HURRICANES HARVEY AND IRMA€¦ · Harvey and Irma will force residents and businesses in the...
Transcript of HURRICANES HARVEY AND IRMA€¦ · Harvey and Irma will force residents and businesses in the...
Michael L. Foran Matthew P. Fortin 222 North LaSalle StreetSuite 1400 Chicago, Illinois 60601Tel: (312) 863-5000 Fax: (312) 863-5099Fax: (312) [email protected]@fgppr.com
Charles J. Rocco Ashley C. Vicere Paul Ferland 40 Wall Street 54th Floor New York, New York 10005TTel: (212) 257-7100 Fax: (212) [email protected]@[email protected]
HURRICANES HARVEY AND IRMAWHITE PAPER
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Contents
Introduction ..................................................................................................................................... 3
I. Background ...................................................................................................................... 4
A. Harvey .......................................................................................................................... 4
B. Irma ............................................................................................................................... 6
II. Wind vs. Water ................................................................................................................. 7
A. Water Damage Exclusions ............................................................................................ 7
B. Anti-Concurrent Cause Provisions ............................................................................... 8
C. Flood ........................................................................................................................... 10
III. Multiple Occurrences ..................................................................................................... 11
IV. Hurricane Deductibles .................................................................................................... 12
A. Site-Specific Conditions ............................................................................................. 13
B. Policy Language and States’ Emergency Declarations .............................................. 14
V. State Regulations ............................................................................................................ 16
A. Premium Payments Grace Period ............................................................................... 16
B. Claim Handling........................................................................................................... 17
C. Policyholder Protections ............................................................................................. 19
D. Texas House Bill 1774 ............................................................................................... 21
VI. Underinsurance............................................................................................................... 21
VII. Business Interruption Claims ......................................................................................... 22
A. Depopulation .............................................................................................................. 23
B. Loss Valuation ............................................................................................................ 24
VIII. Business Interruption Extensions ................................................................................... 24
A. Civil Authority. ........................................................................................................... 25
B. Ingress/Egress ............................................................................................................. 27
C. Contingent Business Interruption ............................................................................... 27
D. Service Interruption .................................................................................................... 28
IX. Replacement Cost and Code Upgrade ............................................................................ 29
Conclusion .................................................................................................................................... 30
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Introduction
The insurance claims from Hurricanes Harvey and Irma will pose challenges beyond the expected
coverage issues raised by the storms and the damage they caused.
Hurricanes Harvey and Irma mark the first time two Atlantic Category 4 hurricanes made landfall
in the U.S. in the same year.1 Hurricane Harvey is the wettest tropical storm to hit the continental
United States. Harvey generated so much rain that the National Weather Service (NWS) had to
update its color charts in order to track it.2 Like Harvey, Hurricane Irma is one for the record books.
“Hurricane Irma is the strongest Atlantic basin hurricane ever recorded outside the Gulf of Mexico
and the Caribbean Sea.”3 The 400-mile-wide storm4 reshaped beaches, forced evacuations, ruined
houses, and flooded cities throughout Florida, Georgia, and South Carolina.5 For comparison,
Hurricane Katrina spanned an area 300 miles wide.
Harvey and Irma will force residents and businesses in the southern United States to address many
issues that they have not faced in a long time. Both hurricanes brought catastrophic conditions to
largely populated areas, which have not been tested by an insured event on this scale in decades.
Hurricane Ike, which made landfall in Texas in 2008 as a Category 2 hurricane,6 was the prologue
that should have reinforced lessons learned in the Gulf and Southeastern United States from
Katrina, Rita, Charley, Ivan, Francis, Jeanne, Wilma and others. Even still, thousands of victims
will, for the first time, find themselves dealing with hurricane deductibles, the need for flood
insurance, and whether policy limits or reported values accurately reflect the true costs of
replacement.
1 Chris Dolce, Hurricanes Irma and Harvey Mark the First Time Two Atlantic Category 4 U.S. Landfalls Have
Occurred in the Same Year, WEATHER CHANNEL (Sept. 10, 2017),
https://weather.com/storms/hurricane/news/hurricane-irma-harvey-landfall-category-4-united-states-history.
2 Danika Fears, National Weather Service Updates Color Warnings to Keep Up with Harvey, N.Y. POST (Aug.
28, 2017, 12:14 PM), http://nypost.com/2017/08/28/national-weather-service-updates-color-warnings-to-keep-
up-with-harvey.
3 Brandon Miller, All the Records Irma has Already Broken – and Other Jaw-Dropping Stats, CNN (Sept. 10,
2017), http://www.cnn.com/2017/09/10/us/irma-facts-record-numbers-trnd/index.html.
4 Chris Graham & Harriet Alexander, Hurricane Irma Bears Down on Tampa After Leaving Trail of Devastation
Across Florida – Latest News, TELEGRAPH (Sept. 11, 2017),
http://www.telegraph.co.uk/news/2017/09/10/hurricane-irma-florida-keys-latest-news.
5 Bill Chappell, Hurricane Irma Blasts Into The Record Books With Lasting Intensity, NPR (Sept. 12, 2017),
http://www.npr.org/sections/thetwo-way/2017/09/12/550188154/hurricane-irma-blasts-into-the-record-books-
with-lasting-intensity.
6 ROBBIE BERG, NAT’L HURRICANE CTR., TROPICAL CYCLONE REPORT: HURRICANE IKE 1 (2009),
http://www.nhc.noaa.gov/data/tcr/AL092008_Ike.pdf.
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The scope of potentially covered losses will be as broad as Harvey and Irma were wide. Physical
damage from storm surge, wind, rain, flood, and sewer backup is accompanied by business
interruption losses from service interruption, broken supply chains, closure by order of civil
authority both before and after the hurricanes, and depopulation of certain areas.
Beyond dealing with the challenges posed by the storm itself, both state regulators and Mother
Nature have further complicated matters. Federal and state governments were quick to respond to
Harvey and Irma with emergency bulletins and regulations easing burdens on insureds. Mother
Nature, as if she had not already done enough, brought a slew of tornadoes through the hurricanes’
wakes, generating even more destruction.7 The task of parsing damage attributable to the various
perils that attended Harvey and Irma will be complicated by this subsequent destruction.
This paper will discuss the most common coverage issues applicable to the adjustment of hurricane
claims. Because most of the damage from Hurricane Harvey occurred in Texas, and most of the
damage from Hurricane Irma occurred in Florida, we highlight Texas and Florida law. As always,
however, we remind you to perform a choice-of-law analysis prior to relying on any one state’s
case law. For example, many policies designate the application of New York law. As such, we
also highlight relevant New York law where appropriate. Finally, we analyze the law of other Gulf
States where particularly relevant to insurance claims arising out of prior hurricanes.
I. Background
A. Harvey
At approximately 10:00 PM on August 25, 2017, Harvey made landfall near Rockport, Texas, as a
Category 4 hurricane.8 Harvey hit land with sustained wind speeds of 130 mph and a minimum
pressure of 938 mb.9 A Category 4 hurricane as it made landfall, Harvey was revised to a tropical
storm, and later a tropical depression, as it moved inland.10
Both the old and the new appellations were bestowed by the National Weather Service. The NWS
classifies tropical storm systems based on their sustained wind speeds. A Category 4 hurricane is
a tropical cyclone with sustained wind speeds between 130 and 156 mph. A Category 1 hurricane
is a tropical cyclone with sustained wind speeds between 74 and 95 mph, while storms with
7 Sabriya Rice, Tornadoes Haunt Houston Area as By-product of Harvey, DALL. NEWS (Aug. 26, 2017),
https://www.dallasnews.com/news/weather/2017/08/26/tornadoes-haunt-houston-area-product-harvey.
8 Hurricane Harvey Discussion No. 23, NAT’L HURRICANE CTR. (Aug. 25, 2017, 10:00 PM),
http://www.nhc.noaa.gov/archive/2017/al09/al092017.discus.023.shtml.
9 Id.
10 Tropical Storm Harvey Intermediate Advisory No. 25A, NAT’L HURRICANE CTR. (Aug. 26, 2017, 1:00 PM),
http://www.nhc.noaa.gov/archive/2017/al09/al092017.public_a.025.shtml.
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sustained wind speeds between 39 and 73 mph are classified as tropical storms.11 A tropical
depression is a tropical cyclone with sustained wind speeds below 38 mph.12
The re-categorization of Harvey after its landfall was by no means a reflection of its capacity to
cause damage. Harvey is the wettest tropical storm to hit the continental United States. Preliminary
reports calculate Harvey rainfalls in excess of 51 inches.13 This surpassed the previous record of
Tropical Storm Amelia in 1978.14
Along the Gulf Coast, Harvey brought record-breaking storm surge, coastal flooding, and
widespread wind damage. Hurricane Harvey was “the worst hurricane to hit the Texas coast in
more than 50 years.”15 The U.S. Department of Energy reported that Harvey is “the strongest
hurricane to impact Texas since 1961 and the first [C]ategory 4 storm to make landfall in the
United States since Hurricane Charley impacted Florida in 2004.”16
Researchers anticipate Harvey-related losses to reach $65 billion,17 which would make it the most
damaging storm in United States history.18 Preliminary insured loss estimates in the wake of the
storm are as high as $6 billion.19
While the bulk of news coverage and public reaction to Harvey has focused on the plight of
homeowners and small businesses, damage to infrastructure has also been significant. Nearly 25%
of the country’s oil refinery capacity – including the first and second largest oil refineries in the
11 Saffir-Simpson Hurricane Wind Scale, NAT’L HURRICANE CTR., http://www.nhc.noaa.gov/aboutsshws.php.
12 Glossary of NHC Terms, NAT’L HURRICANE CTR., http://www.nhc.noaa.gov/aboutgloss.shtml.
13 Storm Summary No. 18 for Tropical Storm Harvey – Preliminary Rainfall Totals and Wind Reports, WEATHER
PREDICTION CTR., NAT’L CTRS. ENVTL. PREDICTION (Aug. 30, 2017, 10:00 AM),
http://www.wpc.ncep.noaa.gov/discussions/nfdscc1.html.
14 Tropical Cyclone Point Maxima, WEATHER PREDICTION CTR., NAT’L CTRS. ENVTL. PREDICTION,
http://www.wpc.ncep.noaa.gov/tropical/rain/tcmaxima.html.
15 Harvey May Be One of the Costliest Storms in U.S. History, CBS NEWS (Aug. 28, 2017, 9:05 AM),
https://www.cbsnews.com/news/harvey-may-be-one-of-the-costliest-storms-in-u-s-history.
16 INFRASTRUCTURE SECURITY & ENERGY RESTORATION, U.S. DEP’T ENERGY, HURRICANE HARVEY: EVENT
REPORT (UPDATE #5) 1 (2017), https://www.energy.gov/sites/prod/files/2017/08/f36/Hurricane%20Harvey%20
Event%20Summary%20%235.pdf.
17 Umair Irfan, The Stunning Price Tags for Hurricanes Harvey and Irma, Explained, VOX (Sep. 18, 2017, 2:00
PM), https://www.vox.com/explainers/2017/9/18/16314440/disasters-are-getting-more-expensive-harvey-irma-
insurance-climate.
18 Harvey May Be One of the Costliest Storms in U.S. History, CBS NEWS (Aug. 28, 2017, 9:05 AM),
https://www.cbsnews.com/news/harvey-may-be-one-of-the-costliest-storms-in-u-s-history.
19 Matthew Lerner, Insured-Loss Estimates Rise as Harvey Parks Over Texas Coast, BUS. INS. (Aug. 29, 2017,
3:08 PM), http://www.businessinsurance.com/article/20170829/NEWS06/912315493.
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United States – were shut down.20 The U.S. Department of Energy reported that 306,058 customers
experienced power outages in Texas during a 24-hour peak.21 Airports were shut down, hospitals
were evacuated, and water purification plants were submerged.22 Infrastructure damage is not only
expensive to repair, but also increases the breadth of business interruption losses.
B. Irma
At approximately 9:00 AM on September 10, 2017, Hurricane Irma made landfall at Cudjoe Key,
Florida, as a Category 4 hurricane.23 Irma hit the Florida Keys with maximum sustained winds of
130 mph. A Category 4 hurricane as it made landfall, it incrementally decreased in strength while
moving inland, eventually to a tropical depression.24
Nonetheless, like Harvey, Irma’s re-categorization while moving inland did not disturb its capacity
to cause severe damage. In Florida, “at about 400 miles (640 kilometers) wide, it raked much of
the state with devastating storm surge, destructive winds and drenching rains.”25 Irma is the first
hurricane to make landfall in Florida since Wilma in 2005.26
Researchers anticipate Irma-related losses in Florida to reach $50 billion.27 Early insured loss
estimates from Hurricane Irma in the United States are between $20 and $40 billion.28
20 Elena Holodny, The Largest Oil Refinery in the US Is Shutting Down Because of Flooding from Harvey, BUS.
INSIDER (Aug. 30, 2017), http://www.businessinsider.com/harvey-floods-shut-down-largest-us-oil-refinery-
2017-8; Jill Disis et al., 10 Refineries Close as Harvey Drenches Texas Energy Hub, CNN MONEY (Aug. 28,
2017, 2:52 AM), http://money.cnn.com/2017/08/27/news/economy/tropical-storm-harvey-texas-oil-gas.
21 INFRASTRUCTURE SEC. & ENERGY RESTORATION, U.S. DEP’T ENERGY, HURRICANE HARVEY: EVENT REPORT
(UPDATE #5) 3 (2017), https://www.energy.gov/sites/prod/files/2017/08/f36/Hurricane%20Harvey%20
Event%20Summary%20%235.pdf.
22 Sarah Almukhtar et al., Mapping the Devastation of Harvey in Houston, N.Y. TIMES (Aug. 28, 2017),
https://www.nytimes.com/interactive/2017/08/28/us/houston-maps-hurricane-harvey.html.
23 Perry Stein et al., Hurricane Irma Makes Second Landfall in Florida and Will Roar Up the State’s Gulf Coast,
WASH. POST (Sept. 10, 2017), https://www.washingtonpost.com/news/post-nation/wp/2017/09/10/hurricane-
irma-makes-landfall-in-florida-keys-targets-gulf-coast/?utm_term=.707ae1a9a620.
24 Holly Yan et al., Irma Floods Jacksonville, Charleston and Savannah, CNN (Sept. 12, 2017, 10:01 AM),
http://www.cnn.com/2017/09/11/us/hurricane-irma-weakens-to-category-1-storm.
25 Seth Borenstein, Irma Set Records; Luckily, Late Weakening Dampened Its Power, AP NEWS (Sept. 11, 2017),
https://www.apnews.com/ad0e32d276b144c0ae15ebb00b2af040.
26 Daniel Politi, Weakened Irma Sweeps Past Tampa as a Category 1 Hurricane, SLATE (Sept. 11, 2017, 10:36
AM), http://www.slate.com/blogs/the_slatest/2017/09/10/hurricane_irma_makes_landfall_in_florida_keys_
as_category_4_storm.html.
27 Josh Boak, Irma’s Damage A Reminder of Florida Economy’s Vulnerability, ABC NEWS,
http://abcnews.go.com/Lifestyle/wireStory/irmas-damage-reminder-florida-economys-vulnerability-49908821.
28 Id.
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In Florida, in anticipation of Irma, an estimated 6.3 million people were told to evacuate.29
Furthermore, airlines, hospitals, and numerous other businesses were forced to close and
evacuate.30 Florida residents have already begun submitting insured loss claims for business
interruption, among other losses.31
Given the vast extent of destruction resulting from Harvey and Irma, proper adjustment of the
insurance claims will require careful analysis of numerous complex and integrated issues.
II. Wind vs. Water
Unlike many natural disasters, the physical damage done by a tropical storm is rarely attributable
to any one peril or cause of loss. In coastal areas, which experience the strongest winds, the greatest
threat to property is storm surge – an abnormal rise of water beyond astronomical tide levels
generated by storm-force winds pushing water toward the shore. Rain, meanwhile, can contribute
to flooding and enter structures through openings created by wind or debris. Insurance coverage
for the physical damage and interruption of business following Harvey and Irma will depend on
which of these perils caused the insured’s loss and, if more than one, their timing, sequence, and
relative contribution to the physical damage to insured property, as well as the specific language
of the insurance policy. The answers to these questions matter not only to coverage for loss or
damage, but also to the amount of a covered loss, since different deductibles, limits, or sub-limits
may be triggered by different perils.
Factually, weather data and forensic investigations will identify the extent and sequence of wind,
rain, and storm surge at a given location. The same set of facts, however, will produce different
coverage outcomes in different states, depending on the causation doctrine applied by courts and
their analysis of anti-concurrent cause (ACC) provisions.
A. Water Damage Exclusions
While wind is generally a covered cause of loss, water, in its various incarnations – rain, flood,
storm surge, sewer backup – is not. A standard ISO form, Causes of Loss – Special Form (CP 10
30 04 02), states, in pertinent part:
29 Ralph Ellis et al., Florida Gov. Rick Scott Tells Residents ‘You Need to Go Right Now,’ CNN (Sept. 9, 2017,
4:17 PM), http://www.cnn.com/2017/09/08/us/hurricane-irma-evacuation-florida.
30 Pam Wright & Sean Breslin, Florida Prepares for Hurricane Irma: Evacuations Ordered in Miami-Dade
County; ‘This is a Nuclear Hurricane,’ Miami Beach Mayor Says, WEATHER CHANNEL (Sept. 7, 2017, 12:00
AM), https://weather.com/storms/hurricane/news/hurricane-irma-florida-preps.
31 Ina Cordle, Hurricane Irma Claims Filed in Florida Already Reach $2B, REAL DEAL (Sept. 18, 2016, 3:15
PM), https://therealdeal.com/miami/2017/09/18/hurricane-irma-claims-filed-statewide-already-reach-2b.
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1. We will not pay for loss or damage caused directly or indirectly by any of thefollowing. Such loss or damage is excluded regardless of any other cause or eventthat contributes concurrently or in any sequence to the loss.
….
g. Water
(1) Flood, surface water, waves, tides, tidal waves, overflow of any body ofwater, or their spray, all whether driven by wind or not.
While many water damage exclusions, like this ISO form, do not explicitly refer to “storm surge,”
courts have consistently held that storm surge is encompassed by definitions of water damage. The
Fifth Circuit Court of Appeals, applying Mississippi law in an insured homeowner’s suit arising
out of a claim for damage from Hurricane Katrina, described “storm surge” as “little more than a
synonym for a ‘tidal wave’ or wind-driven flood.” Leonard v. Nationwide Mut. Ins. Co., 499 F.3d
419, 437 (5th Cir. 2007); see also Corban v. United Servs. Auto. Ass’n, 20 So. 3d 601, 610-11
(Miss. 2009) (holding that “storm surge” is contained unambiguously within the “flood” and
“overflow of a body of water” portions of the definition of “water damage”).
Likewise, the United States District Court for the Eastern District of New York recently held that
storm surge was excluded pursuant to a flood exclusion. Madelaine Chocolate Novelties v. Great
N. Ins. Co., No.15 CV 5830, 2017 WL 4280550, at *2 (E.D.N.Y. Sept. 26, 2017). Madelaine was
an insurance coverage dispute arising out of Post-Tropical Cyclone Sandy in 2012. Significantly,
the Court reached its conclusion despite the fact that “wind is the principal factor” and “the primary
motive force behind storm surge.” Madelaine Chocolate Novelties, Inc. v. Great N. Ins. Co., No.15
CV 5830, 2017 WL 2954630, at *7 (E.D.N.Y. June 30, 2017) (citing Storm Surge Overview,
NAT’L HURRICANE CTR., http://www.nhc.noaa.gov/surge (“Storm surge is produced by water
being pushed toward the shore by the force of the winds moving cyclonically around the storm.”)),
adopted by sub nom. 2017 WL 4280550. Thus, even acknowledging wind’s significant
contribution to storm surge, the court agreed with the “well-established [principle] that an
insurance policy containing a well-drafted flood exclusion does not cover storm surge.” Id. at *8.
B. Anti-Concurrent Cause Provisions
Anti-concurrent cause language developed in response to the concurrent cause and efficient
proximate cause doctrines, which afford coverage for damages resulting from a combination of
covered and excluded causes. Under the efficient proximate cause doctrine, such damage is
covered as long as the covered cause is the efficient proximate cause of the loss. The concurrent
cause doctrine states that damage is covered as long as a covered cause appreciably contributes to
the loss. The intent of ACC language is to negate application of these doctrines.
The validity and effect of ACC provisions is not uniform across states. In California and North
Dakota, for example, the efficient proximate cause doctrine has been codified by statute, thus
precluding parties from using ACC language to contract out of default causation rules. Elsewhere,
courts have found ACC language ambiguous or held that insurers simply may not avoid default
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causation rules by contracting out of it. Some jurisdictions, like Florida, have not addressed ACC
language or decided its enforceability. In most jurisdictions, however, courts recognize an
unambiguous expression of intent in ACC language and enforce it accordingly.
In Texas, ACC language is interpreted to mean that a loss is only covered when it results
exclusively from a covered cause. JAW The Pointe, L.L.C. v. Lexington Ins. Co., 460 S.W.3d 597,
607-08 (Tex. 2015). An ACC “provision means that any other concurrent causes of loss are
irrelevant if [an exclusion] applies.” Praetorian Ins. Co. v. Arabia Shrine Ctr. Hous., No. 4:14-
CV-3281, 2016 U.S. Dist. LEXIS 20186, at *25-26 (S.D. Tex. Feb. 19, 2016). Texas enforces
ACC language, but in its absence, applies the common-law concurrent cause doctrine. JAW The
Pointe, 460 S.W.3d at 608. The insurer has the burden to prove that an ACC provision applies to
exclude a loss. Allen v. State Farm Lloyds, No. 05-16-00108-CV, 2017 Tex. App. LEXIS 7211, at
*33-34 (Tex. App. Aug. 1, 2017).
The segregation of wind and flood damage has been the subject of a number of decisions involving
insurance claims from Hurricanes Katrina and Rita. These decisions are binding or persuasive on
many courts in the areas affected by Harvey and Irma. As such, the decisions of courts in the Gulf
States addressing multiple and concurrent causation issues in Hurricane Katrina claims are
valuable guides for the insurance professionals administering Harvey and Irma claims.
Indeed, when the Texas Supreme Court first contemplated the applicability of an ACC provision
in the wake of Hurricane Ike, it adopted the Fifth Circuit’s reasoning from a Hurricane Katrina
case. The Texas Supreme Court found that ACC language, when read in conjunction with a
policy’s flood exclusion, “exclude[s] from coverage any damage caused by a combination of wind
and water.” JAW The Pointe, 460 S.W.3d at 608 (quoting Leonard v. Nationwide Mut. Ins. Co.,
499 F.3d 419 (5th Cir. 2007)); see also ARM Props. Mgmt. Grp. v. RSUI Indem. Co., 400 F. App’x
938, 941 (5th Cir. 2010) (applying Texas law) (“The only species of damage covered under the
[RSUI Policy] is damage caused exclusively by wind. But [because] wind and water
synergistically caused the same damage, such damage is excluded.” (quoting Leonard, 499 F.3d
at 430)).
In Leonard v. Nationwide Mutual Insurance Co., 499 F.3d 419 (5th Cir. 2007), the Fifth Circuit
Court of Appeals, applying Mississippi law, considered an insured homeowner’s claim for damage
to a residence caused by wind and storm surge during Hurricane Katrina. While Nationwide’s
policy treated wind as a covered peril, it excluded water damage under the following exclusion:
1. We do not cover loss to any property resulting directly or indirectly from any of thefollowing. Such a loss is excluded even if another peril or event contributedconcurrently or in any sequence to cause the loss.
….
2. Water or damage caused by water-borne material…
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(1) flood, surface water, waves, tidal waves, overflow of a body of water, sprayfrom these, whether or not driven by wind.
499 F.3d at 430. The court recognized three discrete categories of damage: (1) damage caused
solely by wind; (2) damage caused solely by water; and (3) damage caused concurrently by wind
and water. Storm surge following a hurricane, the court noted, is the classic example of a
concurrent wind-water peril. Id. Finding the ACC exclusion for water damage unambiguous and
not violative of public policy, the court held that the Nationwide policy only covered damage
caused solely by wind.
Subsequently, in Corban v. United Services Automobile Association, 20 So. 3d 601 (Miss. 2009),
the Mississippi Supreme Court held that while storm-surge-related damage may be excluded, an
ACC clause did not negate coverage for windstorm damage to particular items of property. The
court reasoned that loss “vests” at the time of initial damage, as does coverage for the loss.
Coverage for windstorm damage, therefore, could not be vitiated by subsequent storm surge
damage to the same item of property.
Finally, in New York, ACC language is interpreted “to mean that where a loss results from multiple
contributing causes, coverage is excluded if the insurer can demonstrate that any of the concurrent
or contributing causes of loss are excluded by the policy.” Alamia v. Nationwide Mut. Fire Ins.
Co., 495 F. Supp. 2d 362, 368 (S.D.N.Y. 2007) (citation omitted). While enforcing anti-concurrent
cause language, New York is not particularly clear as to whether the efficient proximate cause
doctrine or the concurrent cause doctrine govern in its absence.
An understanding of these and other opinions is valuable but will not be a substitute for an adequate
investigation of physical damage, site-specific weather conditions, and awareness of the particular
language of the subject insurance policy. Forensic investigations should be aided by the wealth of
historical weather data that will become available in the public domain from the National Oceanic
and Atmospheric Administration’s various research arms, climatic data centers, and local weather
forecast offices. Sources of that data will include weather instruments measuring conditions in
real-time during Harvey and Irma, often within miles of an insured location.
C. Flood
Causation determinations, particularly insurers’ attribution of damage to flooding, rather than to
wind or another covered cause of loss, may have macro consequences not integrated in a decision
matrix for any one property. As an insurable peril, flood is as problematic as any. Only about 12%
of the public has flood insurance.32 The limited flood coverage available to homeowners and
businesses in certain areas is provided by the National Flood Insurance Program (NFIP). Insurance
experts estimated that roughly 80% of residents in the areas most affected by Hurricane Harvey
32 Flood Insurance, NAT’L INFO. INST., http://www.iii.org/fact-statistic/flood-insurance.
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do not have flood insurance.33 In Florida, before Irma, just 41% percent of homes in the most
hazardous areas had flood insurance.34 Moreover, the NFIP’s precarious financial position,
especially following the rash of hurricanes and other floods in 2005, is well documented.35
Preliminary estimates of the total damage caused by Harvey and Irma exceed $150 billion.36 The
NFIP is estimated to have only $1.7 billion on hand to pay claims, with an additional $5.9 billion
in borrowing authority.37 It is likely that the NFIP will have to go to Congress to ask for additional
borrowing and payment authority.
III. Multiple Occurrences
The multiple causation issues that have and will arise from Harvey and Irma will pose difficulties
for insurers. Both storms made multiple landfalls, and tornadoes spawned in their wakes. Due to
the storms’ heavy rains and winds, mandatory evacuations, and time without utilities, many
victims were unable to prevent further damage to their homes and businesses. Building
components remaining intact following the hurricanes’ landfalls may nonetheless have been
weakened, lowering the threshold for damage from storm conditions. As a result, a thorough
coverage analysis of claims for physical loss or damage may have to account for the potential role
of pre-existing damage exclusions and policyholders’ obligations to mitigate damages and to
protect property from further loss or damage immediately following Harvey and Irma.
That said, insurers’ inclinations to question whether a policyholder took reasonable steps to protect
property from further damage and to mitigate loss will have to be balanced against extenuating
circumstances created by mandatory evacuation orders and existing power outages as well as the
political and executive weight being brought to bear on insurers’ processing and handling of
claims. Insurers can look for guidance to the handling of claims in Florida following the 2004 and
33 Bernard Condon & Ken Sweet, About 80% of Hurricane Harvey Victims Do Not Have Flood Insurance, Face
Big Bills, USA TODAY (Aug. 30, 2017, 3:03 PM), https://www.usatoday.com/story/money/2017/08/29/
hurricane-harvey-houston-flood-insurance-damages-claims/611910001; Policy Statistics Country-Wide as of
06/30/2017, FED. EMERGENCY MGMT. AGENCY (June 30, 2017), https://bsa.nfipstat.fema.gov/reports/1011.htm.
34 Casey Logan, Hurricane Irma Aftermath: Floridians Without Flood Insurance Face Astronomical Bills, USA
TODAY (Sept. 20, 2017, 1:21 AM), https://www.usatoday.com/story/news/nation-now/2017/09/20/hurricane-
irma-floridians-without-flood-insurance/684003001.
35 Erwann O. Michel-Kerjan, Catastrophe Economics: The National Flood Insurance Program, 24 J. ECON.
PERSP. 165, 165-86 (2010).
36 Julia Horowitz, Hurricanes Irma and Harvey Have Racked Up Billions in Damages. Who Pays?, CNN MONEY
(Sept. 15, 2017, 5:32 PM), http://money.cnn.com/2017/09/15/news/economy/irma-harvey-damage-who-
pays/index.html.
37 Patrick Danner, FEMA’s Federal Flood Insurance Program Has $7.6 Billion to Pay Harvey Claims, MY SAN
ANTONIO (Aug. 29, 2017, 11:16 AM), http://www.mysanantonio.com/business/local/article/FEMA-s-federal-
flood-insurance-program-has-7-6-12153545.php.
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2005 hurricane seasons. Hurricanes Charley, Frances, and Jeanne all made landfall in Florida
within 30 days of each other in August and September 2004, followed by Wilma in October 2005.
IV. Hurricane Deductibles
Following Harvey and Irma, the applicability of special deductibles promises to be a point of
continuing controversy. Though commonly referred to as “hurricane deductibles,” policy forms
and endorsements are not uniform in their terminology. Instead, these percentage deductibles may
be couched in terms of a “wind storm,” “named storm,” or “tropical cyclone.” However, the
concept, which developed in response to Hurricane Andrew, is the same.
Whether a storm deductible is applicable to a given claim will require review of historical weather
data specific to the insured location. Where the policy language identifies the determinations of
the National Weather Service as dispositive, there would normally be little room for disagreement
among insurers and policyholders. Previous storms, however, have caused quite a stir in the
meteorological industry. With respect to claims adjustment after Post-Tropical Cyclone Sandy,
which struck the Northeastern Coast in 2012, even historical weather data was open to
interpretation and revisionist history.
Whether hurricane deductibles apply to claims arising out of Harvey and Irma matters more than
the dollar difference between the hurricane deductible and the deductible that would otherwise
apply, as it may mean the difference between whether an insurer’s payment obligation is triggered,
or the extent of investigation that is needed to determine the amount and cause of damage at a
given property. Assuming a hurricane deductible applies, insurers can expect disputes over the
dollar amount. Whereas a typical deductible is stated in dollar terms, a hurricane deductible is
often stated in the policy as a percentage. It should not be taken for granted that the percentage is
of a readily determined amount that is not open to interpretation or argument by the policyholder.
Where applicable, a hurricane deductible may allow an insurer to save on the time and expense
that would otherwise be invested in segregating damage caused by multiple perils. For example,
where an insured property has sustained damage from both covered and non-covered causes which,
in the aggregate, exceeds the applicable deductible, it is necessary to allocate the damage between
causes of loss to determine whether the covered damage exceeds the applicable deductible. This
is often an expensive and time-intensive endeavor that does not necessarily yield a conclusive
result. By the terms of most insurance policies, the insurer is not obligated to indemnify a
policyholder unless and until covered losses exceed the applicable deductible. However, if damage
from multiple perils does not exceed the applicable deductible even when aggregated, that
investigation may be unnecessary.
The takeaway for those watching the aftermath of Harvey and Irma for their insurance implications
is two-fold. First, for purposes of determining the applicability of a hurricane deductible and
assessing the storm conditions that may have damaged an insured property, the inquiry cannot stop
13
at the labels of “hurricane” assigned to Harvey and Irma at their initial landfalls, or “tropical storm”
or “tropical depression” assigned as the hurricanes’ destruction continued. Insurers must be aware
of the various sources of data and information available to assess the variables that give a true
picture of site-specific weather conditions during the hurricanes.
Second, and equally if not more important, is to keep one’s eye on the ball. In this case, the ball is
the insurance policy and the applicable statutes or regulations governing the terms and
requirements of percentage storm deductibles. Historically after these types of major disasters,
state insurance commissioners have issued regulations to govern the application of deductibles.
Those regulations complicate matters, as they at least arguably constitute an impermissible
impairment of the contract between insurer and insured. At the time of this writing, no such
regulations have been issued in Texas or Florida, but we will analyze the regulations that have
been issued on pages 16-21, infra. Even without state regulators’ pronouncements, the validity and
application of hurricane deductibles is sure to be a point of contention in the adjustment and
resolution of Harvey and Irma claims.
A. Site-Specific Conditions
NWS’s classification of Harvey and Irma as hurricanes or tropical storms at a given point in time
does not necessarily reflect the actual conditions experienced at an insured property. Local weather
instruments collecting real-time data during Harvey and Irma – at airports or other points of interest
– can present a more targeted measurement of meteorological conditions at a given location. By
compiling data from multiple instruments in a given region, such as official NWS stations, wind
swath maps can present a far more accurate picture of the conditions at a property than an NWS
classification taken at face value.
The National Hurricane Center (NHC) issues advisories, forecasts, and warnings for tropical storm
systems. In addition, local NWS Weather Forecast Offices issue watches and warnings. The NHC
classified Harvey as a “hurricane” until 1:00 PM on August 26, 2017, when it reclassified Harvey
as a “tropical storm.”38 The NHC again reclassified Harvey as a “tropical depression” as of 7:00
PM on August 30, 2017.39 In regards to Irma, the NHC classified Irma as a hurricane until 5:00 AM
38 Tropical Storm Harvey Intermediate Advisory No. 25A, NAT’L HURRICANE CTR. (Aug. 26, 2017, 1:00 PM),
http://www.nhc.noaa.gov/archive/2017/al09/al092017.public_a.025.shtml.
39 Tropical Depression Harvey Intermediate Advisory No. 42A, NAT’L HURRICANE CTR. (Aug. 30, 2017, 7:00
PM), http://www.nhc.noaa.gov/archive/2017/al09/al092017.public_a.042.shtml.
14
on September 11, 2017.40 The NHC again reclassified Irma as a “tropical depression” as of 11:00
PM on September 11, 2017.41
Given other variables in play, it would also behoove those concerned to look closely at the
conditions impacting a particular site rather than employing a one-size-fits-all approach to weather
conditions. Topographical conditions in the immediate vicinity of a particular site can alter the
wind speeds and wind forces acting on the property. For example, wind pressures increase with
elevation. Also, open (as opposed to wooded) areas allow wind speeds to accelerate prior to
impacting a structure, such that the same structure in the middle of a city will experience different
wind forces than if it were located in the middle of a corn field. Storm systems may also contain
localized and fleeting pockets of dangerously-intense wind shears called “microbursts” which can
cause comparable damage to a tornado. As of August 26, 2017, the NWS had confirmed 16
tornadoes in Harvey-affected areas and issued 64 tornado warnings.42In South Florida alone, there
were 16 tornado warnings as a result of Irma.43
Another reason the nomenclature used by the NHC and NWS to describe storm systems like
Harvey and Irma is not a completely reliable indication of the severity of a storm’s impact in a
given area is that the scale it uses to classify storms as a Category 1 to 5 hurricane takes no account
of storm surge. The Saffir-Simpson Hurricane Wind Scale, which sets the parameters of the five
categories of hurricanes, does so based on the expected wind damage for the sustained wind
speeds. It does not gauge, in any shape or form, the expected storm surge damage accompanying
that storm. In the cases of Harvey and Irma, which spurred record-breaking rainfall and
unprecedented storm surge, this can lead to significant understatement of their impact.
B. Policy Language and States’ Emergency Declarations
Not surprisingly, the terms of insurance policies regarding “hurricane” deductibles vary widely. A
table summarizing approved windstorm deductibles for homeowners coverage in New York, for
example, is over thirty pages long. This goes to show the importance of the particular language of
each insurance policy when determining the appropriate deductible for covered damage.
40 Hurricane Irma Advisory Number 49, NAT’L HURRICANE CTR. (Sept. 11, 2017, 5:00 AM),
http://www.nhc.noaa.gov/archive/2017/al11/al112017.public.049.shtml.
41 Tropical Depression Irma Advisory Number 52, NAT’L HURRICANE CTR. (Sept. 11, 2017, 11:00 PM),
http://www.nhc.noaa.gov/archive/2017/al11/al112017.public.052.shtml.
42 Sabriya Rice, Tornadoes Haunt Houston Area as By-product of Harvey, DALL. NEWS (Aug. 26, 2017),
https://www.dallasnews.com/news/weather/2017/08/26/tornadoes-haunt-houston-area-product-harvey.
43 Steve MacLaughlin, Why Were There So Many Tornadoes During Hurricane Irma?, NBC MIAMI (Sept. 14,
2017, 3:30 PM), http://www.nbcmiami.com/news/local/Why-Were-There-So-Many-Tornadoes-During-
Hurricane-Irma--444488583.html.
15
While many policies do contain “hurricane” deductibles, others use “named storm” or
“windstorm” deductibles instead. For example, ISO’s HO 03 40 endorsement uses a “windstorm”
rather than “hurricane” deductible, while not defining the term “windstorm.” Thus, if state
regulators issue bulletins pronouncing the applicability of “hurricane” deductibles to Harvey and
Irma claims, as they historically do, it would not necessarily speak to the applicability of these
other types of deductibles.
Texas and Louisiana declared states of emergency due to Harvey. When Harvey first hit land near
Rockport, Texas, it was a Category 4 hurricane. It was re-classified to a tropical storm by its second
landfall in Texas and its third landfall near Cameron, Louisiana. Due to Irma, Florida also issued
a state of emergency.44 When Irma first hit land in Cudjoe Key, Florida, it was a Category 4
hurricane. It was re-classified as a Category 3 when it made its second landfall in Florida.45
While Texas, Louisiana, and Florida have not yet issued bulletins pronouncing the applicability of
hurricane deductibles to Harvey and Irma claims, they are likely to do so in the coming weeks.
The significance of the anticipated bulletins should not be overstated. Insurance is a heavily
regulated industry. The insurance policy provisions providing for application of a hurricane
deductible in certain circumstances have, at some point, been approved by each state’s department
of insurance for use in that state. Those forms typically set forth the meteorological conditions that
will trigger a hurricane deductible, often based on determinations regarding the storm and weather
data issued by the NWS. Having approved the use of these forms for insurance contracts covering
property located in their respective states, regulators effectively made determinations regarding
the application of hurricane deductibles in a given situation under lawful contracts of insurance
between private parties. While the pronouncements of governors and state regulators can, and
perhaps should, carry political weight and in that sense factor into insurer’s decision-making as to
Harvey and Irma claims, they do not trump the terms of lawful private contracts, particularly where
those contracts were approved by the very state authorities now attempting to disavow their prior
pronouncements.
Respecting the parties’ freedom of contract, as well as the deductible endorsements and forms
previously approved by state regulators, should mean that the application of a hurricane deductible
to a particular claim depends on the language of the policy at issue and the weather conditions that
impacted the property during Harvey or Irma. Leaving the application of hurricane deductibles to
the specific language of the insurance policy at issue and the particular weather conditions at the
44 Dan Politi, Florida Declares State of Emergency as Hurricane Irma Strengthens to Category 5, SLATE (Sept. 4,
2017, 8:00 PM) http://www.slate.com/blogs/the_slatest/2017/09/04/florida_declares_state_of_emergency_as_
hurricane_irma_strengthens_to_category.html.
45 Mark Katkov et al., Irma Weakens But Continues to Batter Florida, NPR (Sept. 10, 2017, 6:13 AM),
http://www.npr.org/sections/thetwo-way/2017/09/10/549852003/hurricane-irma-begins-to-pummel-florida-
keys-as-it-moves-toward-the-mainland.
16
insured property sustaining damage will not produce uniform results across properties, regions, or
even states, but will reinforce confidence in the orderly administration of insurance claims and the
right of contracting parties to the benefit of their bargain.
V. State Regulations
Governors and insurance regulators have emergency and provisional rule-making authority to
allow them to respond quickly and efficiently to disaster situations. The Texas and Florida
insurance commissioners have not hesitated to exercise that authority in the wake of Hurricanes
Harvey and Irma. A number of emergency regulations and measures issued after the storms touch
on a range of topics.
Insurers and their representatives on the ground need to be familiar with these measures as they
represent a moving target for insurers’ claim handling obligations. While the emergency measures
already implemented are reviewed below, insurers must expect that regulators will be monitoring
the industry’s response and claim handling with a heightened level of scrutiny. The Consumer
Federation of America (CFA), a consumer advocacy group, has issued a press release urging
regulators in the affected states to closely monitor insurer’s handling of claims from the
hurricanes.46 After Post-Tropical Cyclone Sandy in 2012, the CFA asked regulators to prohibit the
application of hurricane deductibles to Sandy claims and to “block” application of anti-concurrent
causation clauses to claims involving damage from both wind and floods.47 Insurers can expect
similar undertakings in the wake of Hurricanes Harvey and Irma.
A. Premium Payments Grace Period
The Texas and Florida commissioners promulgated rules imposing a grace period for premium
payments from victims of Hurricanes Harvey and Irma. The Texas Department of Insurance issued
Bulletin B-0009-17, which dictates that insurers should suspend premium payments to allow
continuing insurance coverage. Insurers need not forgive the premiums, but should work with
policyholders in the collection of premiums, including payment plans. The normal premium debits
from financial institutions may continue in place according to written agreement, unless a problem
exists with premium debits, or a policyholder’s specific hardship directs a carrier otherwise.
The Florida Office of Insurance Regulation issued an emergency order of similar import. The
emergency order activated the provisions of Florida Administrative Code Rule 69O-142.015(2),
46 What Consumers Should Do to Get Fair Claims Payments in the Wake of Hurricane Harvey, CONSUMER FED’N
AM. (Aug. 28, 2017), http://consumerfed.org/press_release/consumers-get-fair-claims-payments-wake-
hurricane-harvey.
47 Letter from J. Robert Hunter, Director of Insurance, Consumer Federation of America to the Office of Governor
Chris Christie of New Jersey (Nov. 6, 2012),
http://www.consumerfed.org/pdfs/CFA.Sandy.PreventUnauthorizedReplacementCostDeductiblesNJ.pdf.
17
which imposes standardization requirements on insurance companies after hurricanes and other
natural disasters. The rule imposes a grace period “[a]s to any policy provision, notice,
correspondence, or law which imposes a time limit upon an insured to perform any act or transmit
information” regarding an insurance policy. For any such acts required to be performed on or after
September 4, 2017, the order extended the time limit to December 3, 2017. This extension does
not apply to new policies issued on or after September 10, 2017. Additionally, the order specified
that the extension “shall not relieve a policyholder who has a claim resulting from Hurricane Irma
from compliance with their obligations to provide information and to cooperate in the claim
adjustment process relative to the property damage claim.”
B. Claim Handling
Historically in these types of major disasters, state insurance commissioners have issued
regulations modifying guidelines for the handling of insurance claims. As of the time of this
writing, the affected states’ regulators have not yet issued such bulletins. In the coming weeks,
insurers can expect additional rules to be promulgated to regulate insurers’ handling of Harvey
and Irma claims. Insurers should monitor the insurance departments of the affected states to
maintain compliance with all claims handling regulations. We take this opportunity to analyze the
bulletins that have been issued by the Texas and Florida Commissioners, as well as other
anticipated regulations, pertaining to the adjustment of claims and bad faith claims handling.
1. Adjustment of Claims
The Texas Department of Insurance has issued a bulletin reminding insurance companies of
existing Texas laws pertaining to the adjustment of claims. Insurers are reminded of Texas
Insurance Code § 4101.002(b) and § 4101.101, which authorize insurers to immediately use
nonresident and emergency adjusters to handle claims.
Additionally, Texas insurers are reminded of various provisions regulating the use of contractors
and roofing servicers as claims adjusters. Insurers must use licensed public insurance adjusters to
assist in the handling of all claims. Texas Insurance Code § 4101.251(a) prevents licensed adjusters
from adjusting a loss related to roofing damage if the adjuster is a roofing contractor or otherwise
provides roofing services or products for compensation, or is a controlling person in a roofing-
related business. Texas Insurance Code § 4101.251(b) and § 4102.163(a) prevent roofing
contractors from adjusting claims for any property for which the contractor may provide roofing
services, regardless of whether the contractor is a licensed adjuster. Note that contractors are not
exempt from the licensing requirement under Texas Insurance Code § 4102.002. Additionally,
note that the Insurance Code does not prohibit contractors from providing estimates or discussing
those estimates and other technical information with an insurer or its adjuster.
Further, Texas Insurance Code § 4102.151 prohibits public insurance adjusters from attempting to
solicit clients for employment during the progress of a loss-producing natural disaster occurrence.
Texas Insurance Code § 4102.158 prevents public insurance adjusters from engaging in activities
18
that reasonably present a conflict of interest, including participation (directly or indirectly) in
repairing damaged property that is the subject of a claim they adjust.
In the coming weeks, insurers can expect additional regulations to be promulgated to modify
guidelines for the handling of Hurricanes Harvey and Irma claims. Harvey and Irma regulations
will likely mirror regulations issued after Post-Tropical Cyclone Sandy in 2012. One such example
is the New York Department of Financial Service’s circular directing insurers to accept
homeowners’ documentation of losses sight unseen. This requirement was expressed in a Circular
Letter issued by the DFS on November 5, 2012, stating that:
the Superintendent has determined that it would be dangerous to public health and against public policy for insurers to enforce provisions of their policies that operate to bar insureds from disposing of damaged property before the insurer has inspected it. Accordingly, insurers must accept homeowners' documentation of losses rather than requiring an inspection first where an immediate cleanup is reasonably necessary to protect health and safety, or protect further damage to property. For claims under homeowners' insurance, if dwelling debris must be removed before the adjuster is able to examine it, insurers should accept as proof of loss documentation such as photographs, videos, material samples and
inventories prepared by policyholders as alternatives to formal inspection.48
The measure was limited to homeowners’ claims and removed the obligation of policyholders to
wait until a company representative or adjuster could view damaged property before having a
downed tree or pile of waterlogged debris removed for disposal. In such a scenario, the bulletin
reasoned, photographic or videographic evidence should allow a reasonably accurate claim
adjustment. This modified insurers’ rights to, and scope of, post-loss investigations of Sandy-
related claims in New York. Additionally, it posed a hurdle to enforcement of insureds’ contractual
duties in the event of loss during subsequent litigation, particularly where non-compliance would
otherwise be a legal basis to deny recovery for all or part of a claim.
Emergency regulations pose a unique problem by imposing obligations that insurers must factor
into their claim handling and investigation without knowing how courts or regulators will interpret
them. This uncertainty can leave even the most prudent insurers vulnerable to claims of bad faith
claim handling.
2. Bad Faith Claim Handling
Adjustments by insurers to their claim handling practices in light of emergency regulations must
be sensitive to increased exposure to bad faith or unfair claim practices liability. Determinations
of insurer claim practices liability often takes into account all the facts and circumstances of a
given claim. Knowing violation of the emergency regulations (“knowing” in the sense that insurers
are on notice of regulations and their contents) can be expected to count among the facts and
48 N.Y. DEP’T FIN. SERVS., Ins. Circular Letter No. 8, Nov. 5, 2012.
19
circumstances considered by courts, and alleged by insureds, in claim practices litigation arising
out of Harvey and Irma claims.
Although the affected states have not yet issued emergency regulations addressing these issues,
we expect that they will. The Texas Department of Insurance has issued Bulletin B-0017-17 to
remind insurers of various already-existing provisions pertaining to bad faith. Texas Insurance
Code § 543.001 prevents insurers from misrepresenting the terms and provisions of a policy. Texas
Insurance Code § 542.003 dictates that insurers must attempt in good faith to effect a prompt, fair,
and equitable settlement of a claim in which liability has become reasonably clear. Finally, 28
Texas Administrative Code § 5.9970(d)-(e) reminds insurers that homeowners or dwelling
policyholders are entitled to have their homes repaired by the person of their choice.
The Florida Office of Insurance Regulation has issued an emergency order reminding insurers that,
“[g]iven the strength and size of Hurricane Irma, its catastrophic effect on Florida, stretching from
coast to coast, and its potential impact on hundreds of thousands of policyholders, the Office
expects all insurers and regulated entities to implement processes and procedures to facilitate the
efficient payment of claims.” The Office advised that its expectations include “critically analyzing
current procedures and streamlining claim payment processes as well as using the latest
technological advances to provide prompt and efficient claims service to policyholders.”
An example of a regulation that insurers can expect to be issued in the wake of Harvey and Irma
is the emergency amendment to New York’s unfair claim practices regulation issued in the wake
of Post-Tropical Cyclone Sandy.49 The amendment allowed policyholders to commence
immediate repairs where necessary to protect health or safety and shortened the time in which
insurers were required to commence an investigation of qualifying claims from within fifteen
business days to within six business days of receiving notice of the claim. Significantly, if the
insurer intended to inspect the damaged or destroyed property, the inspection had to occur within
that same time frame. Finally, an insurer was required to furnish all “items, statements and forms,
if any, that the insurer reasonably believes will be required of the claimant, within six business
days of receiving notice of the claim.” This emergency amendment increased insurers’ obligations
to conduct good faith handling of claims. We urge you to monitor the insurance departments of
the affected states for promulgation of similar regulations.
C. Policyholder Protections
The Texas and Florida insurance departments issued other regulations responding proactively to
the plight of policyholders. For example, Texas Bulletin B-0018-17 encourages insurers who deny
coverage for wind losses to inform policyholders of potential coverage under the Texas Windstorm
49 Twelfth Amendment to Insurance Regulation 64 (11 NYCRR 216), Unfair Claims Settlement Practices And
Claim Cost Control Measures, issued November 29, 2012.
20
Insurance Association (TWIA) if the loss occurred in the TWIA coverage area.50 The TWIA is “a
residual insurer of last resort” that “provide[s] coverage to residential and commercial properties
in certain designated portions of the Texas seacoast territory.”51 The Texas legislature established
the TWIA in 1971 in response to market conditions following Hurricane Celia.52
Texas Bulletin B-0019-17 encourages insurers to provide relief to those residents and
policyholders who have been temporarily displaced due to Harvey, including the suspension of
any vacancy provision in the policy, to allow continuing insurance coverage.
Finally, Texas Bulletin B-0015-17 advises insurers that it is inappropriate for them to re-rate,
cancel, non-renew, or refuse to provide coverage due solely to a policyholder’s status as a victim
or evacuee of Hurricane Harvey. Further, it is not reasonable to change a policyholder’s rating
classifications or increase their insurance rates solely because they are a victim or evacuee of
Hurricane Harvey.
The Florida emergency order prohibits insurance companies from canceling or non-renewing
property insurance policies covering a dwelling or residential property in Florida that was damaged
by Irma, until 90 days after the property has been repaired. “A structure is deemed to be repaired
when substantially completed and restored to the extent that it is insurable by another authorized
insurer that is writing policies in this state.” Florida Statutes § 627.4133(2)(d). The Florida
Commissioner also activated the provisions of Florida Administrative Code Rule 69O-
142.015(2)(e)-(n), which prohibit insurers from canceling or non-renewing any policies covering
a person, property, or risk in Florida between September 4, 2017, and October 15, 2017. The
emergency order specifies that policies may still be canceled or non-renewed at the written request
of the policyholder. Any notices of cancellation issued or mailed on or after August 25, 2017,
through and including September 3, 2017, must be withdrawn and reissued to insureds on or after
October 15, 2017.
The Florida order also reminds insurers that Florida Statutes § 627.4035(3)(b) permits insurers to
pay claims by debit card or another form of electronic transfer upon written authorization from the
recipient. The emergency order waives the requirement of written authorization for the duration of
the state of emergency, because “[d]ue to the severe and catastrophic impacts from Hurricane Irma,
many insureds will be unable to send or receive mail.” Insurers must still verify the identity of the
recipient, and may not charge a fee for the transaction. If funds are misdirected, the order specifies
that the insurer remains liable for the payment of the claim.
50 Commissioner’s Bulletin # B-0018-17, TEX. DEP’T INS. (Aug. 29, 2017),
http://www.tdi.texas.gov/bulletins/2017/b-0018-17.html.
51 What Is TWIA?, TEX. WINDSTORM INS. ASS’N, https://www.twia.org/about-us/learn-about-twia.
52 Id.
21
We will continue to monitor regulations issued by states affected by Hurricanes Harvey and Irma
to keep you up to date on the most recent restrictions.
D. Texas House Bill 1774
Compounding confusion in handling Harvey insurance claims, Texas House Bill 1774 went into
effect on September 1, 2017. The new bill adds Section 542A to the Texas Insurance Code and
amends Texas Insurance Code § 541.156 and § 541.060. The new bill modifies Texas laws
pertaining to claim dispute litigation. It adds a notice requirement as a prerequisite for an insured
to file suit under a policy of insurance. It also limits the recovery of attorneys’ fees for
policyholders who recover less than 20% of their pre-suit demands or who failed to provide the
required pre-suit notice. Finally, the new bill lowers the amount of pre-judgment interest insurers
must pay on the amount of claims.
Significantly, this new bill applies to claims filed on or after September 1, 2017, and only in the
event of a litigated dispute over a claim. It is applicable only to claims under first party property
insurance policies relating to damage to real property caused by an earthquake, earth tremor,
wildfire, flood, tornado, lightning, hurricane, hail, wind, snowstorm, or rainstorm. It does not apply
to flood policies backed by the National Flood Insurance Program or claims with the Texas
Windstorm Insurance Association.
VI. Underinsurance
An unfortunate consequence of not having had a large-scale insurance disaster in recent years is
that many insureds in the areas affected by Harvey and Irma will find themselves under-insured.
Too often, property is not insured to a value reflecting the true cost of replacing property in the
event of a total loss. This can be the case for a number of reasons, including an initial valuation
that may have been adequate at one time but has not been reassessed over the years, changing real
estate values, the local market for construction labor and materials, and updated building codes
and industry practices. In these circumstances, an insurer’s payment of policy limits will not be
enough to finance replacement of a damaged structure. This danger is exacerbated by the upward
pressure on local prices for construction labor and materials that will come with the increased
demand for construction services as the recovery from Harvey and Irma gets under way.
State regulators and executives will also be keen to minimize the uninsured portion of the damage
to property in their states. More damage insured by property and casualty insurers means less
financial consequences of rebuilding borne by residents and state and local governments. Thus, if
claim outcomes reveal a significant gap between insured values and true replacement costs,
insurers can expect state regulators to look into underwriting practices and rate filings to see if
insurers, brokers, or other industry professionals should shoulder some of the blame – read
financial consequences – of underinsurance.
22
VII. Business Interruption Claims
Business interruption losses, which have been called the “wild card” of storm coverage
calculations,53 have historically accounted for approximately 20% of insured losses from U.S.
hurricanes. In addition to the numerous areas affected, Harvey devastated Houston, the nation’s
fourth largest city. The area is home to the nation’s largest and second-largest oil refineries, each
of which were shut down during the storm. Being the wettest storm in the continental United States,
Harvey’s catastrophic flooding devastated thousands of businesses in the Gulf. In addition to the
flood damage, businesses lacked power and their owners and employees lacked access to the
premises. As such, business interruption losses resulting from Harvey are expected to be abundant.
Irma had a similarly devastating effect on Florida’s businesses. Across the Southeast, Irma caused
16 million people to lose power. In Florida alone, at least 6 million people lost power.54 Those
power outages, coupled with devastating damages from wind, rain and flooding, devastated
thousands of businesses across a myriad of industries. As such, like Harvey, business interruption
losses resulting from Irma are expected to be abundant.
The business interruption coverages and issues we expect to be most prevalent in Harvey and Irma
claims are discussed below. These issues, which include utility service interruption and off-site
power outage, contingent business interruption coverage, civil authority, and ingress/egress
claims, among others, present a different challenge than property damage claims, or even the
typical business interruption claim, because they hinge in large part on damage and conditions off-
site and outside of the insured’s control. Efficient investigation and utilization of sources beyond
the insured will be essential.
Given the different business interruption coverages that will be involved in Harvey and Irma
claims, an important step that insurers should take care not to overlook is to determine what
coverage is implicated by a particular insured’s loss of business. This may impact the indemnity
period, deductibles, and limits that apply. It will be easier to acknowledge uncertainty at the outset
and to proceed accordingly than to backtrack with an insured under the impression that coverage
was triggered on different, more advantageous terms.
Business interruption coverage typically pays for the actual loss of business income sustained by
the insured due to a necessary suspension of operations during the period of restoration caused by
direct physical loss or damage to property at the insured location caused by a covered cause of
53 Business Interruption a Wild Card in Tallying Post-Sandy Commercial Losses, PROGRAMBUSINESS.COM (Nov.
5, 2012), http://www.programbusiness.com/news/Business-Interruption-a-Wild-Card-in-Tallying-Post-Sandy-
Commercial-Losses.
54 Angela Fritz, Most of Florida Lost Power In Hurricane Irma. Here’s What It Looks Like From Space., WASH.
POST (Sep. 12, 2017), https://www.washingtonpost.com/news/capital-weather-gang/wp/2017/09/12/most-of-
florida-lost-power-in-hurricane-irma-heres-what-it-looks-like-from-space/?utm_term=.3187ef330dc1.
23
loss. Particular attention must be paid to the terms of the insurance policy at issue and to the
decisions of courts in the governing jurisdiction to determine whether business income coverage
exists for an insured’s loss.
For example, the 2007 edition of ISO’s business interruption coverage form (CP 00 30 06 07)
defines “suspension” to mean a “slowdown or cessation” of business activities. However, in some
states, a “suspension” of business operations means a total interruption or cessation. 54th Street
Ltd. Partners, L.P. v. Fid. & Guar. Ins. Co., 763 N.Y.S.2d 243 (App. Div. 2003). In Texas,
“interruption of business” is an unambiguous term that means “cessation or suspension of
business.” Quality Oilfield Prods. v. Mich. Mut. Ins. Co., 971 S.W.2d 635, 639 (Tex. App. 1998).
As such, a “work slowdown” does not trigger coverage. Id. at 636. In Florida, recovery for business
interruption also requires actual closing or suspension of the business. Hotel Props., Ltd. v.
Heritage Ins. Co., 456 So. 2d 1249, 1250 (Fla. Dist. Ct. App. 1984). Accordingly, “diminution in
business” does not constitute an interruption in business. Id.
A. Depopulation
The loss of income suffered by businesses in the wake of Harvey and Irma could be a result of the
actual damage sustained by the insured building during the storm. However, loss of income may
also be attributed, in whole or in part, to depopulation in that particular locale as physical damage,
environmental conditions, and mandatory evacuations drove people away from the area. In other
words, even if a particular restaurant or hotel in a storm-ravaged area escaped the storm unscathed
and with power intact, it would still not generate any income because the town or local conditions
are such that no or fewer customers are there.
Where a business income (BI) loss is measured against the income that an insured would have
received but for damage to the insured property, a loss of business attributable to depopulation,
which is independent of damage to a particular insured’s property, may not be covered.
Depopulation has been a contentious issue in business income claims in Christchurch, New
Zealand, following a string of earthquakes there in recent years.
A London High Court case arising out of Hurricane Katrina, Orient Express Hotels (OEH) v.
Assicurazioni Generali, illustrates this issue. OEH operated a hotel in New Orleans that sustained
significant damage from Hurricane Katrina causing it to be closed during September and October
of 2005. However, during the time it was closed, the business district it was located in was also
effectively closed due to conditions following Hurricane Katrina. OEH’s policy covered BI losses
caused by physical damage to the hotel, rather than all BI losses generally caused by the hurricane.
The court recognized two causes of the hotel’s BI losses: (1) physical damage to the hotel; and (2)
the consequences of damage to the general vicinity, including mandatory evacuation.
The court held that OEH could only recover for loss that would not have arisen but for the physical
damage to the hotel. Because the OEH would have suffered the same loss if it had been an
24
undamaged hotel in an otherwise damaged city, it could not recover except under extensions to its
general BI cover. The court noted that the relevant test was whether given losses of income were
independent of the physical damage to the insured property, and not whether they were
independent of the causes of that damage, namely Katrina.
B. Loss Valuation
Somewhat related to the depopulation issue, the amount of insured business income losses due to
Hurricanes Harvey and Irma will also depend largely on whether, and to what extent, losses are
calculated using historical data of the insured’s business, its expected post-loss performance, or its
actual post-loss experience. Different insurance policies build in different levels of flexibility to
determine the amount of an insured’s business income loss.
Under the 2007 ISO business interruption coverage form, for example, the determinants of the
insured business income loss include:
(1) The Net income of the business before the direct physical loss or damage occurred;
(2) The likely Net income of the business if no physical loss or damage had occurred, butnot including any Net income that would likely have been earned as a result of anincrease in the volume of business due to favorable business conditions caused by theimpact of the Covered Cause of Loss on customers or on other businesses.
Other policies may specifically set out a formula for calculating business income loss while also
leaving room for “trend” or “adjustments” so that the calculated loss reflects as nearly as possible
the results the business could have expected had no damage occurred. The adjustment can cut both
ways. For example, before Post-Tropical Cyclone Sandy, many New York businesses and
commercial enterprises expected to generate significant revenue from the New York City
Marathon, which was scheduled to take place on November 4, 2012. The marathon was expected
to generate millions of dollars for New York City.55 The marathon was cancelled only days before
it was scheduled to be held, to minimize controversy and distraction from recovery efforts. On one
hand, businesses were unable to realize significant increases in revenue that they could anticipate
the marathon to generate. However, because it was cancelled – apparently for reasons other than
physical damage preventing it from taking place – those businesses would not have realized that
additional revenue had they been open.
VIII. Business Interruption Extensions
Many business interruption losses that resulted from Harvey and Irma will be traced to something
other than physical damage to the insured’s property that prevented the insured’s business from
55 See About Us, Our Impact, N.Y. ROAD RUNNERS ORG., http://www.nyrr.org/about-us/our-impact; Patrick
Rishe, Inflated Economic Impact Projections Complicated New York City Marathon Decision, FORBES.COM
(Nov. 2, 2012), https://www.forbes.com/sites/prishe/2012/11/02/inflated-economic-impact-claims-complicated-
the-decision-to-cancel-new-york-city-marathon.
25
operating. In many instances, one or more of the following factors will have contributed to, or been
solely responsible for, an insured’s business interruption loss:
Mandatory evacuation orders prohibiting insureds, employees, and their customers from
accessing the insured’s business location.
Lack of utility service – including electricity, water, fuel, or telephone – at the insured property
due to damage at off-site generating stations or transmission lines.
Damage sustained by a major supplier or purchaser of the insured’s business, which prevented
or hindered the insured from conducting business.
Closure, whether due to damage, evacuation, or otherwise, of a nearby property on which the
insured’s business relied to attract customers.
Off-site conditions, whether due to flooding, road closures, or otherwise, which prevented or
impaired access to the insured’s business location.
While certain extensions or additional coverage may provide relief to insureds in these situations,
it is no less important to a correct coverage outcome to determine which extension or additional
coverage is triggered by a given business interruption loss.
A. Civil Authority
Numerous evacuation and closure orders were in effect along the Gulf Coast in anticipation of the
hurricanes and in their wakes. Due to Harvey, dozens of county officials across Texas and
Louisiana issued mandatory evacuation orders between August 25, 2017, and August 31, 2017.56
Likewise, numerous counties in Florida, totaling 1.3 million people, were under mandatory
evacuation orders between September 7, 2017, and September 9, 2017.57 These mandatory
evacuation orders will prompt claims from insureds for business interruption losses due to the
prevention or impairment of access to their property.
Civil authority coverage is an additional coverage under the 2007 ISO business interruption
coverage form. Using that form as an example, civil authority coverage requires:
56 New Evacuation Orders Issued in Epic Flooding Emergency, ABC13.COM (Aug 31, 2017, 9:40 AM),
http://abc13.com/traffic/mandatory-evacuation-issued-around-barker-reservoir/2337616.
57 Morgan Winsor, Everything to Know About Florida Evacuations and Shelters Ahead of Hurricane Irma, ABC
NEWS (Sept. 8, 2017, 3:09 PM), http://abcnews.go.com/US/florida-evacuations-shelters-ahead-hurricane-
irma/story?id=49702181.
26
damage to property other than at the insured’s described location(s) from a covered cause of
loss;
an order of civil authority that prohibited access to the area immediately surrounding the
damaged property, which area must include the insured property; and
the order of civil authority was either: (1) in response to dangerous physical conditions
resulting from the damage or the continuation of the covered cause of loss that caused the
damage; or (2) to enable a civil authority to have unimpeded access to the damaged property.
If these requirements are satisfied, the policy will pay for the actual loss caused by the action of
civil authority beginning 72 hours after the action is taken.
As the 2007 ISO business interruption coverage form illustrates, whether these losses are within
the additional coverage for civil authority will depend on a number of issues, including whether
the order of civil authority was a response to actual – as opposed to feared or anticipated – covered
physical damage to off-site property, and whether access to insured property was actually
prohibited, as opposed to impaired or otherwise discouraged.
Not all mandatory evacuation orders are created equal, though. Even where the order is mandatory
and is clearly applicable to the insured property, an additional inquiry may be necessary to a
thorough coverage analysis of loss claimed under a civil authority extension. Depending on the
requirements of the insurance policy, it may be relevant to consider whether the evacuation order
was issued in response to damage or in anticipation – or in fear – of damage. See S. Tex. Med.
Clinics, P.A. v. CNA Fin. Corp., No. H-06-4041, 2008 U.S. Dist. LEXIS 11460, at *34 (S.D. Tex.
Feb. 15, 2008) (“Because the mandatory evacuation order for Wharton County was issued due to
the anticipated threat of damage to the county and not due to property damage that had occurred
in Florida and the Gulf of Mexico, South Texas’s business interruption losses are not covered by
its policy with Valley Forge.”); Dickie Brennan & Co. v. Lexington Ins. Co., 636 F.3d 683, 686-
87 (5th Cir. 2011).
Moreover, coverage for actions of civil authority is strictly limited to income loss during the period
when access to the insured premises was denied. 54th St. Ltd. Partners, L.P. v. Fid. & Guar. Ins.
Co., 763 N.Y.S.2d 243, 243-44 (App. Div. 2003) (holding that civil authority coverage would not
extend beyond the period when access to the insured premises was denied by an act of civil
authority, which does not include a period of time when vehicular and pedestrian traffic was merely
“diverted”); Abner, Herrman & Brock, Inc. v. Great N. Ins. Co., 308 F. Supp. 2d 331, 336-37
(S.D.N.Y. 2004). As always, however, differences in policy language may dictate different results.
In Zurich American Insurance Co. v. ABM Industries, Inc., 397 F.3d 158 (2d Cir. 2005), for
example, the insured’s policy included civil authority coverage that “cover[s] the loss sustained
during the period of time when access to real or personal property is impaired by order or action
27
of civil or military authority issued in connection with or following a peril insured against.” Id. at
171.
B. Ingress/Egress
Similar to the additional coverage for orders of civil authority is coverage for loss of ingress or
egress to the insured’s property. This coverage insures against business interruption loss sustained
by the insured as a direct result of a covered cause of loss preventing access (ingress to or egress
from) the insured property. Unlike civil authority coverage, no order or other governmental action
is a necessary trigger. Depending on the specific language of the insurance policy, coverage for
lack of ingress/egress may not require physical damage either. See, e.g., Fountain Powerboat
Indus., Inc. v. Reliance Ins. Co., 119 F. Supp. 2d 552 (E.D.N.C. 2000) (flooding of sole access
road to insured’s manufacturing facility triggered coverage under ingress/egress clause without
showing of physical loss to property where policy provision required only that access be prevented
“as a direct result of a peril not excluded”); Hous. Cas. Co. v. Lexington Ins. Co., No. H-05-1804,
2006 U.S. Dist. LEXIS 45027, at *19-22 (S.D. Tex. June 15, 2006) (“[T]he Fountain Powerboat
court determined that the plaintiff could recover not only for the period of time that ingress/egress
was actually blocked, but for ‘the length of time to restore Fountain’s business to the condition
that would have existed had no loss of ingress/egress occurred.’” (quoting Fountain Powerboat,
119 F. Supp. 2d at 556-58)) (finding interpretation that coverage under ingress/egress clause does
not require physical damage to be reasonable).
C. Contingent Business Interruption
Given the size of Hurricanes Harvey and Irma, encompassing areas of high economic activity, the
supply chain disruptions have been significant. Damaged property includes oil refineries, chemical
plants, road networks, levees, and other infrastructure. Whether damage to these and other
properties entitles insureds elsewhere to contingent business interruption (CBI) coverage will be a
frequent topic in the business interruption claims arising out of Hurricanes Harvey and Irma.
CBI coverage insures against the insured’s business income loss due to physical loss or damage at
certain “dependent properties” (not including the insured property), namely property of major
suppliers, providers, customers, or attractions integral to the insured’s business operations.
Whereas standard business interruption coverage replaces profits lost as a result of physical
damage to the insured's property, CBI coverage protects the insured against the consequences of
damage sustained by others. CBI is obtained as an endorsement to standard business income
coverage by insureds that rely on a single or few suppliers of raw materials or components for use
in the insured’s business operations, a single or few customers to purchase the bulk of the insured’s
output, or a neighboring property to attract customers to the insured’s property.
As a relatively recent development, few courts have had occasion to flesh out the contours of CBI
coverage. That said, certain issues can be expected to be front and center in CBI claims submitted
28
by insureds in the wake of Hurricanes Harvey and Irma. In handling those claims, the following
points are worth being familiar with.
First, there must be a direct causal connection between the physical damage to the “dependent”
property and the business interruption loss experienced by the insured. Arthur Andersen LLP v.
Federal Ins. Co., 416 N.J. Super. 334 (App. Div. 2010). In Arthur Andersen, the insurance policy
provided contingent business interruption coverage as follows:
the actual loss sustained by the Insured resulting from the necessary interruption of the business conducted by the Insured, caused by ... damage ... to:
Property that directly or indirectly prevents a supplier of goods, services or information to the Insured from rendering their goods, services or information or property that directly or indirectly prevents a receiver of goods, services or information from the Insured from accepting or receiving the Insured's goods, services or information.
This coverage, the court explained, required credible evidence from the insured that its losses were
caused by damage to property that prevented the flow of goods or services. Such causation could
not be inferred from the insured’s generalized revenue shortfall. Id. at 348-49.
Second, direct physical loss or damage at the “dependent property” must have been caused by a
covered cause of loss, determined by reference to the insurance policy covering the insured’s
property, not the policy covering the damaged dependent property.
Third, either as a corollary of the insured’s duty to mitigate loss or by virtue of specific terms of
the CBI endorsement, the insured’s recoverable business income loss under a CBI endorsement
should be reduced insofar as the insured was able to resume operations by finding a new supplier,
provider, or buyer during the time period that the dependent property was out of commission.
D. Service Interruption
A major contributor to business interruption losses from Harvey and Irma is the interruption of
utility service – namely electricity – to insured locations. The U.S. Department of Energy reported
that 306,058 customers experienced power outages in Texas during a 24-hour peak.58 Irma left
nearly two-thirds of people in Florida without electricity, and it was correctly predicted that some
would not have power for a week or more.59 In parts of Miami-Dade County, as of the date of this
58 HURRICANE HARVEY: EVENT REPORT (UPDATE #5) 3, INFRASTRUCTURE SECURITY & ENERGY RESTORATION,
U.S. DEP’T ENERGY (Aug. 28, 2017, 8:30 AM),
https://www.energy.gov/sites/prod/files/2017/08/f36/Hurricane%20Harvey%20Event%20Summary%20%235.p
df.
59 Tom DiChristopher, Restoring Power to Florida Will Take ‘Weeks, Not Days’ in Some Areas, CNBC (Sept. 11,
2017, 4:22 PM), https://www.cnbc.com/2017/09/11/restoring-power-to-florida-will-takes-weeks-not-days-in-
some-areas.html.
29
paper, thousands still did not have power.60 Business income loss due to service interruption and
power outages is likely to trigger a significant number of insurance claims.61 A frequent
requirement for this coverage to be triggered is that the service interruption must have originated
from direct physical loss or damage at an off-site location caused by a covered peril. As a result,
the same causation issues that will determine coverage for property damage discussed above will
be central to coverage determinations for loss of income due to service interruption.
IX. Replacement Cost and Code Upgrade
Given the relative age of settled areas along the Gulf of Mexico and the lack of a major catastrophic
event in recent years, major repairs or renovations of older structures may trigger obligations to
comply with newer building codes. Building codes have undergone significant revisions in recent
decades, driven in large part by the performance of buildings and other structures during
catastrophes such as Cyclone Tracy in Australia, Hurricane Andrew in Florida, and earthquakes in
New Zealand. As it stands today, most states have adopted a version of the International Building
Code. Florida, for instance, recently adopted the 2015 IBC.62 Louisiana adopted the 2012 IBC.
New Jersey adopted the 2009 IBC while New York still operates under the 2006 IBC. Texas, on
the other hand, still operates under the 2003 IBC.63
Structures built under previous building codes, however, are typically “grandfathered” in, such
that compliance with newer code provisions is only required of these existing structures in the
event of qualifying repairs, renovations, or reconstruction. See DEB Assocs. v. Greater N.Y. Mut.
Ins. Co., 970 A.2d 1074, 1083 (N.J. Super. Ct. App. Div. 2009) (“[T]he policy did not specifically
exclude situations where, as here, a covered structure was grandfathered under the current code
but lost its grandfathered status because of the occurrence of covered damage.”). New Jersey’s
building code, for example, contains a provision that “[b]uildings or structures legally in existence
at the time of the adoption or subsequent amendment of this subchapter may continue in use and
nothing herein shall be interpreted as requiring the repair, renovation, alteration or reconstruction
of such building, except as provided at N.J.A.C. 5:23-2.32, Unsafe Structures.” N.J.A.C. 5:23-
6.2(f).
When insured repairs undertaken to remedy damage caused by Harvey and Irma trigger
compliance requirements with updated code provisions, insureds may well expect that the
60 Isabella Vi Gomes, A Week After Irma, 38,000 Have No Power in Miami-Dade, MIAMI NEW TIMES (Sept. 18,
2017, 3:05 PM), http://www.miaminewtimes.com/news/fpl-leaves-thousands-without-power-in-miami-fort-
lauderdale-9681011.
61 Erik Holm & Leslie Scism, Sandy’s Insured-Loss Tab: Up to $20 Billion, WALL ST. J. (Nov. 2, 2012).
62 FLA. DEP’T BUS. & PROF’L REGULATION, ANALYSIS OF CHANGES FOR 6TH EDITION (2017) FLORIDA CODES 1
(2017), http://www.floridabuilding.org/fbc/thecode/2017-6edition/Analysis_of_Changes_6th_Ed_FBCB.pdf.
63 TEX. LOC. GOV’T CODE § 214.216.
30
additional costs of compliance will be covered as part of the replacement cost afforded by an
insurance policy. Courts across the country have endorsed the notion that costs of complying with
building regulations that would make it illegal for the insured to replicate the damaged structure
are covered as part of replacement cost. See SR Int’l Bus. Ins. Co., Ltd. v. World Trade Ctr. Props.
LLC, No. 01-Civ-9291, 2006 WL 3073220, at *8-9 (S.D.N.Y. Oct. 31, 2006); DEB Assocs. v.
Greater N.Y. Mut. Ins. Co., 970 A.2d 1074 (N.J. Super. Ct. App. Div. 2009) (noting that
replacement cost coverage may include repairs required to meet building codes in effect at the time
though not when the building was originally constructed). As always, the specific terms of the
policy at issue must be examined to determine whether or not coverage is provided for a particular
claim.
Conclusion
The general concepts discussed in this Hurricanes Harvey and Irma White Paper only serve to
provide an outline of the issues and legal considerations likely to arise out of claims that are
submitted in connection with the hurricanes. It is essential to remember that each claim must be
reviewed on its own facts and based on the particular language of the insurance policy that was
issued.
31
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