Unti-Claims Handling Following Catastrophes 2013-10

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J. Wylie Donald, Esq. of McCarter & English LLP presented “Climate Change- Uncovering Risk in a Warming World” at the October 2013 67th Annual F. Addison Fowler Seminar held by The Insurance …

J. Wylie Donald, Esq. of McCarter & English LLP presented “Climate Change- Uncovering Risk in a Warming World” at the October 2013 67th Annual F. Addison Fowler Seminar held by The Insurance Roundtable of Baltimore in Hunt Valley, MD

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  • 1. Claims Handling following Catastrophes Liberty Mutual Insurance
  • 2. Introduction • Michael Unti Liberty Mutual Property Team Manager Mid Atlantic Territory Cat Involvement Liberty Mutual Insurance
  • 3. Sandy • • • • • Swiss Re Study – Largest Catastrophe of 2012 $70 Billion in economic losses 35 Billion in insured losses 20 to 25 billion were covered by the private sector Remaining losses covered by National Flood Insurance program • It was estimated that New York City lost up to $200 million a day in permanently lost economic activity • 7.5 million power outages throughout Hurricane Sandy’s two day assault Liberty Mutual Insurance
  • 4. Storm Preparation • • • • • Identify Path of Storm Review PIF counts in the storms path Identify adjuster availability and need for further resources Identify staging location to gather prior to storm landing Meet at staging area review adjusting guidelines and potential coverage issues • After the storm hits gather information from local adjusters and agents on impact • Proceed to loss locations Liberty Mutual Insurance
  • 5. Storm Preparation Liberty Mutual Insurance
  • 6. Storm Preparation • The table below identifies policy holders close to the coast and within the potential path of the storm. State Southeast Louisiana Southern Mississippi Southern Alabama Florida Panhandle Total Liberty Mutual Insurance Business Insurance Business Income Exposures – Business Ins National Insurance Business Income Exposures – National Ins 743 193 437 5,076 2,424 420 91 294 2,884 1,387 2,528 667 547 4,463 4,486 1,031 301 258 2,125 1,816
  • 7. Storm Preparation Liberty Mutual Insurance
  • 8. Storm Preparation Claims Call Center Preparation: • Claims Call Center management has staff available through the weekend. Management will continue to monitor claim volume and staff accordingly. Property Operation Preparation: • • Inside Claims Handling Claims associated with TS Karen will be handled jointly by the Cat Operation and staff from all three Field Property Zones and the Specialized Property Operations. • • Field Claims Handling Field staff from all three Zones have been put on standby for potential deployment to the affected areas. In addition, a number of Catastrophe Independent Adjusting firms have been notified of the potential need and are prepared to deploy staff. • • Large Loss Claims Handling Large loss operation is prepared and has a designated group that can respond as necessary. Legal Preparation: • Previously released national guidance surround named storm deductibles appears to address policies from the states affected as no state specific deductible endorsements were found. Home office legal is prepared to assist as needed. Liberty Mutual Insurance
  • 9. Pre-Storm Planning Insurance Institute for Business & Home Safety (IBHS) • 1. Take pictures of your property/office. • 2. Get updated contact information from all employees. Find out where your employees plan on going if evacuated. • 3. Know where you will temporarily be located if unable to return to your place of business and how you will communicate the relocation to employees, customers and vendors. • 4. Know what your customers will expect from you during and after the hurricane. Make sure you have a plan in place to communicate with them. Liberty Mutual Insurance
  • 10. Pre-Storm Planning Insurance Institute for Business & Home Safety Continued • 5. Make sure you have your key vendors contact information and if time allows, find out their plans to continue servicing you during and after the hurricane. • 6. Have a battery-operated radio and spare batteries to ensure you can receive emergency information. • 7. Obtain sufficient flashlights and other battery powered lights to allow essential work to be conducted in the event of a power outage. • 8. Decide what critical items must be removed from your business. Liberty Mutual Insurance
  • 11. Pre-Storm Planning Insurance Institute for Business & Home Safety Continued • 9. Identify essential business records that should be removed from the property and determine where you plan to take them. Check your back up process to make sure everything is backed up correctly. Protect the backup copy along with your other essential records. • 10. With possible power loss, unplug non crucial electrical equipment being left behind to avoid shock and surges when power is restored. Move them to a well-protected interior room on floors above the level of potential flooding. • 11. Fill vehicle fuel tanks. Fuel may not be available during hurricane evacuation activities. • 12. Identify outside equipment and furnishings which could be blown loose and may cause damage in hurricane winds such as outside merchandise, trash cans, signs, awnings, antennas and tools. • 13. Ensure that backup personnel know how to turn off electrical power, water, gas and other utility services within your building at main switches. Liberty Mutual Insurance
  • 12. Disaster Planning Resources • www.disastersafety.org Free Business continuity tool designed to help small business focus on planning for any type of business interruption, so they can quickly re-open and resume operations following a disaster • www.ready.gov/business Assistance with emergency preparedness and putting together a plan for homes and businesses Liberty Mutual Insurance
  • 13. Catastrophes and Direct Damage • Flood or Not Flood Did the property sustain flood damage or wind damage? Was loss due to rising flood waters? Did water enter the building through a storm created opening? • Back Up of sewers and drains Concurrent Causation Language Where is the drain located? What limit applies? • Surge – Role of Equipment Breakdown Liberty Mutual Insurance
  • 14. Named storm and Hurricane Deductibles • Tropical Storm Status is reached when winds are sustained at 39 MPH • Hurricane force winds are defined as being 74 miles per hour or faster • National Hurricane Center creates annual lists of names • Possible restriction, sub-limits or different deductibles may apply to named storms • Sandy was declared a “post-tropical storm” just before it made landfall. New Jersey, New York, Connecticut and Maryland governors declared Hurricane deductibles would not apply • Named Storm deductibles and Wind deductibles may still be applicable Liberty Mutual Insurance
  • 15. National Flood Program • Less then 15% of homeowner’s nationally carry flood coverage • Replacement cost coverage applies only to a dwelling and not to commercial structures • Limits available through flood program generally small • Biggert-Waters Flood insurance Reform Act of 2012 – Attempt to make rates more accurately reflect the real risk of flooding • Penalties for lenders who fail to enforce requirement to carry flood insurance Liberty Mutual Insurance
  • 16. Top Business Risks of 2013 Property Casualty 360 1. Economic Slowdown/Slow Recovery 2. Regulatory/Legislative Changes 3. Increasing Competition 4. Damage to Reputation/Brand 5. Failure to Attract or Retain Top Talent 6. Failure to Innovate/Meet Customer Needs 7. Business Interruption 8. Commodity Price Risk 9. Cash Flow/Liquidity Risk 10. Political Risk/Uncertainties Liberty Mutual Insurance
  • 17. Resulting Damage from Power Outage • • • • Loss of Income Loss of Heating and Cooling Food Spoilage Sump Pump failure and resulting water damage Liberty Mutual Insurance
  • 18. Power Outages • Last July a storm swept through the Mid-Atlantic and MidWest causing over a 1 million customers to be without power for more then 5 days after the storm, including 50,000 Pepco customers in suburban Maryland. State Farm received an excess of 29,000 claims. • Post Sandy Nor’easter struck shortly after Sandy knocking out additional service to homes and businesses and slowed recovery efforts from prior storm. Liberty Mutual Insurance
  • 19. Other Causes of Power Outage • Human Error – 2011 Major electric transmission system outage in western Arizona and loss of key connection with a 2,150 megawatt nuclear power plant caused 5 million people to lose power • Mylar balloons caused a power in Chicago which affected 11,000 customers • Road Chemicals – magnesium chloride on power lines acted as a conduit for electricity and caused wooden poles to catch fire • Ice Storms Liberty Mutual Insurance
  • 20. Why do we still have Overhead Lines? • The county’s power infrastructure was largely constructed between 1930 and 1970 • Electric Power Research Institute, Inc. estimates cost to bury the lines is between $5 million and $15 million per mile. These costs would be passed down to consumers • Washington estimated it would cost $5.8 billion to bury lines throughout the city, increasing electric bills by $107 per month • North Carolina looked into burying their power lines at a cost of $41 billion. Project would have taken 25 years and raised electric bills by 125% • While power companies are investing in transmission upgrades studies do not indicate a reduction in blackouts Liberty Mutual Insurance
  • 21. CP 00 10 06 07 e. Utility Services The failure of power, communication, water or other utility service supplied to the described premises, however caused, if the failure: (1) Originates away from the described premises; or (2) Originates at the described premises, but only if such failure involves equipment used to supply the utility service to the described premises from a source away from the described premises. Liberty Mutual Insurance
  • 22. BP 00 03 01 10 B. Exclusions 1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area. e. Utility Services The failure of power, communication, water or other utility service supplied to the de-scribed premises, how-ever caused, if the failure: (1) Originates away from the described premises; or (2) Originates at the described premises, but only if such failure involves equip-ment used to supply the utility service to the described premises from a source away from the described premises. Failure of any utility service includes lack of sufficient capacity and reduction in sup-ply. Loss or damage caused by a surge of power is also excluded, if the surge would not have occurred but for an event causing a failure of power. But if the failure or surge of power, or the failure of communication, water or other util-ity service, results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss. Communication services include but are not limited to service relating to Internet access or access to any electronic, cellular or satel-lite network. This exclusion does not apply to loss or damage to "computer(s)" and "electronic data". Liberty Mutual Insurance
  • 23. Extension Endorsements (b) Utility Services We will pay for the actual loss of Business Income at the described premises caused by the interruption of service to the described premises. The interruption must result from direct physical loss or damage by a Covered Cause of Loss to the following types of property located outside of a covered building described in the Declarations. (i) Water Supply Services, meaning the following types of property supplying water to the described premises: i. ii. Pumping stations; and Water mains. (ii) Communication Supply Services, meaning property supplying communication services, including telephone, radio, microwave or television services to the described premises, such as: i. ii. iii. (iii) Communication transmission lines, including optic fiber transmission lines; Coaxial cables; and Microwave radio relays except satellites. It does not include overhead transmission lines. Power Supply Services, meaning the following types of property supplying electricity, steam or gas to the described premises: Utility generating plants; Switching stations; Substations; Transformers; and Transmission lines. i. ii. iii. It does not include overhead transmission lines. The most we will pay under this Coverage Extension is $1,000 in any one occurrence. If the interruption of service is due to an “accident,” coverage will be provided under Additional Coverage Equipment Breakdown. Liberty Mutual Insurance
  • 24. Extension Endorsements Continued A. Coverage Your coverage for Business Income and/or Extra Expense, as provided and limited in the applicable Coverage Form, is extended to apply to a "suspension" of "operations" at the described premises caused by an interruption in utility service to that premises. The interruption in utility service must result from direct physical loss or damage by a Covered Cause of Loss (as indicated in the Schedule) to the property described in Paragraph C. if such property is indicated by an "X" in the Schedule. B. Exception Coverage under this endorsement does not apply to Business Income loss or Extra Expense related to interruption in utility service which causes loss or damage to electronic data, including destruction or corruption of electronic data. The term electronic data has the meaning set forth in the Coverage Form to which this endorsement applies. C. Utility Services 1. Water Supply Services, meaning the following types of property supplying water to the described premises: a. Pumping stations; and b. Water mains. 2. Communication Supply Services, meaning property supplying communication services, including telephone, radio, microwave or television services, to the described premises, such as: a. Communication transmission lines, including optic fiber transmission lines; b. Coaxial cables; and c. Microwave radio relays except satellites. It does not include overhead transmission lines unless indicated by an "X" in the Schedule. 3. Power Supply Services, meaning the following types of property supplying electricity, steam or gas to the described premises: a. Utility generating plants; b. Switching stations; c. Substations; d. Transformers; and e. Transmission lines. It does not include overhead transmission lines unless indicated by an "X" in the Schedule. D. The Coinsurance Additional Condition does not apply to this endorsement. E. The Utility Services Limit Of Insurance, as shown in the Schedule, is the only Limit which applies to the coverage provided under this endorsement, and is part of, not in addition to, the Limit of Insurance stated in the Declarations as applicable to the described premises. Liberty Mutual Insurance
  • 25. Civil Authority Coverage & Access Issues • Civil Authority We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss. • Ingress/Egress Issues due to flooding no Civil Authority Liberty Mutual Insurance
  • 26. Adjusting Power Outage Claims • Gathering information on cause of the outage Covered Cause of loss Power Companies Other Sources • Requesting documents to support loss figure Profit and loss statements Tax returns Sales records • Waiting Periods • Role of Equipment Breakdown Liberty Mutual Insurance
  • 27. Questions? Liberty Mutual Insurance