There really is no season of disasters, but it does seem that spring and summer, from mid-March to the beginning of fall, is when we receive the most "gifts" from Ma Nature. By April 1st, central New England was convinced that their rain—following one of the worst winters in recent decades—was no April Fool's joke. It reminds one of the great 1936 flood on the Connecticut River, and the story of the two old Yankees sitting on a porch watching houses and covered bridges, cattle, and other debris float down the river. As part of the courthouse floated by, one looked at the other and said, "By gosh, Fred. Taxes are going to be high."
Given that a large number of the victims of the Great Flood of 2010 probably did not have flood insurance, chances are that those cash-strapped states will have little option but to raise taxes, and when they are declared federal disaster zones, the rest of us will have to divvy up, too. When writing chapter 13 on the National Flood Insurance Program for Thomson Reuters West's 2008 text, CAT Claims – Insurance Coverage for Natural and Man-Made Disasters, I included a list of major U.S. floods. It's a common enough peril, but every time there is a major flood, there are those who thought it would never happen to them, and who did not purchase flood insurance.
Of course, for some losses, flood may be a covered peril, as it is generally a part of auto physical damage coverage that goes beyond collision. But on top of all the rusted-out autos from the salt poured on the highways of the Northeast this past winter, water damage is the last thing those vehicles needed. But rust is not an insured peril, so insurers' auto damage appraisers will need to examine the flood claims carefully.
Target States
Disasters seem to hit some states more than others, and while New England and the Northeast get their share, it is generally not as frequent a target for cranky old Mother Nature than a few other regions. The Southeast will get its share of hurricanes, and it is likely that another Katrina/Rita combination will hit somewhere between Virginia and Texas this year. As a Florida homeowner, I know my homeowner's insurer has apparently been expecting a catastrophe for the past few years—and charges me premium accordingly. Well, I hope they have not been spending the dough on executive bonuses instead of building up cash reserves. They may need that cash this year.
Having completed this month's column, I'll be starting on an update to the new chapter in CAT Claims on man-made disasters. Some such calamities already covered are purely man-made, such as product or pollution liability, airline crashes, or bridge collapses. But a few, on which research has already begin, are a combination of man-made and natural disasters, primarily grassland and forest fires and the resulting mudslides that annually burn out or gobble up expensive homes built in the fashionable wilderness. Some fires result when new growth in a former fire zone creates acres of low-lying vegetation that is dried out from lack of precipitation. A spark from lightning or a campfire gets it blazing and—poof!—there goes the nearest McMansion.
After the trees and vegetation are gone, along comes the rain, turning the hilly slopes to mud, and the houses that are left take a ride down the hill. Why insurers are willing to insure such homes for fire is as unclear as to why they are willing to insure homes on coastal barrier islands for hurricanes.
So what should insureds and insurance adjusters do? Those who plan ahead will know that, like the debate over wind or storm surge in a hurricane, both of these perils are not insurable under the same form. Homeowners' policies will cover the home damaged by windstorm or fire, but the "collapse" coverage is extremely limited, and not intended to cover ocean waves or a mud slide. Flooding, landslides, mudslides, and mud flows are specifically excluded. A NFIP policy will cover a "mud flow," but not a mudslide.
So what's the difference? The NFIP defines a "mudflow" as "[A] river of liquid and flowing mud on the surfaces of normally dry land areas, as when earth is carried by a current of water. Other earth movements, such as landslide, slope failure, or a saturated soil mass moving by liquidity down a slope, are not mudflows."
If that is not sufficiently muddy, consider that the NFIP policy specifically excludes landslide, land subsidence, sink holes—a big deal in Florida, for example, when the January 2010 freeze caused fruit farmers to pump unknown gallons of water out of the Central Florida Aquifer, creating sinkholes on private properties, local highways, and Interstate 4—gradual erosion and "destabilization or movement of land that results from accumulation of water in subsurface land area." Therefore, before property adjusters pay for a mudslide collapse claim, they had better read the fine print in the policies and conduct a thorough cause-and-origin study. There are some mighty fine lines here.
In what locations are the risks for this combination of natural and man-made disasters the greatest? California comes to mind, but it is certainly not the only state with forest fire and mudslide risks. Forest wildfires occur in any state with large forested areas, many in the Southeast, especially following a drought. States in the Northwest (Oregon, Washington, Idaho, Montana, and others) are also vulnerable to forest fires and mudslides. Forest fires have ravished Yellowstone National Park, Glacier National Park, and other national parks and forests, land we all own and pay taxes to protect.
Other Natural Pickles
Floods, tornadoes, hurricanes, tsunamis, mudslides, earthquakes, freezes, and droughts are not the only damage recipes in Mother Nature's cookbook. Interstate 70 was closed in Colorado this past winter for both snow and rockslides. One peril you may not have heard of is a lahar. These pesky little disasters result when the heat of a volcano causes glaciers on the slopes to melt, forming a pyroclastic flow of rocks and debris that may extend for many miles beyond the base of the volcano. The entire area south of Seattle may be built on a lahar of Mt. Rainier. Add to that the steam, poisonous sulfur gas, ash, and lava from a volcano—not to mention the explosion—and many Pacific Coast mountains as well as Yellowstone National Park itself pose infinite potential sources of disaster.
So the season is upon us. While New England dries out, the leaves on their trees turning green, then red and gold next fall, windstorms will blow away Midwestern and Southern towns. Melting snow and heavy rains will have already flooded river valleys, and storm adjusters will have been rushed in to settle claims. Perhaps the person who said "It's an ill wind that blows nobody good," was not thinking of the insurance claim adjusting business. Let's just hope that those insurers we work for have not disposed of their key claim personnel, and have nothing left but the clerks to send out when Ma Nature throws a hissy and devastates some town, coastline, or forest.
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