By Michael C. Perlmuter, JD, President & General Counsel
John Steinbeck, if he were still among us, would need little more than keeping his attention plastered on the news and weather reports to find some grist for another novel. The hurricane, earthquake and fire outbreaks which have been tormenting much of the western hemisphere might not be the focal point of the plot, but they certainly could provide backdrop for the significant angst he chronicled.
Five major outbreaks, including three hurricanes (Harvey, Irma and Maria), an earthquake and a wildfire during the past several months have had a hugely devastating effect on people and businesses in the U.S., Caribbean and Mexico. Together, the hurricanes that wreaked havoc in the U.S. Virgin Islands (St. Thomas and St. John), St. Maarten, Puerto Rico and northwards into Florida and Texas when combined have caused 260-plus deaths and an estimated $300 billion in damages.
The problems created by the costliest Atlantic hurricane season ever was compounded by an 8.1 magnitude earthquake that left 500 people dead in Mexico. The fires which ravaged 245,000 acres of northern California wine country did billions more in damage and killed another 40-plus.
Steinbeck would have decades of inventory resulting from the heartbreaks caused by the tragedies which have left people homeless, businesses in ruins, areas still without electricity and most affected searching for missing loved ones as well as hope. Steinbeck would concur the sum of these events will have a long term impact on all in the path of the devastation from the loss of lives, families which have been uprooted and businesses which have been shuttered. He likely would have little compassion for the insurance industry and possibly even the Federal Emergency Management Association (FEMA) whose resources are being taxed when dealing with the short-term needs, but will be further stressed when contending with the rebuilding of infrastructures.
The numbers will be staggering. Swiss Re, the world’s second leading reinsurer, estimates insurers are expected to take a total hit of at least $100 BILLION as a result of the hurricanes,the Mexico quake and the California conflagration.
Aside from the clearly obvious loss of life and damage to property caused by all of these events, what are the short-term and potential long term repercussions?
In the near-term, thousands upon thousands of insurance claims have been filed or will be filed. The overwhelming claims volume will far exceed the ability of the insurers’ collective rosters of field claim professionals to handle, much less handle timely.
First, this will cause a horrific delay in responsiveness to insureds’ claims. In Puerto Rico alone, it is estimated that as many as 500,000 insurance claims may be filed, according to catastrophe modeler AIR-Worldwide. Assuming the 375 insurance claims adjusters on the island (a number taken from 2016 data) and estimating each adjuster could process on the average 20 claims per week, the existing adjusters would need 6.67 months to complete the claims work. The calculation assumes the adjusters have enough building estimators, contents appraisers and forensic accountants employed to calculate the damages to the structures, the business and personal property as well as the business income losses.
The problem with that assumption is that with all of the events occurring across the western hemisphere, the employed building and contents estimators and forensic accountants will be in sorrowfully low supply.
What will happen next?
Insurers will look outside to third parties to assist with the claims. The problems with that strategy is that these claims professionals:
1) Will likely not be familiar with a given insurer’s policies, forms and endorsements, resulting in many claims being wrongfully denied or claims adjusted inconsistently and payments made (or not made) correctly; and
2) Will likely be from states outside of the location of the claim. As such, they likely will not have knowledge of local laws and regulationsand will not be familiar with local contractors and their pricing.
It can and should be fully anticipated that as the demand for qualified construction workers and building material increases, pricing for both will increase. The carriers’ computerized pricing systems for calculating damages likely will not account for prospective increases in labor and material costs, leaving insureds with offers and settlements from carriers that are far short of what will be the actual market costs to re-build.
In specific regards to hurricane losses, issues will arise as to whether damages to insureds’ properties were caused by flood or wind. In many cases, insureds do not carry flood policies. Thus, the findings made by the carriers,their adjusters and engineers as to whether damages were caused exclusively, primarily or at all by flood waters or wind, may be determinative of whether a claim even gets paid, notwithstanding to the value of the claim. In addition, first, the policy language, and then, the venue’s case law on anti-concurrent causation may be controlling as to whether damages purportedly caused by a mix of perils will be covered.
How do insureds combat what seems like so many forces operating against their claim?
Simply, by hiring a professional public insurance claims adjuster which has captive building and contents estimators and forensic accountants to timely prepare and submit damage estimates to their carriers.
Public adjusters like the Alex N. Sill Company are structured to handle situational outbreaks and our professionals have been engaged to contend with the high volume of emanating from the hurricane calamities in the continental U.S., U.S. Virgin Islands and even St. Maarten.
Our adjusters already are actively directly engaged in discussions with the insurance companies. The volume of matters we handle along with our nearly 90-year reputation allows Sill professionals to cut through the backlogs of “cases” on insurers’ desks to speeding-up the process for policyholders. It is more difficult for a lone policyholder with a single claim to get that attention.
In terms of the special circumstances surrounding the winery wildfires, vintners are going to find surprising limitations to their policies which likely will result in payouts that are well short of rebuilding costs.
As mentioned above, differences in computerized estimating costs calculated by the carriers and a spike in rebuilding costs will come as a shock to many wineries.
Next, depending on policy language, in many cases, crops will be covered, but not vines. And, policies often impose quirky limits, such as when grapes spoil due to electrical failures instead of fires. Further, even with the best of insurance coverage, vines themselves can take years to grow and mature. Aside from the crops, many wineries have experienced damages to wine-making facilities and tasting rooms, which will result in a loss of tourism for the unknown future.
Wineries need to be familiar with their coverage for issues such as spoilage caused by utility failures, and their business income losses caused by both loss of revenues from the sale of wines, but also from the loss of tourism as well as parties, weddings, etc. that many of these wineries typically host.
Finally, the shortage of professionals employed by the carriers along with both a shortage and the unfamiliarity of third party professionals retained by the carriers to attempt to address the claims that come from the Napa and Sonoma valleys and wineries, is going to make the completion of claims difficult and slow in California.
The recent events have been tragic on both personal and business levels. Attempting to bring and negotiate a claim arising from one of these events is going to be tragic in its own way. The only logical and reasonable way to proceed for an insured to guarantee both a timely recovery and an appropriate recovery is to retain professional claims guidance.
Contact a Sill public adjuster near you for assistance in such matters.