Claims And Issues

Two Years Ago This Morning.....

     Two years ago on the morning of August 29, 2005, Hurricane Katrina made landfalls in Southeastern Louisiana and at the Louisiana-Mississippi State Line along the Gulf Coast.   Remembrances and updates have been plentiful and will keep coming, reminiscent of the relentless storm itself.  There are so many depressing facts that some articles commemorating this 'anniversary' are determinedly upbeat:  See, for example, Richard Fausset, "New Orleans:  Two Years Later/Old City Revels in a New Spirit of Innovation" (Los Angeles Times Online, Wednesday, August 29, 2007).

     Three facts from Orleans Parish/New Orleans are particularly sobering and cannot and should have never been ignored:

• If you are lucky enough to land a job in Orleans Parish in 2007, you have to also be lucky if you want to catch a bus to work.  Only some 18% of the buses that were operational before Katrina struck are operational now, or 69 buses reported in operation now whereas 368 buses were operational before Katrina.
• If you have your children with you in Orleans Parish in 2007, you will also be lucky to find a school for them.  Less than half or 58 out of 128 schools, are open as of the second anniversary of Katrina.
• If you get sick in Orleans Parish in 2007 and have to go to a hospital, good luck.  Only a little more than half, 13 of 23, of the hospitals in Orleans Parish are open in 2007 compared to the hospitals that were open on August 28, 2005--the day before Hurricane Katrina made landfall.  Source:  Amy Liu & Nigel Holmes, "Op-Chart/The State of New Orleans:  An Update" page A23, col. 1 (New York Times, Tuesday, August 28, 2007).
  

These figures, standing alone, have little if anything to do with Insurance but they have much to do with Catastrophe Claims.  These figures, whether standing alone or together with other results of 'rebuilding,' evidence the shame--and, yes, the can-do opportunity--of a great nation.
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Earthquake Premiums Rock and Hurricane Premiums Soar.

     Lessons for Florida and the structuring of the Florida Citizens Property Insurance Corporation may be afoot.   Insurance Companies in California may pay $1,000,000,000.00 less toward Earthquake Coverage there, after a vote led by Governor Arnold Schwarzenegger on the board of directors of the California Earthquake Authority.  Consumers would pay more, an average of 8% per year more, it is reported by Marc Lifsher, "Plan Would Raise Earthquake Premiums" (Los Angeles Times Online, August 27, 2007).

     More accurately, it looks like the teaching is flowing from Florida to California, rather than the other way around.  See, for example, Anika Myers Palm, "Insurer to Drop 40,600 [Homeowners] Policies" Page C1, Col. 4 (Orlando Sentinel, Central Florida Business Section, Wednesday, August 29, 2007).  In a Special Session in January, 2007, the Florida Legislature substantially increased the amount Florida taxpayers will have to pay in the event of another Catastrophe in this State, an event reported in previous posts here.

     Whether the lessons are taught first in the East and then move West, or whether they move the opposite way, one thing is certain:  The climate for change in the Insurance industry with respect to Cat Claims is, well, catastrophic for whoever is ultimately responsible to pay, when Catastrophe strikes--and perhaps for whoever is ultimately responsible to pay before Catastrophe strikes, including right now.

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D&O Insurance Companies Feel the Heat of Climate Change.........

     .... And Soon Their D&O Policyholders May Feel the Heat Too.
    Writers of D&O Insurance Coverage Sweat Out D&O Liability Claims 
                              Based on Effects of Climate Change.

   
     This potential exposure surfaces in ever-increasing numbers of articles and news reports made available in particular to the Insurance industry.  See, for example, Meg Green, "D&O Heats Up/Directors & Officers Writers Are Paying Close Attention to the Issue of Climate Change -- Not Just How it Could Affect Earth, But How it Could Impact Regulations and Ultimately Lead to Future Litigation and Claims," 108 Best's Review 24 (August 2007) (subscription required for print edition), link here for subscription-required ONLINE edition; "Climate-Change Exposures Mount in Directors & Officers Line," BEST'S REVIEW (July 30, 2007; online subscription required).

     A significant measure of the Insurance industry's growing understanding of the risks inherent in climate change is in the behavior of leading Insurance Companies.  The Hartford Financial Services Group, Inc. and Prudential Financial, Inc. are two leading Groups of Insurance Companies.  They both recently agreed with Calvert, a mutual fund and one of their investors, to "improve their public reporting and disclosure regarding the potential financial risks they face from climate change and strategies for mitigating those risks."  Calvert then withdrew its climate change shareholder resolutions filed with both Insurance Companies, before the resolutions came to a vote of all the shareholders who could vote on the respective resolutions.  Calvert Press Release, "Insurance Companies Commit to Climate Change Disclosure" (April 10, 2007).

     If the Insurance Industry anticipates and expects D&O Claims to be made because of climate change, and expects that D&O Claims made on the basis of climate change will thereafter spiral higher and higher, then Claims to Coverage and Damages under D&O Coverage will not only soon be made but will result in mounting numbers of Claims in Suit.  Those lawsuits will be reported here and they will also be made available here whenever possible via online links, together with Insurance Coverage analysis of the reality of this exposure if, when and as the anticipated exposure becomes reality.

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Katrina, CatClaims, Catastrophe Coverage, and Cat Bonds.

    .... with a September 2, 2007 Postscript (below).

     The second anniversary of Hurricane Katrina's landfall on the Gulf Coast of the United States is spawning many articles that examine various aspects of the Catastrophe, as expected.  Although philosophy is generally beyond the scope of the posts on this Web Log, the articles surfacing on this anniversary are too numerous to ignore.  Some provoke thought.   One such article is by Adam Nossiter, "New Orleans Journal/After Two Years, a Tangled Mix of Good and Bad" Page A8, Col. 1 (New York Times Saturday August 25, 2007).    This article contains the following reported facts about the value of Catastrophe Losses in the State of Louisiana:  $100,000,000,000.00 in damage to private property and infrastructure; $66,000,000,000.00 in undescribed "federal payout" combined with the total "insurance company payout" to date; and a $34,000,000,000.00 shortfall.

     On the same day, The New York Times published an Op-Ed piece written by a Professor who suggested a "voucher system" for poor victims of Catastrophes such as Katrina, which he described as similar in concept to the food stamp program.   Howard Kunreuther, "Who Will Pay For the Next Hurricane?" Page A25, Col. 1 (New York Times Saturday, August 25, 2007).

     Another solution is discussed in an article by Michael Lewis, "In Nature's Casino", Sunday, August 26, 2007 New York Times Magazine 26 (free registration may be required to access this article in the New York Times Online). That solution is Cat Bonds, or catastrophe bonds purchased on the financial markets.  Those floating the concept are asking Insurance Companies to take the risk, says one hedge fund manager, and spread it throughout the community of investors.  By doing so, the Insurance Companies would minimize the cost of insuring potential Catastrophe Claims.  See especially page 51 of the print publication of this instructive article.

     Postscript on Sunday, September 2, 2007:  Here is more about Catastrophe or Cat Bonds, what they are, how they work, and where they are used:  Bloomberg News Report, "Amid Subprime Fallout, Some Investors Bank on Catastrophes/Bets Against Natural Disasters Have Proven Lucrative as of Late" (published in Boston Globe Online, Sunday, Sept. 2, 2007)(stated free registration on this site may be required).

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Insurance Issues: Web Log Posts and Insurance News Reports.

     Posting to a web log involves choices I never imagined.  I prefer fact-based and reasoned analysis of Insurance Issues to opinions.  You know what they say about opinions.  Everybody has one of those, also.

     Fact-based and reasoned analysis of Insurance Issues, in turn, involves time.  Lots of time.  That is why most of my posts, and probably all of my early posts here, are detailed.  Some are downright long.  Can you imagine the amount of time it took to write those posts?

     Recently, I have experimented with providing some analysis and still providing facts for readers, but limiting my reporting to newly decided cases and leaving the discussion of overall trends to others for the most part.  This is not unique to me.  Others have noted the distinction between reporting and most 'blogging'.

     One commentator recently wrote a thought-provoking column about the differences between posts on a web log, and reporting news.    Here is a link to "Blogs:  All the Noise That Fits/The Hard-Line Opinions on Weblogs Are No Substitute for the Patient Fact-Finding of Reporters" by Michael Skube (The Los Angeles Times, Sunday, August 19, 2007).

     My readers can make their own minds up about two recent reports which address Insurance Issues, as to where facts might end and opinions begin--if opinions are expressed at all in these recent reports in two different media.  Here is a link to Bloomberg.com for an article by David Dietz and Darrell Preston, "Home Insurers' Secret Tactics Cheat Fire Victims, Hike Profits" ("Last Updated August 3, 2007").

     And here is a link to the Friday, August 17, 2007 broadcast on NOW on the Public Broadcasting System:  "Home Insurance 9-1-1".

     Which one, either, or both displays the facts vs. opinions?

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From Flooded Houses to Formaldehyde Trailers ....

                             .... Through No Fault of Their Own.

     Katrina caused many people to leave their flooded homes.  They had no alternative.  And now, it appears, they had no chance.

    The current federal government moved many of the refugees into trailers and mobile homes.  Many of those refugees complain of exposure to formaldehyde in those trailers and they have sued the manufacturers of many of them.  The current defendants do not include the federal officials who were or may have been responsible for the move in the first place.    Here is a copy of the Complaint:    Download Jerome  Anthony Culler et  al, Plaintiffs vs. Gulf Stream Coach, Inc., et al, Defendants (E.D. La. Civ. No. 07.4018 Plaintiffs' Original Complaint Filed Tues., Aug. 7, 2007).pdf .  Here is a link to a current news report about it:  "Storm Victims Sue Over Trailers," Page A12, Col. 5 (AP Report Published in The New York Times, Thursday, August 9, 2007). 

     Katrina did not cause this lawsuit nor the reasons for it.  Natural disaster  is not to blame.  In any event, the defendants will likely soon claim Insurance Coverage for the claims against them.  They may have no alternative to disaster themselves, now.

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Property Premiums Propel AIG Profit, Lower 'Subprime' Losses

     The last quarter earnings reported by American International Group had higher Property Premiums outpacing losses from AIG's "consumer finance arm".  Share prices rose on the news of 2007 Second Quarter Earnings of $4,280,000,000.00 which increased from 2006  2Q Earnings of $3,190,000.00 much of it due to increased Property Insurance Premiums, AIG reported according to Reuters, "Earnings at A.I.G. Beat Analyst Estimates," Page C9, Col. 1 (New York Times, Thursday, August 9, 2007).

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Katrina Damage and Federal Flood Overwhelm Louisiana For the Second Time.

       On August 2, 2007, three Federal Judges predicted that Louisiana Courts would uphold basic Flood or Water Damage Exclusions regardless of any other provision of every "All Risk" Policy in In_re_Katrina_Canal_Breaches_(5th_Cir. Opinion Filed August 2, 2007).doc.    Parenthetically, there is good news and bad news about this attached copy.  The bad news is that the document converted itself into a single column format without a footer or page numbers on it.  The good news is that I could highlight the attached copy for your ease of reference and that your computer, like mine, will display what page you are reading when your cursor crosses the page break-lines.

        The Federal Courts were confronted with many Insurance Policies in many cases that were consolidated into that one big case.  All of the cases were filed because of the Damages caused by the Katrina Canal Breaches in New Orleans in August, 2005.  A Louisana Federal Trial Judge previously predicted Louisiana Insurance Law in favor of the Policyholders in those many cases, holding in essence that the Insurance Companies' Flood or Water Damage Exclusions did not bar Coverage there.

        The Federal Fifth Circuit Court of Appeals panel of three rejected the decision of one on appeal.  The Fifth Circuit panel ruled in favor of the 19 Insurance Companies which had issued Insurance Policies with at least 7 sets of Flood or Water Damage Exclusions.  This ruling came even though the Federal Appellate panel recognized that the Insurance Policies at issue are All Risk Policies.  Recovery is allowed under an All Risk Policy for ALL losses caused by ALL RISKS not resulting from fraud, ordinarily, UNLESS the Policy EXPRESSLY EXCLUDES the loss from coverage -- paraphrasing the Court's own words.

      "Each plaintiff in this case is a policyholder with homeowners, renters, or commercial-property insurance whose property was damaged during the New Orleans flooding," the Federal Court wrote at the outset.  Regardless of any other provision in any of these many Insurance Policies, the three Federal Appellate Judges unanimously applied each of seven (7) sets of Flood or Water Damage Exclusions to bar completely all Coverage under all the Insurance Policies for all the Damage caused by the floods spawned by Hurricane Katrina -- even if the Damages were also caused by negligence and even if the Damages were also caused by a Peril Covered under the Policies:

We conclude, however, that even if the plaintiffs can prove that the levees were negligently designed, constructed, or maintained and that the breaches were due to this negligence, the flood exclusions in the plaintiffs' policies unambiguously preclude their recovery.

[Emphasis added.]   And again not a single other provision in the Policies prevented this prediction of Louisiana Insurance Law or contributed to this prediction, either, particularly where the Federal Appellate Court read all the Trial Court Complaints in each of these cases as complaining of only one cause of Damage, Flood or Water:

     In sum, we need not address the applicability of anti-concurrent-causation clauses or the efficient proximate-cause rule because, as pleaded, there was not more than one separate cause of the plaintiffs' losses.

[Emphasis added.]  The 7 sets of Flood or Water Damage Exclusions were all basically similar to the following language drawn from the long appellate opinion:

Water Damage [is excluded], meaning:

Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind.

This is standard language.  The effects of this Federal Appellate Court ruling may thus be felt everywhere this language is used in all types of All Risk Insurance Policies.

      This Federal Appellate Court ruling was commented on, in a copyrighted article by the Associated Press, published for example in The Washington Post on Friday, August 3, 2007:  Becky Bohrer, "Big Insurers Win Ruling On Katrina Levee Break/Appeals Court Says No To Claims Payout", Page D01.    

      In a related area, see the list of some alternatives to the current Florida CatClaims crisis, without undue emphasis on any particular one, in this invitation to thinking in "New Thinking On Insurance," St. Petersburg Times Editorial, August 5, 2007.

                                          Please Read The Disclaimer.

What Hath Hurricanes Wrought?

     Premiums for Property Insurance still soar in Florida.  Cancellations increase too.  Whether Homeowner's Insurance Coverage or Commercial Property Coverage, these and other facts make Catastrophe Claims Coverage for potential future Hurricane Damage  nonexistent or unaffordable in Florida.   The  January, 2007 Special Session of the Florida Legislature did not result in the lowered premiums and greater availability of CatClaims Coverage that were goals.  It is time to proactively address the current situation.  Some of the available alternatives are listed but not pushed in, for example, "New Thinking on Insurance," St. Petersburg Times Editorial, Sunday, August 5, 2007.

     The price of indifference is too great to increasing premiums and unavailable Coverage in the middle of the 2007 Hurricane Season.

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