While courts and regulators wrangle with homeowners' claims from Hurricane Katrina, another contest may be brewing down the road over storm-related reinsurance coverage, one attorney warns.

Indeed, insurers may find themselves fighting to recover on reinsurance policies where their reasons for large claims settlements are called into question, according to Vince Vitkowsky, with the New York office of Edwards Angell Palmer & Dodge.

During a webinar last week sponsored by his law firm, Mr. Vitkowsky said if insurers succumb to the “enormous social and political pressures to pay claims,” they may find reinsurers unwilling to honor contracts.

“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,” he said.

For example, in the case of State Farm–which has entered into an agreement with the Mississippi Insurance Department to reopen certain claims–a reinsurer may feel it is not obligated to provide coverage because the move was made to satisfy regulatory pressure, he said.

“State Farm doesn't care too much about this because it is under-reinsured, so it can reopen claims without the reinsurance implications,” according to Mr. Vitkowsky.

However, he added, if other insurers adopt similar re-examination agreements, “that decision could make for some interesting dialogue back and forth–if not disputes.”

Reinsurers are obliged to cover claims that are made when an insured's policy settlement is reached in good faith, or after a “business-like investigation,” or if a court reaches a verdict, noted Mr. Vitkowsky.

Insurers will also be faced with other issues, he pointed out–for example, exclusions that can include items or occurrences such as machinery, flood, mold and riot.

Insurers will face aggregation limits where they will not be able to file claims for different events stemming from a single occurrence–in this case Katrina–over a certain period of time, he added.

He mentioned that one reinsurance broker had addressed the aggregation issues and removed some uncertainty by recognizing a broad range of natural perils and expanding the time period for events.

Essentially, each contract will be different, and the result will raise complex questions for insurers and reinsurers to resolve, Mr. Vitkowsky observed.

“These developments and issues have made for a very interesting first quarter for the insurance and reinsurance industry, and it is only going to get more interesting as the year goes on,” he said.

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 at www.eapdlaw.com.

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