If insurers eventually knuckle under to political and legal pressure to pay flood-related Hurricane Katrina claims that they believe their policies excluded, what happens when they try to recoup some of that money by filing with their reinsurers? One attorney warns that carriers may in fact find themselves out of luck.
Our own Mark Ruquet filed a story about his potential problem last week. (Click here for the full story.)
“If insurers are seen to simply give into political pressures or seen as not applying the best available methods of adjusting claims, then there is the potential for some [legal] dispute,” said Vince Vitkowsky, with the New York office of Edwards Angell Palmer & Dodge, during a recent webinar. Indeed, he warned that if insurers succumb to the “enormous social and political pressures to pay claims,” they may find reinsurers unwilling to honor contracts.
(A complete replay of the webinar—including a discussion by attorney Brian J. Green on what insurers are dealing with in Louisiana and Mississippi—can be heard by clicking here.)
I can certainly understand if reinsurers are skeptical should primary carriers cave in after having been so adamant that any flood-related damage means their homeowners policies are free of liability. In fact, this could be one big factor why insurers are digging their heels in about these disputed claims, out of fear that they will be left holding the bag for all the losses should they settle out of political necessity.
In any case, this certainly does add another element of uncertainty to this debate.
What do you folks think about all this? What is the obligation of the reinsurer under such circumstances? This all goes back to an earlier blog posting from March 15 (click here) on the ethical question of whether insurers have any moral obligations to pay claims, even in the presence of clear legal ambiguities, along with the practical considerations of being besieged by angry politicians and attorneys general.
