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SPRING 2014 | VOL. 3, NO. 2

SPRING 2014 | Vol 3. No. 2


Computer Program Could Help Spot Pain Fakers


Property Claims Satisfaction Continues to Improve


Residential Building Fires Cost $1.1B in Property Losses

SPECIAL REPORT 7 Lost & Found: The Recovery of Stolen Art 12 The Emerging Hail Risk: What the Hail Is Going On? 14 What’s Causing Wildfires: People, Brush & More 18 Leases, Rental Agreements and Other Contracts: Questions to Ask 21 2014 Guide to Property Restoration + Disaster Recovery IDEA EXCHANGE 27 Burke’s Law: Evolving Considerations for Insurance and Cyber Risks 28 Essentials: Historical Tour of the Contra Proferentem Doctrine 30 Insurers Beware: Reimbursement for Defense Under Reservation of Rights 32 Insurers Must Understand the Cross-Section of Claims and Data 34 Final Offer: 2013’s Enduring Catastrophe Lessons

2 Claims Journal | Spring 2014


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Publisher Mark Wells

To Help or Not to Help


n the immediate aftermath of hurricanes, floods and other disasters, it’s not uncommon for people to turn out in large numbers to assist victims, clear debris and chip in on dozens of other tasks to get a community back on its feet. Their altruism is inspiring, but results of a study by a Johns Hopkins expert suggest these unsolicited or “spontaneous” volunteers may be putting themselves and others at risk for injury and, in rare cases, death as a result of their lack of training in safe and proper disaster response. The study, published in Disaster Medicine and Public Health Preparedness, polled 24 nongovernment volunteer organizations (NVOs) that responded to disasters in the past and found that 19 of them — or 79 percent — had spontaneous volunteers show up to help. While a majority of those organizations said they found such volunteers useful, 42 percent reported that volunteers had been injured in the response, No one’s taken a close look and there were two reported deaths at the level of risk for the among them. Organizations were allowed to respond anonymously as a people who show up to help way to encourage survey participation. after disasters. Lauren Sauer, a disaster training expert and faculty member in the Johns Hopkins University School of Medicine’s Department of Emergency Medicine, says she decided to conduct her survey when she found that the level of risk such volunteers may face had never been well-studied despite how ubiquitous the volunteer phenomenon is in the United States. “In the U.S., it’s very common to see a big outpouring of volunteers after a disaster. People feel compelled to turn out,” Sauer says, noting that after the Sept. 11 terrorist attacks in New York City, 40,000 volunteers streamed to ground zero. “What’s interesting is no one’s taken a close look at the level of risk for the people who show up after these disasters without any training on how they can stay out of harm’s way.” Sauer also found that: • Only about one-third of the organizations responding to the survey said they accepted any legal liability for unsolicited volunteers. • Sixteen percent of organizations reported lawsuits as the result of casualty among unsolicited volunteers. • Two organizations always made sure that the volunteers they tapped in a disaster had prior response training, called “credentialing.” • Only one organization performed background checks on volunteers. • More than half — 53 percent — of the groups said they provided on-the-spot or “just-in-time” training for volunteers turning out to a disaster site. Overall, Sauer says, her research raises a number of compelling volunteer safety and liability issues that need to be addressed with further studies and the development of a safer, more systematic approach to taking on unsolicited and untrained volunteers in the field right after a calamity.

Andrea Wells Editor-in-Chief 4 Claims Journal | Spring 2014

EDITORIAL Editor-in-Chief Andrea Wells | Editor Denise Johnson | V.P. Content Andrew Simpson | East Editor Young Ha | Southeast Editor Michael Adams | South Central Editor/Midwest Editor Stephanie K. Jones | West Editor Don Jergler | International Editor Charles E. Boyle | Senior Editor Susanne Sclafane | Editor Denise Johnson | Associate Editor Amy O’Connor | Columnists Burke Coleman, Steven Plitt Contributing Writers Steven Badger, Kevin D. Bush, Bob Crowley, Joe Louwagie, Christian Trabue, Stacy Monahan Tucker SALES V.P. Sales & Marketing Julie Tinney (800) 897-9965 x148 | West Dena Kaplan (800) 897-9965 x115 | South Central Mindy Trammell (800) 897-9965 x149 | Midwest Lauren Knapp (800) 897-9965 x161 | Southeast Howard Simkin (800) 897-9965 x162 | East Dave Molchan (800) 897-9965 x145 | New Markets Sales Manager Kristine Honey | Classifieds, Jobs, Agencies Wanted/For Sale Ly Nguyen (800) 897-9965 x125 | MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | Advertising Coordinator Erin Burns (619) 584-1100 x120 | New Media Producer Bobbie Dodge | Videographer/Editor Matt Tolk | DESIGN/WEB V.P. of Design Guy Boccia | V.P of Technology Joshua Carlson | Design and Marketing Executive Derence Walk | Web Developer Jeff Cardrant | Web Developer Chris Thompson | IJ ACADEMY OF INSURANCE Director of Education Christopher J. Boggs | Online Training Coordinator Barbara Whiffen | ADMINISTRATION Chief Executive Officer Mitch Dunford Accounting Manager Mark Wooster |


or you may subscribe or change your address online at: Claims Journal, the National Property Casualty Claims Magazine is published quarterly by Wells Media Group, Inc., 3570 Camino del Rio North, Suite 200, San Diego, CA 92108-1747. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. SUBSCRIPTION RATES: Free to qualified readers. DISCLAIMER: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2013 Wells Media Group, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Insurance Journal is a publication of Wells Media Group, Inc. POSTMASTER: Send change of address form to Claims Journal, Circulation Department, PO Box 3618, Northbrook, IL 60065-3618 ARTICLE REPRINTS: For reprints of articles in this issue, contact Rhonda Brown at 1-866-879-9144 ext. 194 or Visit reprints for more information.

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Computer Program Could Help Spot Pain Fakers


joint study by researchers at the University of California, San Diego, the University at Buffalo, and the University of Toronto has found that a computer vision system can distinguish between real or faked expressions of pain more accurately than humans can. The researchers employed the computer expression recognition toolbox (CERT),

an end-to-end system for fully automated facial-expression recognition that operates in real time assessing the accuracy of machine versus human vision. The program could be used in the future to uncover pain malingering, when a patient or claimant fabricates or exaggerates symptoms of pain for an ulterior motive. The study, “Automatic Decoding of Deceptive Pain Expressions,” was published in the latest issue of Current Biology. Study participants were asked to assess whether expressions of pain were real or fake by viewing video clips of individuals, some of whom were subjected to the cold

presser test in which a hand is immersed in ice water to measure pain tolerance, and of others who faked their painful expressions. Researchers noted the computer system managed to detect distinctive, dynamic features of facial expressions, while humans weren’t able to discriminate between real and faked expressions. Even after training, humans were only accurate 55 percent of the time while the computer was accurate 85 percent of the time. The single most predictive feature of falsified expressions, the study showed, was how and when the mouth opens and closes. Fakers’ mouths open with less variation and too regularly. CJ

Property Claims Satisfaction Continues to Improve


verall satisfaction among homeowners who filed a property claim improved for the second consecutive year, according to the J.D. Power 2014 Property Claims Satisfaction Study. The study, now in its seventh year, measures satisfaction with the property claims experience among insurance customers who filed a claim for damages covered under their homeowners’ policy by examining five factors: settlement; first notice of loss; estimation process; service interaction; and repair process. Superstorm Sandy’s effects are still being felt in the insurance industry, where customers are expressing their relative dissatisfaction with the claims process. Satisfaction among those who filed a claim for damage caused by Superstorm Sandy averages just 830 in 2014, down from 846 among Sandy-related claimants surveyed shortly after the storm. Overall, however, satisfaction among homeowners insurance customers who filed a property claim between April 2012 and January 2014 averages 840 (on a 1,000-point scale) — up from 836 in the 2013 study. Compared with 2013, research findings in 2014 show that homeowners insurance customers who filed a non-catastrophic claim in the past year more often received a thorough explanation of their coverage when first reporting their loss, were more 6 Claims Journal | Spring 2014

promptly notified of what damages were covered and received their settlement nearly four days faster. The study finds that 15 percent of all claims reported involved a third-party damage inspection, down 5 percentage points from the 2013 study. Some additional key findings: • Overall satisfaction with non-catastrophic claims increased by 11 points in 2014, compared with 2013 (843 vs. 832). • Overall satisfaction improved in four of the five factors year over year, while satisfaction with first notice of loss was the same as in 2013. • When insurance companies effectively

communicate with claimants, those claimants are less likely to escalate their claim to a supervisor. When a supervisor becomes involved, overall customer satisfaction drops by more than 160 points. • Nearly one-fourth (23 percent) of Gen Y claimants escalate their claim to a supervisor, compared with 8 percent of Boomers. The study was based on 5,500 responses from customers who filed a property claim between April 2012 and Jan. 2014. CJ

Residential Building Fires Cost $1.1B in Property Losses


n estimated 25,900 residential building electrical fires were reported to fire departments within the United States each year between 2009 and 2011, according to the National Fire Data Center’s latest Topical Fire Report Series. These fires caused an estimated 280 deaths, 1,125 injuries and $1.1 billion in property loss. Residential building electrical fires

resulted in greater dollar loss per fire than residential building non-electrical fires. In 79 percent of residential building electrical fires, the fire spread beyond the object where the fire started. The leading items most often first ignited in residential building electrical fires were electrical wire/cable insulation (30 percent) and structural member or framing (19 percent). CJ


Lost & Found: The Recovery of Stolen Art By Christian Trabue


s long as art and artifacts have been viewed as precious, beautiful and valuable, there have been people willing to take risks to steal it for themselves or others. In recent years, these robberies are making headlines. One of the most recent and shocking cases is that of a respected New York City antiquities dealer, Subhash Kapoor, who allegedly raided archaeological sites in Cambodia, Pakistan and India and then used ports of entry to ship the items back to the United States. Of the objects recovered so far, one sandstone sculpture of a woman is said to be worth $15 million. In January 2014, Darren Agee Merager was sentenced to four years in prison after being convicted of stealing millions of dollars of art from the home of Jeffrey Gundlach, a prominent bond trader. The stolen items, including artwork by Piet Mondrian, Jasper Johns, Joseph Cornell and Richard Diebenkorn, were all eventually recovered. More often than not, stolen works of art are not recovered. According to the Interpol database, there are over 42,000 art objects listed as stolen with many relating to thefts which occurred during wartime. Consider the activities that took place in Europe during World War II. According to the Nazi-Era Provenance Internet Portal, a website launched by the American Association of Museums, “From the time it came into power in Germany in 1933 through the end of World War II in 1945, the Nazi regime orchestrated a program of theft, confiscation, coercive transfer, looting, pillage and destruction of objects of art and other cultural property in Europe on a massive and unprecedented scale.� While some objects were eventually recovered, others have never been found or returned. Following this time, museums around the world continued to collect art and artifacts without fully researching their history. As a result, the original owners of some of the pieces began making ownership claims. Today, museums have begun the long and arduous task of

The Nazi regime orchestrated a program of theft, confiscation, coercive transfer, looting, pillage and destruction of objects of art and other cultural property in Europe.

researching pieces in their collections, and in some cases returning them to their rightful owners. What Can Be Done? Despite locks, alarms and laws, it is inevitable that art will be stolen. So what can be done to protect items of value? First, it is important to document fine art. Unlike jewelry which can be melted down and made into something new, artwork is usually not altered because the value of the work is in its original state. Therefore, art is one of the most likely objects recovered. The object ID checklist is the international standard for describing cultural objects. A checklist should be created for each object and include the following: The maker, the type of object, the title, materials and techniques, measurements, date or period, inscriptions and markings, distinguishing features and subject. A brief paragraph describing the object should be written and clear photographs taken. Once the inventory is complete it should be stored in a safe, locked in a location away from the objects themselves. This can be a time consuming project and for that reason some serious collectors opt to hire appraisers to collect and document the necessary information. If art has been stolen the theft should be immediately registered with one of the art loss

databases such as the Art Loss Register, Interpol, and the National Stolen Art File, which is run by the FBI. Finally, it is important to mention that, although rare, some insurance companies offer a buy-back provision. If an artwork is stolen and later recovered, this gives the original owner the opportunity to regain title. This can be particularly important if the work of art has gone up in value since the time of the theft. For example, if a painting was stolen when it was worth $50,000 and at the time of recovery it was worth $100,000, the original owner could pay back the insurance company the $50,000 and then retrieve their property now worth the full $100,000. Recovery of stolen art doesn’t have to be a monumental task. As many as 350 soldiers eventually enlisted and recovered five million pieces of Nazi-looted artwork, books and documents, according to the Monuments Men Foundation. Many were destroyed and remain lost. These men risked their lives in the name of provenance, stewardship and posterity. While certainly a noble endeavor, fortunately we have the insurance industry to cover our backs. CJ Trabue is a member of the Appraisers Association of America and a review appraiser for Enservio, which offers contents claims software and services. Email: Spring 2014 | Claims Journal 7


PEOPLE Alexander Mack

Paul Long

Joseph Salerno

Allianz Global Corporate & Specialty SE, the industrial and specialist risk insurer of Allianz Group, has created a new chief claims officer position on its management board, appointing Alexander Mack to this role. Mack, who is based in Munich, Germany, and is AGCS’s global head of claims, will be responsible for all aspects of AGCS’s claims services worldwide across all its product lines. Mack joined Gerling Insurance Co. in 1987 and later joined AGCS in 2007 as global head of long-tail claims and was promoted to global head of claims in 2013. Pittsburgh-based G.S. Jones Restoration and Consulting named Paul E. Long director of Facilities Services. G.S. Jones is a family owned business providing specialized disaster recovery services for commercial, institutional and residential properties that have sustained fire, water, storm, explosion and other disasters. In his new capacity, Long will be responsible for building alliances between G.S. Jones and building owners — along with facility and property managers — throughout Western Pennsylvania. He will report to Scott Jones, president and co-founder of G.S. Jones. Before joining the company, Long served for 21 years as director of facilities management for Highmark Inc., retiring from the company in 2012. During his career, he also has held a range of facilities management positions with Mellon Bank NA. Joseph L. Salerno II was named vice president of claims for Mass.-based Arbella Insurance Group. Reporting to Arbella COO Janet Corcoran, Salerno will lead the entire claims organization and will be responsible for all functional areas of the department. His responsibilities will include providing claim services for personal and commercial lines of business in Massachusetts, Rhode Island, Connecticut and New Hampshire. Salerno, a seasoned executive with more than 25 years of claim leadership and technical experience, worked most recently with Travelers Insurance, Zurich and Great American. Lisa Roller returned to Tenn.-based Brentwood Services Administrators as a claim representative in the general liability claim department. Roller began her career in claims while working for

8 Claims Journal | Spring 2014

the Kentucky School Board Insurance Trust in 1997. She worked with BSA from January 2006 to December 2009 as a liability claim specialist, specializing in litigation and large losses. Most recently, she was office manager for Northfield Oil in Cynthiana, Ky. In a separate announcement, the company hired Adriene McPhatter as a senior claims representative. Prior to joining BSA, McPhatter held claims adjusting positions with Companion Property and Casualty in Columbia, S.C., and INSERVE Corp., in Charlotte, N.C. She is a licensed adjuster in Georgia and Florida. McPhatter started her claims career in 2000 and has experience handling claims in North Carolina, Florida and Georgia. General Reinsurance Corp., a Berkshire Hathaway Co., promoted Martin Hacala to global claims manager. In addition, Ron Lepinskas joined Gen Re Claims as global casualty lines manager, and Geoff Piggot assumed responsibility for Global Property Lines. Hacala has been with the Gen Re Group since 1997, serving in a variety of senior claims and underwriting roles with subsidiaries General Star and Genesis, most recently as the claims department manager. Prior to joining the Gen Re Group, he was a partner with Ross, Dixon & Bell in Washington, D.C., and served as a trial attorney with the U.S. Department of Justice. Lepinskas joined Gen Re earlier this year from DLA Piper where he was a partner. Piggot joined Gen Re in 1998 and was most recently responsible for Global Property Facultative and Ocean Marine Claims. GAB Robins UK appointed Andrew McDonald and Mike Hornby to senior adjusting and technical roles as part of the ongoing expansion of its Construction & Engineering (C&E) operation. McDonald, who returns to GAB Robins after nine months at Crawford & Co. in an operational management role, assumes a C&E senior adjuster position with responsibilities including business development and supporting the development and auditing of the expanding team. McDonald has more than 30 years’ experience in C&E adjusting and is a chartered loss adjuster. Hornby has been appointed as C&E senior adjuster. A chartered surveyor and chartered loss adjuster, he has more than 20 years’ adjusting experience. CJ

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Combined Claims Conference Video Highlights

In a Reader’s View

The Dos and Don’ts of Claim File Documentation In a video interview with Claims Journal during the Combined Claims Conference, Ken Oswald, a Californiabased insurance consultant and expert witness, explains why claim file documentation is vital to the completion of a reasonable investigation. He describes the key points an investigation should cover and common mistakes he encounters in bad faith cases.

Personal Trainer Sues New York City Due to RockClimbing Injury A New York City park should have signs warning to keep off rocks, according to a 32-year-old personal trainer who was injured while climbing a boulder. Jonathan Stock is suing the city and park managers for an injury sustained in Manhattan’s Hudson River Park last June when he tried to climb a steep, 8-to-10-foot-tall stone, which is part of a sculptural stone arrangement. He reportedly tried to stand after jumping on the stone when he fell and ruptured his Achilles tendon. Stock’s attorney said that by not installing a no-climbing sign, the city and the Hudson River Park Trust were negligent. Lawyers for the city and trust declined to comment. The suit, filed earlier this month, seeks unspecified damages. The story generated some interesting comments from readers. Read one of those comments below:

Three Tips on Improving Bodily Injury Evaluations In a video interview with Claims Journal at the Combined Claims Conference, Chris Tidball, a casualty claims consultant with Mitchell International, explains why bodily injury severities are trending upward and how adjusters can improve bodily injury claims settlements.

Ellie says: Take responsibility for yourself. He was stupid enough to climb on a sculpture and got injured. Too bad. You do not deserve to be compensated because there was not a sign telling you not to climb on the sculpture. I hope he loses this ridiculous suit. CJ

Podcast Highlights How to Investigate Bicycle Crashes In an interview with Claims Journal, Garrick Mitchell, Western Region forensic division manager for Rimkus Consulting Group, explains the steps to investigating bicycle accidents. He describes common accident scenarios, when and what type of experts could be needed, and how to discern whether a mechanical failure occurred before or because of an accident. Web Poll Will the risks associated with concussions end casual, organized sports?


(86 votes)

Yes, I think the risk of claims and lawsuits related to concussions will end casual, organized sports.

64.69% 13.14%

(51 votes)

Not sure. Total Votes: 388 votes

10 Claims Journal | Spring 2014

(251 votes)

No, I don’t think the risk of concussions will have any effect on casual, organized sports.


BUSINESS MOVES Inc. has acquired Totura & Co., a regional claims adjusting firm based in Ft. Lauderdale, Fla. Terms were not disclosed. John Quinn, president and CEO of Engle Martin said the deal will strengthen his firm’s market presence throughout Florida and the rest of the southeastern United States. Totura operates throughout Florida and in Georgia and Virginia. LWG Consulting LWG Consulting launched a new Mexico subsidiary, operating as LWG Consulting Mexico, S.A. de C.V, based in Mexico City. The new location will focus on providing property loss investigation, failure analysis/damage assessment and litigation support to insurance carriers, legal professionals, governmental agencies and corporations throughout Latin America. GEICO GEICO plans on filling more than 500 new positions at its Macon, Ga., office. The Macon office already employs more than 5,400 associates. Available job openings include customer service, claims, emergency roadside service, glass claims and salvage total loss. In a separate announcement, the company’s regional office in Fredericksburg, Va., plans to hire more than 725 new associates for growth and replacement in 2014. The office already employs more than 3,300 associates. The company is also hiring college graduates for liability claims customer service positions, as well as for the Management Development Program (MDP), one of GEICO’s leadership programs. Engle Martin, Tortura Atlanta-based independent claims adjusting firm Engle Martin & Associates

Esurance Esurance, the direct-to-consumer insurance company, will open a new sales and claims office in Greenville, S.C., this summer that will employ up to 450 residents. The insurers said job openings will include a variety of claims roles, including first-notice-of-loss associates and express and material damage adjusters. York, American Claims Services New Jersey-based York Risk Services Group, a claims administration and risk management services provider, has acquired the assets of American Claims Services Inc. (ACSI) based in Houston, Texas, and Destrehan, La. The terms of the acquisition were not disclosed. ACSI provides claims adjusting services primarily to the London market, as well as first response and medical management services to the energy sector. The acquisition is part of York’s strategy of expanding the breadth of its specialized loss adjusting and medical cost containment services. Chris Heckert, vice president of Generational Capital Markets, was advisor to ACSI in this transaction. Patriot National, Stonewood Fla.-based Patriot National Insurance Group, a workers’ compensation insurance provider, announced a partnership

with Stonewood National Insurance Co., an affiliate of the Franklin Holdings Ltd. Group. Under their partnership arrangement, Patriot will write workers’ compensation insurance through its managing general agency Patriot Underwriters Inc. Patriot will serve as a program administrator with defined underwriting and claims settlement authority. For Stonewood, the agreement will further build its specialty workers’ compensation platform. The program is focused in select Midwestern states on segments within the health care industry. This is Patriot’s second partnership with an A-rated insurance carrier and comes shortly after a $28-million capital infusion into Patriot’s wholly-owned subsidiary, Guarantee Insurance Co. Allianz, UnipolSai Germany’s Allianz SE plans to buy part of Italian insurer UnipolSai’s property/casualty insurance business in a deal worth up to 440 million euros ($612 million). Allianz said that the business had premiums last year of 1.1 billion euros and has 500 employees serving 1.5 million customers in Italy. The deal requires regulatory approval. Kemper Kemper Corp. is realigning its property/ casualty business, resulting in one property/casualty segment for financial reporting purposes, beginning with the first quarter of 2014. The new Kemper Property & Casualty segment will consist of: • Kemper Personal and Commercial Lines, which will include private passenger and commercial auto, home and other lines. • Kemper Specialty California, which will focus on Kemper’s largest non-standard private passenger auto market. •Kemper Direct, operating in run-off mode. • Shared services supporting the property/casualty segment, including legal, claims, technology, human resources, project management and finance. CJ Spring 2014 | Claims Journal 11


The Emerging Hail Risk:

What The Hail Is Going On? By Steven Badger


primarily in hurricane claims, fighting he number of reported claims involvover what constitutes wind damage and ing hail damage to residential and commercial roofing products has increased the never-ending debate over wind versus dramatically over the past few years. Some water damage. Most significantly, in 2008, Hurricane reports place the increase at almost douIke struck the Texas coast. The feeding ble historical claim totals. frenzy was on. Almost overnight, an What is the cause of this significant entirely new industry of roofing conincrease? There is no disputing that in tractors, general contractors, claims recent years there have been significant hail events in large metropolitan areas. But consultants, and professional appraisers appeared ready to help building owners does this alone account for the near-doutake-on the “greedy insurble increase in claim filings? Plus, in addition to The increase in hail ance companies.” the increase in the num- damage claims and A new generation of public adjusters also ber of claims, an abnorresulting lawsuits In the past two mally high percentage have nothing to do appeared. years alone, membership of these claims are in the Texas Association of ending up disputed and with abnormally Public Insurance Adjusters ultimately in appraisal large or frequent has more than doubled. or litigation. In Texas, storms. Further, to assist these hundreds, literally hunindividuals in pursuing dreds, of lawsuits are their claims, a new generation of “roofing being filed each week in Dallas, Tarrant, experts” emerged, many with absolutely Potter, Hidalgo, and other counties involvno previous experience with roofing sysing alleged underpayment of hail related tems but prepared to issue reports. roof damage claims — far, far more than Finally, when the insurers refused to has ever previously been the case. pay claims that lacked merit, attorneys Has the property insurance industry were everywhere. With Texas tort reform suddenly stopped paying these claims? Or making it difficult for plaintiffs’ attorneys are more sinister forces involved, causing to earn a living handling their usual dockboth the increase in number of claims et of fender bender and slip-and-fall cases, being submitted and number of claims fighting evil insurance companies became resulting in litigation. the go-to practice area. All of a sudden, There is no question it is the latter. every personal injury plaintiffs’ attorney was also a policyholder attorney. Armed What the Hail Is Going On? Over the past decade, a cottage industry with favorable Texas laws governing the underpayment of insurance claims (autohas emerged of individuals who believe matic 18 percent statutory penalty, attorthey can make a living by involving themneys’ fees, treble damages and potential selves in the insurance claims process. bad faith damages), the race to the courtThese individuals have previously focused 12 Claims Journal | Spring 2014

house was on. Today, almost six years later, most of the Hurricane Ike lawsuits are gone. But lawsuit coffers needed to be filled. Hail claims have become the obvious next target. Unlike major hurricanes, which only arrive every few years, hail falls many times a year all across Texas. Plus, like wind damage, determining what constitutes hail damage to a roofing product is often subject to debate. With favorable Texas law, hail claims present the perfect full employment opportunity until the next hurricane comes along. For all of these reasons, it is obvious — the increase in hail damage claims and resulting lawsuits have nothing to do with abnormally large or frequent storms. It also has nothing to do with insurance companies refusing to pay meritorious claims. Instead, it has everything to do with strangers to the insurance policies in question injecting themselves into the claims process with the intent to bleedoff whatever money they can into their own pocketbooks. That is what the hail is going on. Managing the Current Crisis These claims are predictable. They all have the same warning signs: Late notice. Most of these claims originate with a contractor knocking on the building owner’s door promising “a free roof from your insurance company” in exchange for execution of a “roofer contin-

gency contract” allowing the contractor to negotiate the claim and perform the roof replacement work. The contractor then orders a “hail report” to find a recent storm somewhere in the general area to use as the date of loss. The claim is then reported. Often this is months or even years after the reported hail event. Absence of the insured. The building owner itself is

noticeably absent from the claims process. Only the contractor or public adjuster is involved in the actual handling of the claim. The insured, with no outof-pocket risk, figures “What the hail? If he’s gonna get me a free roof, I might as well let him try.” Microscopic damage. Roofs seldom actually leak from hail damage. When they do, building owners call their insurance companies right after the hail event and the claims get paid. The claims at issue

today almost always involve roofs that are not leaking and the alleged damage is not visible to the naked eye. Instead, the alleged roof damage “requires microscopic technology to see,” “might leak in the future,” “will cause the roof to prematurely fail,” or “will void the warranty.” Modified bitumen, built-up, or metal roofs. Again, when damage is obvious, insurance companies pay claims. With a single-ply membrane, the holes or fractures in the membrane are usually quite apparent. With composition shingles, holes and soft spots are readily apparent. But creativity abounds when identifying alleged damage to other types of roofing systems — “the modified membrane lost granules, which are needed to protect the interplys from long-term deterioration,” “the hail struck and displaced the gravel, which exposed the asphalt flood coat of the built-up membrane which will now deteriorate,” and of course, “the minor dings in the metal roof will collect water and particulates, which will cause rusting and leaks over time.” Predictable Patterns With these similarities in issues, these claims all follow a predictable pattern. Once a dispute arises as to the existence or scope of damage, the contractor or public adjuster has all he needs to demand appraisal. With courts now holding that such disputes are subject to appraisal, all that is needed for a guaranteed payday is an aggressive, manipulative appraiser and a favorable umpire appointment. Finally, for those claims that are not dumped into

appraisal, litigation is also an attractive option. What constitutes physical loss or damage to a roofing product will often be a factual issue driven by expert testimony. With new “roofing experts” having broad views as to what constitutes hail damage, policyholder attorneys have no problem getting cases to trial. Faced with this reality, the significant cost of litigation, and draconian penalties if they happen to be wrong in their position, insurers typically have no choice but to settle claims. In response, insurers can do no more to protect themselves than carefully proceed through the claims process and hope to mitigate the predictable outcome. Below are a few recommended strategies that can help: • Engage qualified engineers with real experience in identifying hail damage; • Refuse to negotiate claims with contractors and other individuals acting as unlicensed public adjusters; • Hold the insured to its policy burdens (establishing physical loss or damage and establishing a date of loss within the insurer’s policy period); • Refuse to accept inflated Xactimate estimates but instead require real bids from real contractors; • Refuse to pay “10+10” overhead and profit when general contractors are not reasonably necessary and their costs not incurred (there is no “Texas Department of Insurance Bulletin” or “three trade rule” dictating otherwise); • Closely monitor appraisals to avoid the inevitable manipulation of the process and race to the courthouse for a favorable umpire appointment; and • Steer clear of the predictable traps. Finally, insurers can also decide to step up and start fighting the worst abusers, not only in the claims process itself, but also in the shady underworld of referral fees, inflated invoices, kickbacks and outright fraud. To read the rest of this article, visit CJ Badger represents the property insurance industry, both as a plaintiff in large loss catastrophe subrogation matters and as a defendant in coverage matters, at Zelle Hofmann Voelbel & Mason LLP. Spring 2014 | Claims Journal 13


By Denise Johnson

“Beyond the cause of ignition, I think through granitaceous rock and dry grass, the big concern and threat increase has the steel hits the rock and makes a spark. been that perfect storm of factors at play, If the weather conditions are correct, you pring’s not even over and already wildthat recipe for disaster. More and more get ignition,” the Nevada fire investigator fires have raged in California, New people living in what we call the wildsaid. Mexico and Oregon this year. A bulletin land urban interface, or the WUI,” said Shooting is another cause of wildfires. issued by the National Interagency Fire “It’s been a surprising Center forecasts above normal fire potencause of fires. People tial from for April to June 2014 in western states due to severe to exceptional drought shooting out in the wildland/urban interconditions. The bulletin also noted that face in areas with dry warmer than normal conditions were grass,” said Taylor. expected in the Southwest. He said the aging Drought conditions remain the main electrical power line factor in determining fuel conditions. In fact, the U.S. Drought Monitor reports that transmission infrastructure can also be blamed more than 50 percent of the country is in for starting some signifia state of drought. cant wildfires. According to Tom Jeffery, senior hazard How a wildfire starts scientist with CoreLogic, wildfire hazard is important, but the is driven by three stable forces — vegetaWalker said. “More people building their real issue involves the heightened level of tion, terrain and slope. permanent primary residences in highrisk for damage, one expert said. “We look at the fuel, which is really risk wildfire areas and over-forestation. “Yes, the ignition sources are always a looking at vegetation and we look at Our forests are bigger with more vegetaconcern. The bigger issue is the risk is the terrain because slope and the facing tion than they were a century ago. Those higher. You have more people living in direction of the slope, which is known factors create the higher risk.” that proximity of that risk,” said Carole as aspect, have a pretty significant role in A resurgence of building has also led to Walker, executive director of the Rocky determining what’s a hazard,” said Jeffery. higher risk, according to Jeffery. Mountain Insurance Association. “Based on those three criteria, we do not “Back in 2008, 2009, because of the eco She said that the biggest factors for the see a tremendous change from year-tonomic downturn, we saw a retraction in increase in wildfires is a combination of year. However, with that said, we do see new home development. We didn’t see a over-forestation and more people moving the variable come in that…is short-term lot of new construction going on. The real to the wildland climate, which Fireplace ashes can sit for as estate economy took a downturn. We’ve urban interface in this case seen a rebound from that,” he said. means drought.” long as six months and be hot. (WUI). Another “Now we’re getting more new developfactor is the Terry Taylor, ment that’s continuing that trend of pushgrowing size and value of homes located fire captain for the East Fork Fire District ing out from urban areas. Those homes in WUI regions. Now there are multimilin Minden, Nev., said the cause of wildlion dollar homes, where in the past there or subdivisions are actually pushing up fires depends on the location. against and out into what formerly was in “In the true wildlands, the typical cause might have been only small cabins in the woods. is going to be lightning, whereas as soon continued on page 16 as you get into the urban interface stuff, it tends to be more man-caused,” said Taylor, who also works as an independent fire investigator. “The types of things that we see are he current drought conditions combined with the lack of burn from last year fireplace ashes placed outside. Fireplace will likely increase the number of wildfires this year. ashes can sit for as long as six months and “2012…was close to a record-setting year in terms of total acreage,” said Dr. Tom be hot. We had a fire like that two years Jeffery, senior hazard scientist with CoreLogic. “Last year was less than half of that ago, the Washoe Lake fire. That killed a amount of acreage, but as we saw with the Rim Fire last year, fewer fires but larger person and burned down 15 to 20 homes. fires. That’s always a concern because larger fires are much more difficult to deal That was just fireplace ashes in the wind. with than the smaller ones.” They were like a month old,” Taylor said. Because of the lack of burn last year, there is more fuel for a wildfire to burn. Construction activity is another source “What doesn’t burn, most of it doesn’t deteriorate in one year. Any of the dead of ignition. vegetation or vegetation that’s existing, when that doesn’t burn on a periodic basis “When you’re using backhoes, blades that means that there’s going to be more of it available the following year,” he said. of tractors, and you’re plowing your way


2014 Wildfire Predictions


Spring 2014 | Claims Journal 15

SPECIAL REPORT | PROPERTY CLAIMS continued from page 15 grams. According to Colorado Sen. Mark many places, especially California, what Udall, the budget would include proviwe call wildland,” the CoreLogic scientist sions that treat wildfire-fighting efforts said. separate from ongoing prevention efforts. Jeffery explained that wildland areas, “With the rise of modern mega-fires which typically have higher fuel concenin Colorado and across the West, federal trations, have the potential to be high firefighting agencies have been forced to wildfire risk. raid forestry programs that could help Walker said that close to 84 percent of prevent future fires. This destructive cycle undeveloped WUI still exists but builders — robbing Peter to pay Paul — leaves and would-be residents are already eyeing Coloradans exposed to wildfires and only the undeveloped land. invites future catastrophic mega-fires like “We know there is a potential for even the Waldo Canyon Fire, the High Park Fire larger, multibillion-dollar wildfire disasand the West Fork Complex Fire,” Udall ters. At this point, they haven’t been as said. widespread as the hurricanes that we’ve Earlier this year, Udall, introduced seen, or Katrina. At the same time, you bipartisan legislation that would allow still had 347 homes burned in the Waldo FEMA to work with states and affected Canyon fire. They were people’s permaregions on wildnent primary homes. We estiThe perfect storm for wildfires fire mitigation projects. mate the damage involves more people building Walker said of that at about primary residences in highthat there is a $576 million,” risk wildfire areas and over definite emphaWalker said. sis on mitigation forestation. by insurers. Wildfire “Over the past decade, increasingly they Damage Mitigation Colorado — one state that has seen two [insurers] have gotten stricter about what they’re willing to insure and are asking of the most expensive wildfires in history homeowners to share that risk, either — is considering adding more money for wildfire prevention and mitigation, Walker when they buy a policy or renew, that they need to do A, B, C and D,” Walker said. said. This might include “everything from The president’s 2015 budget included moving wood panels away from the house, protection of wildfire prevention pro-

thinning trees to having defensible space.” Insurers consider other factors, like the distance between a home and a fire station, the slope of a home and whether access roads exist. Insurance companies also have mitigation programs, do more onsite inspections, and use wildfire modeling information to anticipate risk before a wildfire occurs. By and large, wildfires are an insured catastrophe, as long as an insured has kept up with limits, endorsements and building codes, Walker said. “Here in Colorado, the emphasis has been on requiring mitigation. At the same time, if you live a long distance from the fire department in no-man’s land or you’re on a high mountain slope, then you may have difficulty finding insurance. In most cases, you can still find insurance in Colorado even if you live in a high-risk wildfire area, if you’re willing to share that risk, take those mitigation steps,” Walker said. Need for Investigation Wildfires need to be investigated to determine the cause and whether subrogation against at fault parties exist, the experts said. It’s helpful to have an attorney involved early, said Kevin Bush, the office managing partner at the San Diego law firm Cozen O’Connor.

Improved Forecasting of Wildfires


esearchers are hoping that a new computer modeling technique will provide better daily predictions of wildfire growth. Scientists at the National Center for Atmospheric Research (NCAR) and the University of Maryland combined weather and fire behavior simulations with active wildfire satellite images. “With this technique, we believe it’s possible to continually issue good forecasts throughout a fire’s lifetime, even if it burns for weeks or months,” said Janice Coen of NCAR in Boulder, Colo., the lead author and model developer. “This model, which combines interactive weather prediction and wildfire behavior, could greatly improve forecasting — particularly for large, intense wildfire events where the current prediction tools are weakest.” Current modeling techniques used by firefighters only estimate speed at the edge of a fire but don’t examine weather and fire together. “After a fire begins, there are a lot of different variables that come into play, some of which are actually driven by or influenced by the fire. You can have wind conditions that will change because of the pattern of the burn. There’s a lot of things that happen after a fire starts that can actually make the fire intensify based on the conditions of the burn,” said Tom Jeffery, senior hazard scientist at CoreLogic. Researchers used the technique successfully on the 2012 Little Bear Fire in New Mexico. “Lives and homes are at stake, depending on some of these decisions, and the interaction of fuels, terrain and changing weather is so complicated that even seasoned managers can’t always anticipate rapidly changing conditions,” Coen said. “Many people have resigned themselves to believing that wildfires are unpredictable. We’re showing that’s not true.”

16 Claims Journal | Spring 2014

“In these kind of specialized areas, it’s helpful to have an attorney involved early, both to help evaluate whether it’s one where it looks like there may be some possibility for subrogation, and if there is, then to get the appropriate experts involved,” Bush said. Adjusters should consider the qualifications of a cause and origin investigator as well. “You should ask if the person has completed FI210, which is the nationally recognized course of study to determine the origin and cause of wildland fires. There are private sector people that have completed it,” Taylor said. “The fire department responding has the duty under law to do an origin and cause investigation, but depending on where you are, you may not have anybody trained in it.” Bush said that some losses like lightning aren’t likely to yield any recovery. The same holds true for an individual who may not have the resources to satisfy all of the claims that could arise from the scope of the damages caused by a wildfire. Bush said other experts in engineering and surveying may need to be retained too. “There’s a number of reasons why it’s good to get the team together early if it’s a viable claim or looks like it has the possibility to be,” the subrogation attorney said. According to Taylor, damages tend to be very severe in a wildland fire that involves

multiple structures. ‘Many people have resigned “The subrogation cases that I see themselves to believing that making their way through the courts are mostly against larger corporations wildfires are unpredictable. that obviously have a deeper pocket We’re showing that’s not true.’ — the big construction guys that He described the San Diego wildfires as get something going when they’re doing an example where multiple insurers and work out there, or the utility companies, vendors worked together to build a subrothe electrical power guys. There’s a lot of gation case. litigation,” said Taylor. “It was a good case study of the differ Bush said that when there are several ent attorneys representing various insurers parties involved, it’s helpful to get an coming together to pool their resources. investigative team together early on in the We all had retained experts. Some had wildfire investigation. better information from one source, of one “They [adjusters] should work on puttype of expert than another one. We put ting a team together to assist them with all that together. We had an extraordinary the cause part. The adjusters have a lot of case to go forward with and to work responsibilities on those multiple properwith,” said Bush. CJ ty losses on the adjustments and taking care of the needs of the insureds,” he said.


® 2014

Go to to answer this related poll question: Where do you think the next big wildfire will occur?

Spring 2014 | Claims Journal 17


Questions to Ask in Cases Involving Leases, Rental Agreements and Other Contracts


n many subrogation cases, the recovery specialist is confronted with one or more “writings,” including a lease, rental agreement or other type of contract, containing various provisions which may affect the recovery rights of a subrogating insurer. Below are a few issues to be aware of.

By Kevin D. Bush

Who are the parties to the agreement? Although an agreement between the insured and a third party may contain provisions which might limit or prohibit recovery, it may be that one or more of the parties responsible for causing the loss are not parties to the agreement. This could arise where a tenant has subleased the property or permitted a third party to temporarily occupy or utilize a portion of the property. Similarly, an agreement between an insured and a contactor may contain provisions limiting or waiving liability against the contractor. However, if subcontractors were involved in the work which caused the loss, the subcontractors or other third parties’ responsibility may be unaffected by limiting provisions between the insured and the contractor. Who is required to be named as an additional insured? An agreement may require one of the parties to name other parties as additional insureds under their insurance policy. If the agreement requires another party to name your insured as an additional insured, there may be successful avenues of recovery/contribution from the third parties’ insurer. Alternatively, if your insured is required to name a potential defendant as an additional insured, the anti-subrogation rule may prevent recovery against that party. Is there a waiver of subrogation clause? In many agreements, some type of “waiver of subrogation” clause is included. While, under many circumstances, the waiver clause may prevent subrogation against the parties to the agreement, there may be circumstances where the 18 Claims Journal | Spring 2014

waiver may not apply. The specific language of the waiver should be carefully examined to determine whether the provisions apply to the circumstances of the loss, and whether there are any conditions the parties were required to perform as a prerequisite to the implementation of the waiver provisions. Is there a waiver of liability clause? Many agreements contain general waiver of liability provisions wherein one party releases the other from liability, which may prevent recovery by the insurer against the party relieved from liability. However, this will not always be the case. In some jurisdictions, if the actions of the responsible party constitute active or affirmative negligence, and the limiting language is not explicit, the waiver may be unenforceable. Likewise, if the provisions affect the “public interest,” the waiver may not be enforced. Finally, the specific provisions of the waiver must be closely examined to determine whether the specific circumstances of the loss fall within the parameters of the waiver. Is there an indemnity clause? A properly drafted indemnity provision may create a recovery opportunity for the subrogating insurer. The indemnity provisions must be examined carefully to determine the precise obligations created. Is there a requirement to carry insurance? Agreements should be carefully examined to determine if a party is required to carry liability or casualty coverage. The responsibilities for insurance may create a recovery opportunity. Who is responsible for repairs? Many rental/lease agreements contain provisions requiring a party to make repairs to the property. Depending on the language and the fact situation, the language could be helpful to recovery. Provisions

requiring a tenant to pay for damages caused by its negligence may be persuasive in overcoming an “implied co-insured” defense sometimes raised in a landlord tenant situation. Is there an attorney’s fees clause? An attorney’s fees cause may permit the prevailing party in a legal action to recover its attorney’s fees from the unsuccessful party. In evaluating a recovery when an attorney’s fees clause exists, the insurer should consider the potential of recovering its incurred attorney’s fees in a successful action, and being required to pay the other party attorney’s fees should the action be unsuccessful. How were the damages caused? The circumstances of how a loss occurred may affect the enforcement of the agreement’s provisions. Intentional acts, violations of law, or acts constituting gross negligence may avoid the limiting provisions. Likewise, under certain indemnity provisions may provide an opportunity to pursue recovery and avoid responsibility. A careful examination of the provisions of any agreement should be made when deciding whether a viable recovery opportunity exists. CJ Bush, managing partner, San Diego office of Cozen O’Connor, represents subrogating insurers in losses ranging from multimillion dollar wildfire losses to single family residence losses.


SNAPSHOT Before and After: National Corvette Museum


n Feb. 12, 2014, the National Corvette Museum in Bowling Green, Ky., experienced the unthinkable. A sinkhole measuring 40 feet across and 60 feet deep developed inside the museum swallowing eight Corvettes. The before photo shows two cars on display prior to the sinkhole, a 1993 Ruby Red 40th Anniversary Corvette and a 1962 Black Corvette. The operation to recover the vehicles was dubbed “Operation Corvette Plus,� and the National Corvette Museum worked in conjunction with Chubb Insurance and VanMeter Insurance Group in the recovery project. In March, the two cars were recovered albeit with some difficulty. The car lift had become entwined with the 1962 Corvette, so the recovery team had to remove the hood and tie a strap to the engine bay. In addition, a slab of concrete that was wedged into the grill had anchors drilled into it. The museum expects the repair and remediation of the sinkhole to be completed by its 20th anniversary celebration in August .CJ

Spring 2014 | Claims Journal 19


Contactor Connection: The right partner to get you back in business when disaster strikes

A prompt response. A credentialed network. A proven partner. These are the things you need to help quickly restore daily operations and return to normalcy after a loss. From fires to floods and everything in between, Contractor Connection has the deep experience and the resources to handle damages from minor losses to highly complex events. We are your total property solution, providing streamlined service to get any building operational and back in business.

Commercial Services:

Reconstruction • Renovation • Water Mitigation • Commercial Roofing • “Main Street” Losses • Manufacturing Losses • Large Losses • Disaster Recovery • Tenant Improvements

SM | 800.690.0174


PROPERTY RESTORATION + DISASTER RECOVERY Claims Journal is please to publish the 2014 Guide to Property Restoration and Disaster Recovery. This exclusive directory resource has been designed to help claims professionals find partners and services to enhance their ability to respond to disasters and better assist their clients. Property restoration and disaster recovery companies specializing in aerial imagery, carpet cleaning, contracting, emergency mitigation, fire damage, mold removal, storm damage, temporary housing and/or water damage submitted their information directly to Claims Journal for inclusion in this directory. Providers were allowed to list up to three categories. While this directory is only a snapshot of the array of restoration and recovery services available to the claims industry, we hope you find it helpful. We look forward to expanding and enhancing this directory in the future and welcome your feedback on how we might improve it. Please send comments or suggestions to



laims Journal is pleased to publish the 2014 Guide to Property Restoration and Disaster Recovery. This exclusive directory resource has been designed to help claims professionals find partners and services to enhance their ability to respond to disasters and better assist their clients. We look forward to expanding and enhancing this directory in the future and welcome your feedback on how we might improve it. Please send comments or suggestions to:

ALE/Housing Bridgeway Temporary Housing, Inc.

Emergency Mitigation, Fire, Water, Disaster/Catastrophe AdvantaClean (877) 800-2382

(866) 659-8439

Corporate Living Solutions, Inc. CRS Temporary Housing (800) 968-0848 Service Area: Nationwide

Furnished Quarters (212) 367-9400

Homelink Corporation (866) 731-9700

Housing Headquarters (513) 779-4357

National Insurance Housing (866) 846-9370

Temporary Accommodations (800) 548-5196

American Technologies, Inc. (800) 400-9353 Service Area: Nationwide American Technologies, Inc. (ATI) is a national leader in restoration, environmental remediation and reconstruction. As the nation’s largest privately-owned restoration contractor, ATI is proud to offer all customers a personalized service experience from our management team, plus all the logistical and technological benefits of a large company.

Contractor Connection (800) 690-0174 Service Area: Nationwide We are the largest, fully-independent network of managed contractors for commercial/residential property restorations for insurance companies and consumers. More than 4500 highly credentialed contractors in the U.S. and Canada provide expert services in: General contracting, special-needs modification, roofing, flooring and emergency services; plumbing, board up, water mitigation and more. 24/7

CRDN - Certified Restoration Drycleaning Network (800) 963-2736 Service Area: Nationwide

Elite Consulting Services (317) 769-7999

Esporta Wash Systems BELFOR Property Restoration (800) 853-3333

BMS CAT (800) 433-2940

(800) 881-7781

Flood Masters (619) 234-2500 Service Area: San Diego, CA

FRSTeam, Inc.

THD - Temporary Housing

Bradley Stinson & Associates, Inc.

(800) 817-3220


Horticultural Asset Management

VIP Insurance Housing Options, Inc. (888) 468-0419

22 Claims Journal | Spring 2014

Cotton Commercial USA, Inc. CRU Adjusters

(510) 723-1000

(919) 460-5445


Rytech Inc. (210) 821-1777 Service Areas: Alabama, Arkansas, Florida, Louisiana, Mississippi, Oklahoma JF&A, LLC is a construction and restoration firm that specializes in commercial and multifamily properties throughout Texas, Oklahoma, Alabama, Mississippi, Louisiana and Florida. With a corporate office in San Antonio, Texas, a satellite office in Baton Rouge, Louisiana, and teams throughout JF&A is prepared to respond quickly to your needs from Texas to Florida. (800) 690-0174 Service Area: Nationwide Rytech’s Centralized Administrative Call Center handles FNOL while Rytech’s Mitigation Data Specialist Team provides continuous QA review on every file. This team effort results in the highest level of file accuracy available today. Consistently reducing severity and positively impacting your bottom line by charging what the job costs is the Rytech difference!

Legend Brand

R.A. West Associates, Inc.

National Catastrophe Partners

(215) 860-5026

(877) 576-0061

National Restorations, LLC

(877) 644-9040

PipeBurst Pro (402) 944-7123 Service Area: Nationwide PipeBurst Pro is the highest-quality, most effective automatic flood detection and prevention system on the market. Call us today to get your FREE quote.

ServiceMaster Restore (800) 737-7663 Service Area: Nationwide The ServiceMaster Restore nationwide network of 1,600 franchise locations delivers worldclass restoration service, quality and customer satisfaction 24 hours a day, 7 days a week, 365 days a year

Steamatic, Inc. (888) 783-2628

Restoration/Contractors Alacrity Services, LLC

PuroClean (800) 775-7876 Service Area: Nationwide PuroClean, a leader in property damage restoration throughout the US and Canada is backed by a network of over 250 offices. Each PuroClean office responds to property emergencies, utilizing the latest in mitigation technology and procedures throughout the remediation process, resolving claims quickly, knowledgeably and with compassion – every time.

R.A. West Associates, Inc. (215) 860-5026 (800) 400-9353 Service Area: Nationwide American Technologies, Inc. (ATI) is a national leader in restoration, environmental remediation and reconstruction. As the nation’s largest privately-owned restoration contractor, ATI is proud to offer all customers a personalized service experience from our management team, plus all the logistical and technological benefits of a large company.

BluSKY Restoration Contractors, Inc. BMS CAT (800) 433-2940

(877) 884-9446

Oppenheimer Art Recovery

American Technologies, Inc.

American Building Contractors American Leak Detection

Calvary Construction & Consulting, LP CAT 5 Restoration

Contractor Connection (800) 690-0174 Service Area: Nationwide We are the largest, fully-independent network of managed contractors for commercial/residential property restorations for insurance companies and consumers. More than 4500 highly credentialed contractors in the U.S. and Canada provide expert services in: General contracting, special-needs modification, roofing, flooring and emergency services; plumbing, board up, water mitigation and more. 24/7

CRDN - Certified Restoration Drycleaning Network (800) 963-2736 Service Area: Nationwide

DeHumidification Technologies, LP Disaster Response: DDC & ADS Emercon Construction Encore Restoration, LLC Spring 2014 | Claims Journal 23

IDEA EXCHANGE | PROPERTY RESTORATION & DISASTER RECOVERY GUIDE Fentress Builders, Inc. First Choice Repair Furniture Medic Hays & Sons Inline Distributing Company

Rainbow International Restoration and Cleaning (800) 583-9100

Reality Rope Access, LLC Restoration Affiliates RMC Group, LLC

(800) 795-0933

Jenkins Restorations

Rytech Inc. JF & A, LLC (210) 821-1777 Service Areas: Alabama, Arkansas, Florida, Louisiana, Mississippi, Oklahoma JF&A, LLC is a construction and restoration firm that specializes in commercial and multifamily properties throughout Texas, Oklahoma, Alabama, Mississippi, Louisiana and Florida. With a corporate office in San Antonio, Texas, a satellite office in Baton Rouge, Louisiana, and teams throughout JF&A is prepared to respond quickly to your needs from Texas to Florida. (800) 690-0174 Service Area: Nationwide Rytech’s Centralized Administrative Call Center handles FNOL while Rytech’s Mitigation Data Specialist Team provides continuous QA review on every file. This team effort results in the highest level of file accuracy available today. Consistently reducing severity and positively impacting your bottom line by charging what the job costs is the Rytech difference!

Sears Commercial

Moore Restoration, Inc. National Restorations, LLC NCRI - National Catastrophe Restoration, Inc. Nobe Nash Odorox Hydroxyl Group Paul Davis

PuroClean (800) 775-7876 Service Area: Nationwide PuroClean, a leader in property damage restoration throughout the US and Canada is backed by a network of over 250 offices. Each PuroClean office responds to property emergencies, utilizing the latest in mitigation technology and procedures throughout the remediation process, resolving claims quickly, knowledgeably and with compassion – every time.

24 Claims Journal | Spring 2014

Restoration Supplier Benefect (800) 909-2813

Milnor Laundry Systems (504) 467-9591

Vaportek, Inc. (888) 633-5633


M.J. White & Son, Inc. Mooring Recovery Services

Zodiac Equipment Restoration (888) 515-0285 Service Area: Nationwide Specialty restoration for electronics and machinery that have been exposed to smoke, water, or other contaminants. Our success is driven by our technical expertise and our focus on the specific areas of fire and water damage restoration. Zodiac also provides data recovery, dehumidification, corrosion control, inventory analysis, and storage facilities.

ServiceMaster Restore (800) 737-7663 Service Area: Nationwide The ServiceMaster Restore nationwide network of 1,600 franchise locations delivers worldclass restoration service, quality and customer satisfaction 24 hours a day, 7 days a week, 365 days a year

Servpro Industries Statewide Disaster Restoration, Inc. Steamatic, Inc. (888) 783-2628

Universal Restoration Services Vineyard Services Wolgast Restoration

Callan Salvage & Appraisal Company (901) 867-3300

CodeBlue Enservio, Inc. G&G Insurance Adjusters Gemcor Inc. Greer & Kirby Company, Inc. Nationwide Foam Recycling NICE Network, Inc. RCF Salvage ReSource SalvageSale, Inc. Scope Solutions Sentry Salvage United Salvage Associates, Inc. Weller Salvage


Symbility Solutions EagleView Technologies (866) 659-8439 Service Area: Nationwide EagleView Technologies invented the concept of 3D aerial roof measurements with proprietary patented software providing detailed, accurate roof measurement reports substantially reducing claim cycle time. EagleView continues to provide a means to increase productivity while minimizing claims discrepencies with the most accurate guaranteed roofing reports.

Encircle, Inc. phone number: (647) 775-8600 Service Area: Nationwide Symbility Solutions® provides cloud-based and smartphone/tablet-enabled claims technology for the global property and health insurance industries. Designed to be flexible and easy-to-use, Symbility Solutions’ two product suites, Symbility Property™ and Symbility Health™, empower insurers to collaborate across the entire claims processing workflow and reduce costs while delivering a market-leading claims experience.

Xactware (800) 424-9228

(519) 573-1186

LKQ Technologies, LLC (855) 557-3278 Service Area: Nationwide LKQ Technologies is the company behind the OnSightLKQ™ floor covering replacement cost valuation system. The system enables adjusters or restoration vendors to produce a flooring identification and RCV report in about 10 minutes while at the loss site. Close claim files faster with localized pricing accuracy and improve customer satisfaction.

PipeBurst Pro (402) 944-7123 Service Area: Nationwide PipeBurst Pro is the highest-quality, most effective automatic flood detection and prevention system on the market. Call us today to get your FREE quote.

Spring 2014 | Claims Journal 25

As we celebrate our 25th Anniversary, it is important to recognize those people that have helped us achieve

this business milestone. We are so grateful for the clients, colleagues and friends of ATI that have helped us these past 25 years. We couldn’t have done it without you. Thank you for being part of our past, present and future.


Evolving Considerations for Insurance and Cyber Risks


n a recent decision, a New York judge important, especially in light of the ruling held that a commercial general liability in Zurich Am. Ins. Co. v. Sony Corp. of Am., (CGL) policy did not provide coverage for No. 651982.2011 (N.Y. Sup. Ct. Feb. 24, 2014), an online data breach where hackers stole which demonstrated that traditional polithe personal information of millions of cies may leave gaps for cyber liability. users. The case arose in 2011, after hackers The case remains breached Sony’s online PlayStation netsubject to appeal work and stole the personal information but highlights the of millions of users, and the company limitations of CGL turned to its insurer policies for new cyber to provide a legal risks and the need for defense and coverage companies to evaluate for the claims. Sony By Burke Coleman their exposure to data thought that its insurbreaches and cyber liability. er should defend the underlying claims Recent high-profile data breaches including the Sony hacking and the Target as the CGL policy provided coverage for credit card breach have drawn significant “personal and adverattention to issues of cybersecurity and tising injury” which consumer protection. Internet and netincluded the “oral or work technologies have improved compawritten publication in nies’ abilities to conduct business, connect with partners and clients, and process and any manner of material that violates a person’s right to privacy.” store data, but the advances have come While the judge agreed with Sony that the with risks and cybersecurity has become a significant, though often underappreciat- hackers’ act of “opening the safeguards” and “getting the information out there” ed, concern. constituted “publication” in the broad, In recognition of the “increasing depenlegal sense, he did not agree that coverage dence on digital technologies” and “more extended to the hackers’ frequent and actions. The judge noted severe cyber inciRecent high-profile that the phrase “any dents,” the SEC data breaches have manner” in the policy issued cybersedrawn significant referred to the medium of curity disclosure attention to issues of publication, not the actor, guidance in and that the coverage 2011 for public cybersecurity and grant was limited to the companies. consumer protection. acts of the policyholder, More recently, Sony. According to the judge, “[The policy] the White House issued its cybersecurity requires the policyholder to perpetrate or framework for critical infrastructure, commit the act… It cannot be expanded developed by the National Institute of to include third party acts.” Based on the Standards and Technology (NIST). The hackers accessing the information, the guidance from both is voluntary and not judge found no coverage and no duty to directed towards all entities, but it offers defend. beneficial information and direction that is universally applicable. While security A CGL policy may provide coverage for measures can help on the front end, insur- a data breach under certain circumstances ance remains an important consideration, but the applicability of a policy to a cyber as recognized by the SEC and NIST, and liability claim remains highly contingent can mitigate exposure to liability on the on the specific facts of the case, including back end. the manner of breach, the actor breach Understanding how insurance applies ing the system, and other circumstances which can pull the claim within or outto cyber risk is becoming increasingly

side of the policy’s coverage grants and exclusions. For example, in Hartford Cas. Ins. Co. v. Corcino & Assoc., No. 2:13-CV03728 (C.D. Cal. Oct. 7, 2013), a federal judge found coverage under a CGL policy where personal medical information was negligently transferred and published online. However, the factual scenario was notably distinguishable from that in Sony

as the actor was under the control of the insured, and the case focused on a different policy provision. The relationship between insurance and cyber risk continues to develop and insurers are responding to these claims in part by more explicitly addressing cyber risks in their policies. In the interim, courts will continue to be faced with questions regarding the applicability of general liability policies to data breach claims. The decision in Sony illustrates the potential limitations of standard liability coverage in dealing with the evolving cyber environment and underscores the critical nature of cybersecurity and risk management. Companies can use the guidance from the SEC and NIST to frame the issues and establish protective measures, but they should also understand how their general liability insurance, directors and officers liability coverage, and other insurance applies to cyber risks. CJ Coleman is legal counsel and compliance manager for Demotech Inc. This article is for informational purposes only, is not intended as legal advice, and is not a substitute for independent legal analysis and advice on a particular issue. Email: Spring 2014 | Claims Journal 27


Historical Tour of the Contra Proferentem Doctrine By Steven Plitt


s I review cases to supplement my various publications I come across some cases that I would characterize as being “must reads.” The

Minnesota Court of Appeals decision in Economy Premier Assur. Co. v. Western National Mut. Ins. Co., 839 N.W.2d 749 (Minn. Ct. App. 2013) is one of those

cases. The Minnesota Court of Appeals in Economy Premier provides an excellent historical tour through the evolution of the ambiguity doctrine of contra 28 Claims Journal | Spring 2014

proferentem. The court in Economy Premier began its discussion of the contra proferentem doctrine in terms of its usual application. “In the typical coverage contest between an insurer and its insured, ambiguous terms in the insurance policy are construed in favor of the insured.” At the heart of the contra proferentem doctrine is a judicial recognition that a disparity in bargaining power generally exists between the insurer and the insured due to the adhesive nature of the insurance contract and the insurance transaction. The court noted that the contra proferentem doctrine has been recognized since the days of Sir Francis Bacon (“[a] man’s deeds and his words shall be taken strongliest against himself.”) and Sir Edward Coke (“[i]t is a maxim in law, that every man’s grant shall be taken by construction of law most forcefully against himself”). Id. at 754 citing Francis Bacon, A Collection Of Some Practical Rules Of Maxims Of The Common Laws Of England, With Their Latitude And Extent, Regula III (1636); II Edward Coke, The First Part Of The Institutions Of The Law Of England, Or, A Commentary Upon Littleton, 183(a) (1853). The court also cited to William Blackstone’s Commentaries where William Blackstone explained the contra proferentem doctrine as it applied to property deeds: “[T] he principle of self-preservation

will make men sufficiently careful, not too prejudice their own interest by the two extensive meaning of their words: and hereby all men are of deceit ... is avoided; from men would always effect ambiguous affect ambiguous and intricate expression provided they were afterwards at liberty to put their own construction upon them.” The contra proferentem doctrine is predicated upon the rationale that the proponent of a particular term is more likely aware of its possible ambiguities, which is especially true when dealing with standard form contracts. Historically, in the general context of contract law, the doctrine of contra proferentem was regarded as a doctrine of last resort and was only used when other interpretive methods failed to reveal the parties intent. Id. citing Corbin on Contracts, §24.27 (1998); see, e.g., Yeaton v. Fry, 9 U.S. 335, 341-42, 5 Cranch, 335, 3 Lawyers Edition 117 (1809) (applying the doctrine when no other means of ascertaining intent were available); Varnum v. Thruston, 17 Md. 470, 496, 1861 WL 2156 (1861) (describing the doctrine as one of “strictness and rigor, and not to be resorted to but where other rules of exposition fail”). However, the doctrine of contra proferentem assumed a prominent role in American insurance law such that it is now the analytical starting point, instead of the end point, for courts interpreting ambiguous insurance language. Id. at 754-55, citing by way of example, First National Bank v. Hartford Fire Ins. Co., 95 U.S. 673, 679, 5 Otto 673, 24 L.Ed. 563 (1877) (applying the rule without first ascertaining the parties’ intent; Mutual Life Ins. Co. of New York v. Hurni Packing Co., 263 U.S. 167, 174, 44 S.Ct. 90, 91, 68 L.Ed. 235 (1923) (“The rule is settled that in case of ambiguity that construction of the policy will be adopted which

to the terms they offered in negotiation is most favorable to the insured.”). and provides an incentive, especially for The court in Economy Premier discussed insurance companies who are in a better the rationale which supports the contra position to prevent misunderstandings to proferentem doctrine: [C]ontra proferenavoid including ambiguities. tem ... interpret[s] ambiguities in insur The issue before the ance contracts against court in Economy Premier the drafter and in favor At the heart of the was whether the docof finding coverage [citacontra proferentem trine of contra proferention omitted] it does so doctrine is a judicial tem, which interpreted because insurance poliambiguous insurance cies are often contracts recognition that a of adhesion, consisting disparity in bargain- policy language against policy drafter was a largely of boilerplate ing power generally the doctrine which should terms that are proffered exists between the be applied with the same by sophisticated comforce in situations where mercial entities and ordi- insurer and the the contract dispute narily accepted by proinsured. did not involve the two fessional unsophisticated contracting parties but, consumers [citations instead, involved one contracting party omitted]. The rule protects the insured and another (stranger) entity. who is usually at a disadvantage in terms Specifically, in the Economy Premier case, of knowledge, expertise and bargaining two insurers were arguing over the interpower relative to her insurer, but the rule applies even to disputes involving a sophis- pretation of one of the insurer’s policies. The insurance company that did not draft ticated insured with equal bargaining the policy (the “stranger”) could utilize the power. [citation omitted]. Contra proferdoctrine of contra proferentem and hold entem applied in these cases holds parties

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any policy ambiguity against the insurer that issued the policy. The Minnesota Court of Appeals held that applying the doctrine of contra proferentem in the context presented would substantially remove it from its primary rationale. Therefore, the court held that ambiguous contract terms were not to be held against the insurer in favor of a different insurer who was a stranger to the contract. The court in Economy Premier bolstered its conclusion by indicating that most of the jurisdictions agreed with that conclusion. JCJ Plitt is a nationally recognized expert in insurance law. He has authored numerous insurance treatises and articles. He has a national expert witness practice. Email:

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Spring 2014 | Claims Journal 29


Insurers Beware: Reimbursement for Defense Under Reservation of Rights

By Stacy Monahan Tucker


ou’re a claims manager for an insurance company, or counsel for an insurer. An insured is being sued, and they’ve tendered their defense under their liability insurance policy. The issues in the complaint are complicated — it’s not immediately clear whether the allegations

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are covered by their policy. What do you do? Many insurers rely on courts to allow them to offer their insured a defense under reservation of rights and continue to investigate the case, and then seek reimbursement if there is no coverage for the claim. But at some point in the last 10 years the majority view changed on this issue, and no one noticed.

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The California Supreme Court’s decision in Buss v. Supreme Court is considered the exemplar of the “majority” position on reimbursement under reservation of rights. Buss held that if an insurer was tendered a defense including claims covered or potentially covered and claims clearly not covered, an insurer could be reimbursed for costs related solely to claims not covered by the policy as it did not bargain to bear those costs. Though widely considered the majority position, only seven states have actually permitted such reimbursement: Colorado, New Jersey, Montana, Florida, Delaware, Connecticut and California. Eleven federal courts have done the same in Arizona, South Dakota, Hawaii, Tennessee, Alaska, Nevada, New York, New Mexico, Michigan, Ohio and Kentucky. But of the 11 federal courts to agree with Buss, six of them explicitly stated that they were doing so purely because it was the majority rule in the country. Five courts held that reimbursement of defense fees could be recouped under reservation of rights only if the insured did not object to the reservation of rights letter. While 18 state and federal courts permit an insurer to seek defense fees for non-covered causes of action defended under reservation of rights, only 12 of them allow the insurer to do so if the insured objects to the attempt. In 2013, the Washington Supreme Court in National Surety v. Immunex rejected the Buss approach to reimbursement of defense fees. The Immunex court held that the language of the policy must allow reimbursement of defense fees paid under reservation of rights. The court also disallowed reimbursement on a public policy basis reasoning that if the insurer were allowed to recoup defense costs, it would allow the insurer to claim the benefit of offering a defense while shouldering no costs with that decision. The Supreme Courts of Pennsylvania, Arkansas, Illinois, Texas and Wyoming have agreed with Washington Supreme Court’s analysis. All but Arkansas stated

reimbursement in that scenario even if the their decision was based on the failinsured objects. ure of the policy language to include a right to reimbursement. So have eight So What Now? federal courts, interpreting the laws First, insurers should recognize that of Idaho, Minnesota, Iowa, Maryland, around the country, the majority of courts Massachusetts, Georgia, Missouri and already deny reimbursement for fees paid Virginia. under reservation of rights based on cur Eighteen states have not yet considered rent policy language. Insurers should conthe issue. But the Eighth Circuit has consider including a right to reimbursement cluded that all states in its jurisdiction to in future policy iterations. While there is consider the question would deny reimbursement, and will likely do so for North no evidence that courts that permit reimbursement under reservation Dakota and Nebraska At some point in of rights will change their as well if the issue is brought to federal court. the last 10 years minds, anything could hap Also, courts in the majority view pen if the nation continues shift towards denying the Alabama, Utah and changed on this to right. Kansas have all disalissue, and no one Second, insurers lowed reimbursement for should get the insured’s settlement costs under noticed. consent to reimbursement reservation of rights, rights for defenses paid under reservation which indicates a strong likelihood that of rights in writing. Editing policies to those states would disallow reimburseinclude the right to reimbursement may ment of defense costs as well. help curtail litigation in the future, but it Thus, 18 states have denied or are likely will not affect current litigation related to deny reimbursement for defense fees to existing policies. Early correspondence paid under reservation of rights, while requiring the insured’s signature to docuonly 12 states will uphold the right to

ment their agreement to the reservation of rights and right to reimbursement will help avoid later claims that the insured did not consent. Third, insurers should consider an increased reliance on declaratory relief actions early in the investigation to confirm that no duty to defend exists. Many courts have told insurers to file declaratory judgment actions in lieu of investigating under reservation of rights. Depending on the liability exposure, the cost of the declaratory judgment action could be significantly less than the defense or settlement fees for the underlying action. This also protects the insurer from seeking reimbursement of defense fees from an insured who cannot repay them. Thus, even in “safe” jurisdictions like California where the ability to seek reimbursement is clear, it behooves the insurer to quickly ask the courts to adjudicate coverage before the insurer invests large amounts of money in a defense or settlement. JCJ Monahan Tucker is a Ropers Majeski Kohn & Bentley partner with expertise in complex insurance coverage litigation at a national level.

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In the Era of Information, Insurers Must Understand the Cross-Section of Claims and Data


he value and impact of data could not be any more present, and important, in each of our lives today. From Google to Facebook and even IBM’s development of “Watson,” data and intelligence are quite literally changing our world. The insurance industry is built on information. This isn’t breaking news. By Bob Crowley Certainly underwriters and risk managers have understood the value of data for years. Every policy issued is underwritten based on both historical and predictive data. In many ways, insurers have been at the forefront of data analytics. But at the same time, there is one area where our industry has fallen a bit short: integrating analytics into the claims process. Building a claims strategy that better leverages data and analytics is the key to unlocking powerful business efficiencies for insurers, large and small. Here are four considerations to keep in mind when

1 | Spring 2014 32SEALC001.indd Claims Journal

repeating that your claims department is your frontline ambassador to customers. By leveraging their data and intel you can build a product (and a business) that Break Down the Silos fosters deeper relationships with your cus Too often, varying departments within tomers on both an individual and group an insurer simply don’t share informabasis. tion. That’s not to say they don’t talk or Claims departments have access to data communicate, but the real time sharing that can better inform of information isn’t always underwriting, pricing happening. Underwriting, Building a claims risk management pricing, risk management, strategy that better and decisions. By breaking etc., often are operating leverages data and down these silos and in a silo from the claims analytics is key. increasing communicateam. Sure, underwriting tion through analytics, looks at historical claims carriers can improve customer services data, but do they understand the story while improving efficiency in their own behind that data and are they using the operational procedures. most recent data to inform current day underwriting standards? Invest in Claims Analytics Personnel Carriers can combat these issues by The insurance industry is quickly combetter facilitating the sharing of data ing to a precipice whereby we must foster and analysis across business functions. Collaboration is critical, as is speaking the the development of the next generation of professionals. This is a story many have same language (is everyone in your organidiscussed. zation using the word “weather claim” the But what is not often highlighted as same or is there deviation?). part of this conversation is the impor As elementary as it sounds, it bears tance of attracting professionals with an in-depth understanding of data analytics. Within the insurance industry, there is a limited talent pool of people who are knowledgeable about analytics, big data and insurance. It is time that insurers work to highlight the data-oriented career opportunities that extend beyond traditional IT, marketing and business analytics positions. This is especially important when it comes to claims. The claims function is no longer simply about inventorying, approving or denying customer requests for coverage. It’s far from it. Today’s carriers must embrace claims data and use this information to the benefit of the entire organization, not just to meet their transactional and operational needs of the individual claim. As such, successful claims teams are hiring individuals who can evaluate and use data to tell bigger, trend stories that inform other portions of the business. developing your claims data analytics strategy:

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Developing a close collaboration with HR to bolster your company’s ability to compete for scarce analytic talent is critical. If recruiting data talent proves too difficult, look for opportunities to provide training and advancement opportunities for current team members. Building a team of claims professionals who understand how to analyze and tell the story of your data will benefit your organization. Harness the ‘Right’ Data Part of the challenge facing claims teams (and insurers in general) is how to decipher the meaningful, important data from the noise. In our technology driven society, access to data is only going to increase as will the cost of building proprietary systems to capture this data. In order for claims analytics to be effective in deciphering the right balance between customer satisfaction, proper indemnity and overall expense for closing a claim, having access to meaningful (and relevant) data is essential. But what happens when you don’t have access to all the data you need? Don’t have proprietary data in place? No problem. Technology is now providing simpler, streamlined access to third-party data resources like law enforcement databases, insurance industry databases, as well as public record databases that can provide the information claims teams need. These resources can supplement and enhance internal ana-

lytics data on claims, providing a fuller picture that expedites claim resolutions. In a data driven society, more is not always better. The key for claims teams is to identify the right data (whether you own it or not) and use it to build guardrails that help both you and the insured. Don’t Forget the Customer! It seems straight forward, but the true power of data and analytics lies in its ability to help the carrier and the customer. Consider this: The Insurance Information Institute estimates that insurance fraud costs property/casualty insurers over $30 billion annually. Unsurprisingly, in many cases these costs will be passed on to the customer. Analytics can (and should) be used to combat this issue. Insurers can protect themselves, improve operational efficiency and (eventually) lower premiums for insureds by more effectively using historical data to identify fraud. Another customer-centric and important use for analytics is for the prevention of losses before a major weather event like, Superstorm Sandy. Aggregating and understanding data before, during and after a major storm will help claims departments to more effectively deploy resources in the event’s aftermath. How? Before the storm, carriers can pinpoint what policyholders are at risk and can proactively share information on how to prevent a loss. In preparation for, and in response to

a storm, claims teams should harness multiple levels of customer data to build storm severity maps and eventually, a claims loss map. Further, analytics can be used to triage and prioritize claims by providing insights that will reduce travel time for adjusters and decrease the time it takes to address customers during a difficult time. There is no question that we are in an era of data. As we continue to look for opportunities to innovate and better analyze information we are collecting, insurers must seek to better leverage analytics with regards to claims. Doing so will enhance operations, mitigate losses, and ultimately, allow for a deeper understanding of the markets. CJ Crowley is vice president of Claims for American Modern Insurance Group.

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Spring 2014 | Claims Journal 33


Stay Vigilant: 2013’s Enduring Catastrophe Lessons


urricane season starts in a few weeks. As the claims community prepares for the uncertain months ahead, many carriers may think back to an uneventful 2013. However, while no catastrophe events resulted from hurricanes, it would be a mistake to assume that the wave of apparent good fortune By Joe Louwagie will continue. Rather, the claims community should look to the recent past as a reminder to stay vigilant. Now is the time to review catastrophe plans, explore contingencies and prepare to serve your customers. Mixed Messages Catastrophe activity in 2013 was either above or below average depending on whether you’re looking at frequency or severity. Property Claim Services (PCS), a division of Verisk Analytics, designated 29 catastrophe events in 2013, primarily

The importance of vigilance is clear even during or after a slow year. thunderstorms, affecting 25 states and the District of Columbia. However, catastrophe losses in the United States were only $12.9 billion. Put in perspective, the entire year’s result was lower than that of each of the top three catastrophe events of the past 15 years: Hurricane Katrina at $41.1 billion (2005), the World Trade Center attack at $18.8 billion (2001), and Superstorm Sandy at $18.8 billion (2012). The gap between catastrophe activity and insured losses underscores the lack of correlation between frequency and severity. For the 29 catastrophe events in the United States in 2013, the overwhelming majority (83 percent) were thunderstorms. That stands in stark contrast to 2012, in which 26 U.S. catastrophe events led to nearly $35 billion in insured losses. Sandy, of course, drove the increase, account34 Claims Journal | Spring 2014

ing for more than half of 2012 insured catastrophe loss activity. Excluding that one event, 2012’s losses would have exceeded those of 2013 by 26 percent (as opposed to more than 170 percent). The reason for 2013’s low level of losses stems from the Atlantic basin. Despite the formation of 13 named tropical storms (slightly above the 10-year average), none made landfall. As a result, catastrophe-prone states such as Louisiana and Florida sustained comparatively little damage. Louisiana had only $593 million in insured losses from catastrophe events despite having suffered $33 billion in the past 10 years. Florida is close behind at $32 billion in the past 10 years, yet had no PCS-designated events last year, resulting in no catastrophe losses. Texas was among the five most affected states in the country last year, which is not unusual. However, that dubious distinction required only $1.5 billion in insured losses. In the past decade, Texas suffered total catastrophe insured losses of $27 billion. Again, the impact of noncorrelation becomes evident. Despite an active year in the Atlantic basin, none of the forming storms made landfall. Named storm activ-

ity does not necessarily result in catastrophe events. Had the wind blown differently, insurer catastrophe plans might have been tested. The importance of vigilance is clear — even during or after a slow year. Enduring Lessons Big years tend to produce the most frequently cited lessons. Claims executives made sure that their organizations learned from m Sandy; Hurricanes Katrina, Rita, and Wilma; and the one-two punch that Hurricanes Gustav and Ike brought to Texas in 2008. Quiet years, however, can be equally instructive. For the coming hurricane season, catastrophe claims department leaders can ensure that they have established relationships with independent adjuster firms and continually provide training before the need becomes acute. For tropical-storm-prone states, such as Florida and Louisiana, claims organizations should revisit contracts with vendors to confirm availability at prices already negotiated to mitigate future claim payments without compromising customer service. CJ Louwagie is assistant vice president, Property Claim Services for Verisk Insurance Solutions.

Claims Journal Spring 2014