In the aftermath of Hurricane Katrina, the insurance industry may face disputes with homeowners over whether they have legitimate wind damage claims, a trade association claims specialist predicted.
Don Griffin, vice president for personal lines for the Property Casualty Insurers Association of America, noted that both Louisiana and Mississippi have so-called "valued policy" laws that could require carriers to pay full replacement value of totaled property even if part of the damage is caused by flooding, which is a risk not generally covered by home policies.
Mr. Griffin said that laws state that "in the event of a total loss you have to write a check for the full amount."
He noted that in Florida, where the issue arose after four hurricanes hit the state last year, the industry challenged a similar law but lost in what has become known as the "Mierzwa" decision.
The Florida case ruling is under appeal, Mr. Griffin said, and since that time the Legislature has revised the law concerning coverage for future storms.
It remains possible, he said, that both the Federal Emergency Management Agency and the personal lines carrier will have to fund the replacement costs in the event of a total loss of some properties under these laws.
The issue will soon end up in the courts if, as expected, plaintiff's attorneys use their experience in Florida in Louisiana, Mr. Griffin predicted.
Mr. Griffin said the laws were written at a time before the onset of the federal program providing flood insurance. "They were written even before we started separating the property policies to have different windstorm and homeowners' policies where they started separating out some of these perils," he said.
Mr. Griffin said policies today contain clauses that in the event the insured has other policies covering the same loss, the claimant is only entitled to be put back in the position he was before the event.
Much of the damage in Louisiana will come from flooding alone, so this could lessen the number of suits. But there will surely be some total losses where wind and flooding played a role to keep the issue alive, Mr. Griffin said.
Robert P. Hartwig, vice president and chief economist with the Insurance Information Institute Inc., in New York, speculated that Katrina could produce a substantial amount of litigation from those who are not happy with their claims settlement where the damage was primarily found to be caused by flooding and there was no flood insurance in place.
This view was shared by Alan J. Levin, an attorney for Edwards & Angell, a national law firm. Mr. Levin, who chairs the firm's insurance and reinsurance practice, said there will be a number of arguments over the cause of damage, whether it originated from rain, wind or flood.
"This will be an ongoing issue that will be discussed in detail and litigated," said Mr. Levin. "There will be no easy answers to these questions."
When asked how he thought this would be resolved, he said, "It is too early to guess how this will play out."
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.