Insurers are starting to deploy adjusters to handle claims from Hurricane Sandy.  An article in today’s Wall Street Journal reports that “Disaster-modeling firm AIR Worldwide estimates the industry’s share of losses at $7 billion to $15 billion. At the high end of that range, Sandy would become the third-most expensive storm for insurers in U.S. history.”  Yesterday, an article in the New York Times by Mary Williams Walsh and an article in PropertyCasualty360 by Chad Hemenway reported that catastrophe modeler Eqecat predicts total economic damages at between $10 billion and $20 billion, with insured losses between $5 billion to $10 billion.  The Times reports that the top three homeowners’ insurers in New York are State Farm, Allstate and Travelers.

The reason for the large gap predicted between economic losses and insured losses is that a substantial portion of the damage is caused by flood and is either uninsured or underinsured.   Flood insurance is available for homeowners from the National Flood Insurance Program, but many people buy only the amount necessary to cover their mortgage (not insuring their equity) or buy the maximum of $250,000 on a property that has a higher replacement cost (excess insurance above that amount is often available in the private market but expensive).  For commercial properties insurance is often available in the private market, and relatively small commercial properties can be insured through the National Flood Insurance Program.

Insurers will be denying claims where flood is not covered by their policies, and segregating damage between wind and flood, similar to the adjustment of claims following Hurricane Katrina.  Given that I spent most of my time for several years defending insurance companies in lawsuits from Hurricane Katrina, including numerous putative class actions, I thought I would offer here some thoughts on what claim executives and their counsel can be doing now to try to reduce potential class action and bad faith exposure:

  1. 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 that resulted in some large verdicts and settlements.  Most significant was the Louisiana Supreme Court’s decision in Oubre v. Louisiana Citizens Fair Plan, 79 So. 3d 987 (La. 2011), which awarded penalties of $5,000 per claim for every adjustment that was not initiated in compliance with the statute, without any showing of bad faith (for more, see my blog post on Oubre).  The verdict against Louisiana Citizens Fair Plan was over $100 million with interest.  As I noted previously, I see some due process problems with this type of penalty, although the U.S. Supreme Court denied certiorari in Oubre.
  2. Keep in mind that general contractor overhead and profit 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 article, “Defending Class Actions on Coverage Issues,” and my post on the Alabama Supreme Court’s decision in National Security Fire & Casualty Company v. DeWitt.  
  3. Segregation of wind and flood damage is likely to become a key battleground in litigation. The Katrina decisions on this include 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).  The new COASTAL Act could also come into play on this, although as far as I can tell FEMA has not yet promulgated regulations under that Act (if you know more about this please let me know so I can keep readers informed).  For more on the COASTAL Act, see this post on my firm’s Property Insurance Coverage Insights blog
  4. Adjusting each claim on its individual merits helps reduce class action exposure.  Class action lawsuits are easiest to defend when a company’s adjusters make case-by-case decisions based on the particular factual circumstances of each loss.  That also often makes business sense, although sometimes adjusters ask for “rules” to follow when they should be using their discretion.
  5. Good customer service helps avoid lawsuits.  Adjusters won’t always be delivering good news to insureds following Sandy because many policies do not cover flood and a lot of the damage was caused by flood.  How that news is delivered and how people are treated can make a difference in reducing the number of lawsuits your company receives and whether your company is sued in class actions.  Insureds who have a more positive experience in their interactions with the company, even when bad news is being delivered, will be less likely to respond to an advertisement from a plaintiffs’ attorney suggesting that they file a lawsuit.  Especially when they are asked to file a putative class action lawsuit, where they would be subjected to extensive discovery and other burdens on their time.  Even lawsuits that seem relatively frivolous cost money to defend, and meritless class action suits cost more.  And even where a lawsuit is filed, it is always helpful in defending the case when the insured at her deposition and at the class certification hearing or trial admits that Jane Smith the adjuster was so nice and explained things to her so well.
  6. 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, including class actions, before the New Orleans courts were even open.  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 lawyers and using test cases for seeking court resolution of 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.  
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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.