Hurricanes Florence and Michael were polar opposites. While Hurricane Florence was a slow-moving flood event with some wind, Hurricane Michael was a fast-moving wind event with some flood. While both were catastrophic in their own ways, Hurricane Michael poses unique challenges for the insurance industry. Unlike the two-week’s notice that Hurricane Florence provided while it meandered across the Atlantic, Hurricane Michael developed just days before making landfall on the Florida panhandle. Governmental authorities and insurance entities were quick to react as the storm intensified along its path.
On Friday, October 5, 2018, Hurricane Michael had yet to form and was just a blob of disturbed weather in the western Caribbean, just off the coast of Belize. Over the ensuing weekend, meteorologists were referring to it as Potential Tropical Cyclone 14. The system beat the odds, overcoming substantial wind shear as it crossed into the Gulf of Mexico and strengthened. By Monday, spaghetti models began to converge on an increasingly alarming forecast. From an unnamed tropical depression on Sunday to a Category 4 hurricane on Wednesday, Hurricane Michael ravaged Florida’s coastline with the intensity of an 80-mile-wide F2 tornado.
The storm’s rapid development required a swift mobilization of industry catastrophe operations and resources. With claims handling teams still preoccupied with Hurricane Florence in the Carolinas, insurers were compelled to quickly allocate additional resources to respond to Hurricane Michael. Because Hurricane Michael’s track took it through relatively unpopulated areas inland, claims-handling capacity wasn’t as stretched as it was when Hurricane Irma struck heavily populated areas last year. Nevertheless, scaling up on extremely short notice was challenging due to inaccessibility issues for the most severely damaged areas, widespread power outages, and a shortage of nearby hotel rooms. Numerous catastrophe staging areas were set-up along the I-10 corridor, an hour’s drive north of the strike zone.
With industry resources in place for a favorable catastrophe response, Hurricane Michael claims began to immediately roll in, but at a slower pace than expected. After Hurricane Irma struck last year, most claims were reported within the first few days and weeks following landfall. That has not been the case with Hurricane Michael, and a slow-but-steady flow of new Hurricane Michael claims is expected to persist into November and perhaps longer. Reports from the field indicate widespread devastation, prolonged rescue operations, lines for FEMA applications, and extended power outages. Additionally, remote property owners contribute to sluggish claims reporting from insureds and agencies. For the same reasons, delayed loss site inspections are all but inevitable. Consequently, ultimate loss reserves may take longer than usual to be established.
Concurrent Causation Returns
Another challenge facing our industry in Hurricane Michael’s aftermath is the age-old issue of concurrent causation. The perils of wind and flood are traditionally covered under separate policies. Florida’s Supreme Court recently adopted the Concurrent Cause Doctrine (CCD), which eliminated conflicts at the district court level.
Generally favoring insureds, CCD finds primary coverage under the policy insuring the first peril that caused damage. As a very strong Category 4 storm, it’s likely that an argument will be made that Hurricane Michael’s wind was the cause of damage, not storm surge. Ascertaining which came first—wind or water—requires specialized expertise and a consistent approach. Meteorological and engineering analyses are both critical in assessing damages. The timely assignment of qualified experts will lead to the most accurate determinations.
Despite best efforts to promptly and fairly resolve Hurricane Michael losses, experience tells us that even the most thoroughly investigated, documented, and timely handled claims may be challenged. Well within Florida’s five-year statute of limitations on contracts, civil remedy notices and assignment of benefits (AOB) claims are still being filed in Hurricane Irma claims. Rest assured, the cottage industry of public adjusters, attorneys, and contractors that sprung up following Hurricane Irma are primed for action in Florida. Expect more of the same litigation drivers to follow in Hurricane Michael’s shadow.
Among the most pervasive issues that led to litigation following Hurricane Irma were slow claims professional response times and excessive claims file transfers. 2017’s Hurricanes Harvey, Irma, and Maria stretched claims-handling resources in the U.S. to their limits. Shortages of qualified property claims professionals were commonplace. While the industry responded with grit and determination, response times, loss-site inspections, and estimates were slow by non-catastrophe standards. Shifting claims contacts due to catastrophe claims professional reassignments further exacerbated the problem. Neither the feeling of being ignored nor being passed from claims professional to claims professional is appreciated.
The good news is that the loss-resolution industry was better prepared for major catastrophe events in 2018. As of this writing, there are more than enough resources in play to meet Hurricane Michael’s demands. Still, given Florida’s litigious environment, any perceived lapses could drive insureds into the arms of the ever-present opposition.
Other less-pervasive issues that triggered litigation and AOB claims following Hurricane Irma were business interruption claims involving disputed valuations/periods of restoration, and roof repair versus replacement claims, especially when tile roofs were involved. Any of the aforementioned issues are likely to include allegations of bad faith. With public sentiment following a catastrophe heavily in favor of insureds, any bad-faith allegations must be responded to quickly and thoroughly by the insurer. Bad-faith claims are much less likely to be valid when advance payments representing undisputed amounts are issued. When bad-faith claims are presented, the insurer should immediately retain defense counsel specializing in first-party bad faith and prepare for a long arduous discovery period if a reasonable settlement cannot be reached.
The Road to Recovery
Each catastrophe event has unique characteristics, but there is one thing they all share: The simplest and best way to avoid litigation is for claims professionals to properly document claims files, be responsive to insureds, and—once coverage is established—pay early and often. Disputes involving Hurricane Michael claims will probably follow patterns similar to those experienced with Hurricane Irma. However, Hurricane Michael has the unique distinction of being the fourth-strongest hurricane to ever hit the U.S. mainland in an area that had never experienced anything like it.
Hurricane Michael brought horrific devastation to what was once a picturesque beach community. Its effects were felt all the way through the Mid-Atlantic region. Expect a few surprises and lessons to be learned as our industry once again leads the way along the road to recovery.