c… The latter exclusion does not apply because it is preceded by the following language: “We will not pay for loss or damage caused by or resulting from any of the following. But if loss or damage by a Covered Cause of Loss results, we will pay for that resulting loss or damage.” Covered causes are, according to paragraph A.3. discussed above, all causes except those excluded in section B (or limited by paragraph A.4.). The judge found that both faulty design and the weight of snow and ice caused the damage. The latter is a covered cause of loss which is not excluded, and therefore the faulty design exclusion does not bar coverage.

Click the title to read the full version of each post on Merlin’s blog.  Meanwhile, I see if I can’t finish one of the several Katrina litigation posts I’ve been working on and have it up tomorrow.

2 thoughts on “getting a few words edgewise – cats, claims standards, levees, mitigation, perils, profits, providence, termites, and others that come to mind”

  1. As I recall, there was also a snow-collapsed roof case in which the insurer invoked the Anti-Concurrent Causation Clause (ACC). The insurer argued rot and decay were the efficient proximate causes, and took the position that despite the extraordinary weight of the snow, the damage was excluded because there was a “rot” exclusion in the policy. And when rot and snow act concurrently and rot is excluded, so is the damage from snow. The insurer prevailed, and I think the Hawaii insurance blog wrote something on this case. I’ll try to find it.

    I would imagine a roof that gets covered by frozen water several times a year might tend to lose its structural integrity both from the weight of the snow and from the water runoff when the snow melts. Seems like an easy argument to make in order to deny coverage for a collapsed roof.

  2. I remember that case and the ACC was in this policy too, as you can see – but the Court did not find it relevant:

    “(7) The paragraph B.1. exclusion states: “We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in sequence to the loss. . . .”

    The provision then lists several excluded causes or events not relevant here.”

    It appears the Court sees two events (re Judge Senter’s wind and water) and decides based on an excluded cause can not prevent payment on a separate covered cause.

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