Coverage Issues for Catastrophic Events

Transcription

1 Tracy Alan Saxe Saxe Doernberger & Vita, P.C. Christopher M. Brophy FTI Consulting Donna Stone GDF Suez Energy N.A. Paul McVey Marsh USA Inc. Denia S. Aiyegbusi Porteous Hainkel & Johnson Coverage Issues for Catastrophic Events ABA Section of Litigation Insurance Coverage Tucson, Arizona March 2, 2012

2 Recent Catastrophic Losses Thailand Flooding October 2011 Tornados in Joplin May 2011 Japan Earthquake March 2011 New Zealand Earthquake February 2011 Flooding in Iowa June 2008 Hurricane Katrina August 2005 World Trade Center Attacks September 2001

3 Main Coverage Issues Recent Disasters World Trade Center Attacks Number of Occurrences Prevention of Access Idle Periods Leasehold Interest Period of Indemnity Thailand Earthquake Contingent Coverage Issues Japan Earthquake Different Perils Nuclear Exclusion Contingent Coverage Issues Concurrent Causation Hurricane Katrina Loss of Market Exclusion Concurrent Causation Preservation of Property

4 Obtaining Appropriate Insurance Direct Physical Damage Time Element Losses Contingent Losses Civil Authority Increased Building Costs Ingress/egress Service Interruption Preservation of Property Valuable Papers

5 A chemical plant that operates 24 hours per day, 7 days per week is forced to shut-down with the threat of an impending hurricane. As it turns out, the hurricane only causes minimal damage, but the impact of the shut-down causes a significant business interruption loss to the plant. Can the chemical plant recover for its business interruption losses? Question For Panel and Audience

6 Coverage Deficiencies All insurance programs have holes! Exclusions Deductibles/SIRs Sublimits Time Limits Waiting Periods Valuation Conditions

7 Coverage Obligations Don t lose coverage because of an oversight! Timely Notice Cooperation with Carriers/Outside Adjusters Sufficient Proof of Claim Preservation of Property (Sue and Labor) Avoidance of Voluntary Payments Independent Appraisal (Sometimes)

8 Types of Coverage Direct Physical Damage Property must be covered under policy Peril must not be excluded Replacement Cost v. Actual Cash Value Comparable Material and Quality Limitation Code Upgrade Coverage

9 Traditional Time Element Types of Coverage Time Element Period of Indemnity time to complete repairs Covers Lost Sales less Discontinued Costs Contingent Time Element Impact due to damage sustained by a supplier or customer

10 Question For Panel and Audience A hotel is destroyed from the World Trade Center attacks. They have strong coverage including $10 million for Contingent Time Element coverage. Does the loss associated with the towers result in a Contingent loss, subject the sub-limit?

11 Types of Coverage Civil Authority Losses caused by acts of Civil Authority that impact access to their facilities May apply when government acts prohibit access to property of suppliers, providers or vendors Some policies require a prohibition of access Often limited to 30 days from date of civil action prohibiting access

12 Question For Panel and Audience As a result of Hurricane Ike, Houston imposed a dawn-to-dusk curfew. Should losses incurred by businesses, such as restaurants and bars, be covered under the Civil Authority Coverage?

13 Key Exclusions Nuclear Radiation Terrorism Loss of Market Idle Periods Fines and Penalties Faulty/Defective Design, Materials and Workmanship Consequential losses

14 Question For Panel and Audience An insured has Service Interruption coverage, but a Nuclear Exclusion. If they lost power as a result of earthquake damage to their power plant, which is a nuclear plant, are they covered for the resultant losses?

15 Concurrent Causation Concurrent: Two or more independent and unrelated events WIND- STORM D A M A G E FLOOD Courts disagree over application of doctrine of concurrent causes

16 Concurrent Causation Efficient Proximate Cause Fire Sprinkler Triggered Water Damage Mold Damaged Sheetrock What is proximate - Predominant, first, or most-recent cause?

17 Concurrent Causation Anti-Concurrent Causation Clause: We do not cover loss to any property resulting directly or indirectly from an of the following [perils]. Such a loss is excluded even if another peril or event contributed concurrently or in any sequence to cause the loss. Most Federal Courts enforce ACC Clauses Handful of states disfavor (CA, ND, WA, WV)

18 Proximate Cause and Concurrent Causation Mississippi (Supreme Court) Corban v. United Service Auto. Ass n, 20 So.3d 601, (Miss. 2009) ACC Clause triggered only if wind and flood simultaneously converged and operated in conjunction to create an indivisible loss ACC Clause held ambiguous and unenforceable to extent it intended to exclude loss from covered peril if it occurred separately and in any sequence to exclude non-covered peril ACC Clause inapplicable because wind and flood acted independently For all risk coverage: insured need only prove direct physical loss to covered property; burden then shifts to insurer to prove loss concurrently caused by uncovered peril

19 Assessing Coverage Plugging the holes Analyze the policy before determining relevant facts Describe the facts based on the coverage provided by the policy Critically analyze the cause(s) of loss Assess choice of law and choice of venue issues (which applicable jurisdiction is most favorable?)

20 Tracy Alan Saxe Christopher M. Brophy Thank You! Any Questions? Donna Stone Denia S. Aiyegbusi Paul McVey