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

1. Claims Handling following
Catastrophes
Liberty Mutual Insurance

2. Introduction
• Michael Unti
Liberty Mutual Property Team Manager Mid Atlantic
Territory
Cat Involvement
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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
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5. Storm Preparation
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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.
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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.
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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
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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
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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
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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
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17. Resulting Damage from Power Outage
•
•
•
•
Loss of Income
Loss of Heating and Cooling
Food Spoilage
Sump Pump failure and resulting water damage
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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
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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".
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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
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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
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27. Questions?
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