HURRICANES HARVEY AND IRMA€¦ · 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

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.

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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

For Further Information Contact:

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Documents

HURRICANES HARVEY AND IRMA€¦ · 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