As Hurricane Irene takes aim at New York and Connecticut (where I live), and the rest of the mid-Atlantic and New England, insurers are preparing to deploy their catastrophe teams and/or independent adjuster teams to handle claims in a region that has not been impacted by a hurricane in a number of years.  An article yesterday in PropertyCasualty360 predicts that Irene will be a multibillion dollar event for the insurance industry, and lists the companies with the largest written premiums in the states expected to be impacted.  Given that I spent most of my time for several years defending insurance companies in lawsuits from Hurricanes Katrina and Rita, as well as the Florida hurricanes of 2004, I thought I would offer here some thoughts on what claim executives and their counsel can be doing now to try to reduce bad faith and class action exposure:      

  1. Make sure your legal research on claim-handling statutes and regulations is fully up-to-date for all applicable jurisdictions.  These statutes and regulations are amended from time to time, so it is important to make sure that your research is fully updated.  Unlike hurricanes in recent years that impacted only one or two large states, it looks like Irene will affect a number of smaller states and adjusters likely will be working in multiple states, so they may need to handle some things differently depending on where they are working on a given day.  Some states have specific deadlines for certain claim-related activities, which may or may not be extended for catastrophes, and violation of these deadlines sometimes results in automatic penalties.  In the Hurricane Katrina class actions, insurers were able to successfully defeat class certification in federal court in numerous cases, but there were a few class actions certified in state court.  Some of the class actions that were certified in state court involved failure to initiate loss adjustment within 30 days, as required by a Louisiana statute.  See Oubre v. Louisiana Citizens Fair Plan, 961 So. 2d 504 (La. Ct. App. 2007); Orill v. AIG, Inc., 26 So. 3d 994 (La. Ct. App. 2009).  This is the kind of issue that insurers need to pay close attention to.  Applicable law on the calculation of actual cash value, depreciation and valued policy laws is also worth checking and updating in each applicable jurisdiction.
  2. If you have not done so recently, check your procedures and training with respect to general contractor overhead and profit.  This issue has been a major hotbed of class action litigation in recent years.  In the Katrina litigation, the federal courts refused to certify classes on this issue, but one state intermediate appellate court certified a class (that decision was later overturned by the state supreme court).  For more on this issue, see my recent article on Defending Class Actions on Coverage Issues.  What policy an insurer has in place and how it is implemented by adjusters can make a substantial difference if your company is sued in a class action on this issue.
  3. Think carefully about what instructions you are giving to adjusters on segregating wind damage from flood damage and anti-concurrent causation.  The instructions given can have a substantial impact on bad faith and class action exposure.  Take into account the Katrina decisions on this, including Leonard v. Nationwide Mutual Ins. Co., 499 F.3d 419 (5th Cir. 2007), Corban v. USAA, 20 So. 3d 601 (Miss. 2009), and Arctic Slope Regional Corp. v. Affiliated FM Ins. Co., 564 F.3d 707 (5th Cir. 2009).
  4. Keep in mind that in the Katrina litigation, some carriers faced significant problems from independent adjusting companies’ use of inexperienced and inadequately trained adjusters.  In some instances, the adjusters were not informed of or inadequately trained with respect to some procedures that the insurance company wanted them to follow.
  5. Start putting a plan together for coordinating the litigation that inevitably will follow the storm.  In Louisiana following Katrina, some plaintiffs’ lawyers filed suits in Baton Rouge before the New Orleans courts were even open.  Last year, I wrote an article with Louisiana lawyer Seth Schmeeckle on “Handling the Flood of Coverage Litigation:  Lessons Learned from Hurricane Katrina.”  Seth and I spent several years coordinating the Katrina litigation.  We talk about several important strategies that can be used, including: (1) establishing coordination among defense groups and using test cases for critical issues; (2) recognizing the unique issues of judicial ethics that can occur when a widespread catastrophe affects everyone living in the affected area; (3) moving to strike class allegations in putative class actions; (4) using methods to efficiently resolve large amounts of smaller suits, such as establishing a protocol to administratively stay cases, conduct written discovery, and then have settlement negotiations; and (5) taking measures to minimize possible class action tolling of suit limitation provisions in insurance policies.