Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

I am supposed to be in Poplarville, Mississippi tomorrow morning for an event with former client, Pearl River Community College. I was hoping to see Mississippi Congressman Gene Taylor about his efforts to demand a hurricane policy that covers wind, flood, and storm surge. I doubt any of this will happen, given the wide projections of landfall for Hurricane Ida.

Instead, Florida panhandle clients have been calling and asking what to do. Storm surge is probably the most potentially devastating aspect of Hurricane Ida unless a tornado or microburst hits. Florida panhandle beachfront businesses and residents have suffered pretty significant beach erosion since Hurricane Ivan. Generally, there is far less protection from the impact of waves, surge and flood in most areas from Gulf Shores, Alabama, eastward to Cape San Blas, Florida. These are beautiful white sand beaches that have had significant growth since the early 1970's.

This is what a Florida panhandle resident and meteorologist Rocco Calaci has to say about Hurricane Ida this morning:

Hurricane Ida has shown everyone that she is on her own schedule. The storm moved faster than anticipated and now is weakening sooner than expected. Current sustained winds have dropped from 105 mph to 80 mph and should make landfall as a very minimal Category 1 hurricane and weakening as it moves over land.

Hurricane Ida is moving slightly towards 340 degrees from its' position at 16 miles per hour. This is an increase of 4 miles per hour in the forward speed. The different models seem to agree that Ida will make landfall early Tuesday morning near 7:00AM. The media keeps saying landfall will be at Pensacola Florida, but it will probably be inside the Alabama border at Orange Beach and Gulf Shores Alabama.

No one has sighted Jim Cantore from the Weather Channel, so the exact landfall spot is iffy. Al Roker from NBC will be in Pensacola for the landfall of Hurricane Ida. The last time Mr. Roker was in Pensacola was during Hurricane Ivan and he was a lot heavier then. Hopefully someone will be holding on to him during his live broadcasts tomorrow.

What is interesting is that there are still some numerical models that place the landfall near New Orleans, but the upper level winds at 30,000 feet will keep Ida along the Alabama - Florida border. Winds will steadily increase throughout the day as Ida moves closer to shore. Wind speeds tomorrow morning will be around 50 to 60 miles per hour sustained with higher gusts along the immediate coast line. As Ida continues to weaken, these wind speeds will most likely decrease.

Once Ida makes landfall tomorrow morning, winds will lower to tropical storm strength in general, but be aware of isolated gusts that could be as high as 65 miles per hour. From eastern Mississippi towards New Orleans, winds will be from the Northeast and East at speeds between 45 to 55 miles per hour on the shoreline. Gusts will be a bit higher, but the local environment plays a significant part in gustiness at each location.

Hurricanes release destructive energy over widespread areas. As I am writing this, insurance catastrophe adjusting teams are making final staging plans. There is a myriad of significant decision making at governmental levels. These decisions pertain to evacuation calls for low areas, shelters, governmental closings, etc. The impact on local communities cannot be overstated as a result of Hurricane Ida--even if it is a relatively late storm that is expected to weaken--nobody will take it lightly.
 

There are two recent and very interesting posts regarding hurricanes worth reading. One is found on Dr. Jeff Masters' WunderBlog regarding storm surge misconceptions. Everybody should read this important discussion of storm surge. Dr. Master’s correctly noted:

The storm surge is usually the most dangerous threat of a hurricane. The ten deadliest U.S. hurricane disasters, including the Galveston Hurricane of 1900 (8000 killed), the Lake Okeechobee Hurricane of 1928 (2500 killed), and Hurricane Katrina of 2005 (1833 killed), were all primarily storm surge disasters.

He then listed and discussed a number of storm surge misconceptions:

Misconception: Call 911 and you can be rescued, while the water is pouring into your home.
How? No one will be able to get to you. Water rises quickly--sometimes six to ten feet within minutes; cars can't drive in it, and it is usually unnavigable by boats when it is coming ashore.

Misconception: Just stuff towels under the door jambs. Then rush around to start picking up things that are close to floor level, so you can save them.
Bad idea. In a minute or so the surge will burst open the door, and instead of standing in a room with four inches of water, you'll be knocked off your feet and into whatever piece of furniture is closest, and will suddenly be in three or four feet of moving water that you can't make any headway into...just before the refrigerator, quickly rushing through the water towards you, knocks you cold.

Misconception: You'll be able to maneuver around in the rushing water.
Probably not. Some people who drowned were not even able to get out of the room they were in, when the water started pouring into the home. The speed of water in surge can be equivalent to a Class III or IV rapids (Class V is hardly navigable by expert kayakers and canoers, and Class VI is not navigable at all).

Misconception: You'll know in time.
The surge is usually not a wall of water as is often assumed, but rather a rapid rise of water of several feet over a period of minutes. It can sneak in unexpectedly, on little cat feet. Most people that were not completely taken by surprise simply happened to look out the window at the right time.

Misconception: You can outrun the storm surge in your car.
Here's an email I got last year from a resident in the Florida Keys who ignored the evacuation order for Hurricane Ike in 2008: I hate to bother you again, but we live on Marathon in the Florida Keys on the Atlantic side, and my husband says that if we see water coming up from storm surge and have an inch of water in our house, that we can outrun the storm surge in our car. Can you please tell me if there is any way this can possibly be true? P.S., I don't know of anyone who lives down here who is planning on evacuating for Ike. Everyone says they are staying. If you wait until the water is an inch high before trying to outrun the surge, the odds are that the surge will rise to over a foot high before you get your car out of the driveway. If the water is a foot high, the typical 10 - 15 mph speed of the storm surge's current has enough force to sweep a car away. In many places along the coast, there is only one road out of a low-lying region prone to storm surges, and the surge will cut off one's only escape route. The Keys have only one road, and the storm surge will likely be moving perpendicular to the road, cutting off the only escape route. One of these days, there are going to be a lot of people who fail to evacuate caught and killed in the Keys by the storm surge from a major hurricane.

The other post, Tornado Threat Increases as Gulf Hurricanes Get Larger, verifies a number of observations that a Guest Columnist, Rocco Calacci, has made in six previous posts to this Blog. Those posts are:

1. Is The Saffir-Simpson Scale Still Relevant
2. Hidden Causes of Hurricane Damage: Meteorologist Rocco Calaci Explains That Hurricanes Are More Than Just High Winds And Water
3. Part 2: Hidden Causes of Hurricane Damage: Meteorologist Rocco Calaci Explains That Hurricanes Are More Than Just High Winds And Water
4. A Call To Reassess How We Gauge Damage From Hurricane Winds
5. Rocco Calaci Questions Current Models Used to Determine Wind Damage
6. Tropical Storm Erika? - Rocco Calaci Gives His Plain-Talk Interpretation of the National Hurricane Center Bulletin

Rocco will be giving an update on the wind speed data this Friday at our seminar, Hurricane Ike--What a Difference a Year Makes, on September 11, 2009. The Insurance Journal article noted:

Currently, it's well known that when hurricanes hit land, there's a risk that tornadoes may form in the area. Until now, no one has quantified that risk because observations of tornadoes were too sporadic prior to the installation of the NEXRAD Doppler Radar Network in 1995. Belanger along with co-authors Judith Curry, professor and chair of the School of Earth and Atmospheric Sciences at Tech and research scientist Carlos Hoyos, decided to see if they could create a model using the more reliable tornado record that's existed since 1995.

The model that they developed for hurricane-induced tornadoes uses four factors that serve as good predictors of tornado activity: size, intensity, track direction and whether there's a strong gradient of moisture at midlevels in the storm's environment.

"The size of a tropical cyclone basically sets the domain over which tornadoes can form. So a larger storm that has more exposure over land has a higher propensity for producing tornadoes than a smaller one, on average," said Belanger.

While some may suggest that tornado activity is well accepted, I have sat across from Dr. Max Mayfield and debated this topic at a Windstorm Conference. The better the measuring devices are becoming, the better we understand how some very unique strong winds and gusts are more prevalent than previously thought in hurricanes.

I first came across Winans when he sent me an article he wrote, Florida Flirting with Hurricane Insurance Disaster, published by the International Risk Management Institute in 2008. At the time, I was on the Citizens Property Insurance Corporation's Mission Review Task Force. Winan's views are worthy of reflection. Florida will be flirting with that potential financial disaster for some time, although the recent laws allowing rate changes to Citizens will help place them on a much sounder actuarial method of premium rates.

Here were the points from Winan's presentation this morning:

Prepare your insurance policy

1. Do you have proper coverage--

• Flood?

• Excess flood?

• Ordinance and law?

• Offsite power outage?

• Business Interruption/Extra Expense?

• Contingent Business Insurance coverage?

2. Do you have enough coverage—

• Building?

• Contents?

• Inventory?

• Business Interruption/Extra Expense?

3. Your insurance policy—

• Get a complete copy

• Put it in a safe/accessible place

Prepare for the storm

4. Put a catastrophe plan in place

5. Prepare for cash needs

6. Take photos and videos now

7. Back up and protect critical data

After the storm

8. Document the damage

• Photos and videos

• Don’t throw damaged items away

• Save receipts

9. Protect your property from further damage

10. Beware of contractors wanting…

• Cash

• To start without documentation

• To contract non-emergency work

• Payment in full

Policyholders should start on the first four points immediately. Summer is here and the water is warming everyday. Sometime and somewhere, there will be a tropical cyclone threatening the Coastal region before the cooling days of November.

As "outside legal insurance coverage council," I am generally called after a disaster to fix problems. This work requires thorough knowledge of practical but specialized issues and the legal consequences arising from each issue. Many involved in the disaster preparedness and recovery business know that each action and every issue has many legal issues. Often, the business policyholder is not aware of this or wistfully hopes the potential legal problem does not materialize. Part of this discussion will provide suggestions to avoid potential problems.

The insurance disaster landscape affects all businesses differently. The type of business, its inter-relationship to other businesses, opportunities available following catastrophe, location, customer base, and sophistication of management all play integral roles in preparation for a widespread hurricane disaster.

Here are some basic trends in property insurance which impact businesses:

1. Insurers non-renew and leave markets much quicker. There is little allegiance.
2. Surplus lines carriers with non-standard forms are increasing in the marketplace.
3. Agents are significantly impacted by the first two trends.
4. Comparing insurance based on price can be very deceptive because coverage terms vary.
5. Deductibles have increased. Financing of large deductibles through insurance or financial sources has to be contemplated.
6. Experienced claims expertise from the insurer is limited because Florida claims laws have changed significantly.
7. Prompt claim payments are decreasing as try to pay on actual rebuilding versus theoretical estimates.
8. The insurance disaster restoration industry has significantly expanded and matured.
9. The Florida public adjuster industry and "claim consultant" business has grown and changed.
10. Business managers and owners are much more on their own and subject to second guessing following large scale disasters (this differs from isolated incidents).

The Agent Relationship

Insurance agents play a vital role in the success of any business. Good commercial agents know the marketplace for the businesses of their clients, the trends, competing available products, and the coverage which should be considered. Agents have many duties to their clients; the most important is to educate the customer regarding the coverage needed to sustain a business following a disaster.

Because insurer allegiance is decreasing and forms of coverage, through various markets, are increasing, the role of the insurance agent is becoming more important. Business management must consider more educational meetings with their agent far in advance of the renewal period. Interviewing more than one truly qualified and professional agent is often necessary to obtain the optimal best price and fullest coverage scenario because the insurance markets are so dynamic.

A warning about dealing with surplus lines markets: the new surplus lines legislation will undoubtedly result in a wild west of rates and coverage offered by surplus lines carriers. Because surplus lines are now not subject to consumer protection statutes and regulations, businesses must guard against buying illusory coverage which cannot be enforced--even through legal redress. For example, surplus lines carriers are now writing unfair forum venue, law, and procedure clauses into policies, which our courts may have no option but to enforce.

Imagine having to fight a coverage dispute in the surplus lines carrier's state or country, through an arbitration panel dominated by insurer interests, with the jurisdictional law selected by the surplus lines carrier? This is exactly what many clauses in some surplus lines policies call for, and your Florida legislators just passed a law making these unfair clauses legal.

My advice: establish a great relationship with an agent and consider two. Meet at least twice a year. Do not buy on price alone, but on coverage provided. In fairness and for protection, buy only from those that will agree to resolve differences in a courtroom where your business is located. Such agreements may keep disputes from occurring in the first place.

A few suggestions to prevent legal and practical problems from occurring:

1. Make certain to not be underinsured. Prices for repair and replacement are often 20 to 45 percent higher than construction prices for new construction not impacted by a catastrophe. The amount of insurance is very important.
2. Make certain that property excluded from coverage is limited. Policies exclude certain items from coverage, but make certain you know what they are when selecting a policy. For example, a policy with a small deductible but extensive non-covered property can be as expensive as a policy with a high deductible that fully insures all property.
3. If available, consider deductible buy down coverage if the business cannot finance a large deductible.
4. Ensure the names of all policyholders and businesses are accurately listed on the policy. For example, in many companies, the property may be held in the name of an entity different than the entity operating the business for tax, financing, or liability issues. Name all as first party insureds if they are common businesses to avoid issues as to the amount an "interest" is to be paid on a claim.
5. Consider insurance coverage for dependent or contingent loss if you are dependant on other businesses that supply customers, product, or supplies to you. Otherwise, if the business depended on is damaged by a hurricane, your business may be financially destroyed. Examples are independent bars and restaurants in or next to hotels or other establishments. While your business may be up and ready to run, it does no good if you cannot get customers to purchase or products to sell.

Disaster Restoration Services and Contractors

The number of contractors, consultants, emergency responders, dry-out companies, and fly-by-night entrepreneurs in this business has exploded in the last decade. There are many reputable and many disreputable companies in this business. Discerning the two is very difficult, and I have had to deal with both.

Since the number of experienced adjusters has decreased and chances are most businesses will be on their own to make emergency repairs and initiate construction following a widespread hurricane, it makes sense to interview and retain the best and most reputable emergency contractors in advance of the catastrophe.

References, lawsuits, and background checks should be part of any application of these vendors. Try to include provisions requiring performance standards and limitations regarding payment that will not exceed the amount an insurer will pay. There are increasing examples of some emergency contractors charging outrageous amounts for dry-out services and mitigation which consume significant amounts otherwise available for repair. Businesses cannot find themselves held hostage by unrestricted amounts spent by emergency contractors.

The larger the business, the more valuable a disaster planning company may be. Planning to prevent a loss, limiting damage from a hurricane, and then returning to operation as quickly as possible is extraordinarily important. This should be a normal duty of those in operational management.

Restoration contractors can be interviewed in advance. The policyholder should remain in control of the claim and reconstruction. It is illegal in virtually every state, criminal in Florida, for a contractor to hold itself out as the policyholder when dealing with the insurance company.

Providing estimates, documents, and cooperation to assist the business policyholder in the presentation of the claim to the adjuster is paramount of any good restoration contractor. The restoration contractor can not adjust the claim, negotiate rights and decide what is owed and for how much under the policy; that is illegal, and it will most likely hurt the insured’s recovery. The truth is many insurance adjusters and restoration contractors wrongly cut deals regarding the quality and scope of repair that are never disclosed to the business owner. The rule is to remain in control of the claim and restoration.

Because many insurance companies do not have as many in-house adjusters with significant claims experience and authority, the need for business owners to hire their own adjusters and consultants has increased. Most public adjusters or attorneys can be retained for ten percent or less of the insurance claim. I have found that most public adjusters increase recoveries more than ten percent. The best public adjusters, and even attorneys, typically accomplish the task of insurance claim recovery without lengthy litigation, arbitration or appraisal by working with the insurance adjuster and company to document the loss quickly and completely. Often, all that is required is a thoroughly documented and logically shown claim to satisfy an insurer and get what is owed.

Accuweather.com released its revised forecast (”guess”) even before the Hurricane Season has started. This possibly could mean they are unreliable and have lost before the game has started. They now expect that there will be fewer named storms. Why should we pay attention to this forecast if they already admit they were wrong?

Nevertheless, here is the basis for their brand new forecast:

“AccuWeather predicts three tropical storms will hit the U.S. coastline, including two hurricanes, one of which could be at least category 3 strength.

Anywhere along the U.S. coast is susceptible to an impact, but the Texas coast early in the season and East Coast from Carolinas northward during the heart of the season are areas that have us worried," said Bastardi in a statement.

A weak El Nino pattern of warm water in the Pacific Ocean is expected to create wind shear to blow apart storms while cool water in the tropical Atlantic ocean will rob the storms of their primary energy source as dust and dry air blowing from Africa will inhibit storm development, AccuWeather said.”

I will try to contact the psychic I referenced above to see what she thinks. I imagine that her basis for a change may be no better than the meteorologists, but it may be much more interesting.

Stay tuned.

And seriously, now is the time to check that policy.

Following up on my post this morning, I told one property management owner at breakfast that his business could be financially destroyed if, due to a natural disaster, the significant properties they manage could not be rented. His firm receives a percentage of rental revenues as a management fee. When I explained that Consequential or Dependent Business Interruption Coverage could help insure his loss of income if that happened, he seemed amazed that such coverage existed.

Chances are a loss will not happen. Chances are that if a loss does happen, it will be minor. But, I have found that Fate is kinder to those that have anticipated life's financial disasters and make preparation through insurance.

Tip One--Every business owner and property owner should have a discussion with their agent about their property and business with "what if" scenarios at least once a year to make certain they are fully covered.

Later in the morning, I flew with a client to Destin, Florida. We represented a number of Condominium Associations in Destin with their insurance claims or insurance litigation following Hurricane Opal and more recently Hurricane Ivan in 2004. Every year we provide a disaster preparedness seminar for them. As we took off from the airport and I viewed the clear blue waters and the prettiest white sandy beaches anywhere, I thought about how all that serenity changes in an instant when a hurricane strikes.

Tip Two--Take action today for the steps you need to harden your structures.

While an article in this morning's Insurance Journal mentions that Mississippi is starting a research project on wind damage mitigation steps, you do not have to be an engineer to figure out some basic things to do:

1. Inspect and, if needed, repair or replace your roof. This is the number one cause of failure in a hurricane.
2. Inspect and repair windows with caulking and glazing. Some old windows may simply have to be replaced.
3. Make a plan for what you are going to do for evacuation and then list disaster activities down to the smallest of steps. For example, what will you do with pets in case of an evacuation? If you are a business owner, what are your employees’ duties after a loss if they have personal tragedies which need attending?

Late April and the entire month of May are usually beautiful throughout this country. These are the months in the South and along the Eastern Seaboard to take actions which will provide you the peace of mind knowing you are as ready as you can be for the upcoming hurricane season. Do yourself a favor and don't just agree with me if you have read this far---pick up the phone and call your agent. Write out a plan and encourage others to do the same.

I noticed a few trends worthy of note. The number of restoration companies and disaster contractors has significantly increased. This industry has boomed in the last decade. Their business model before the large catastrophes led them to market adjusters and insurance claims departments for leads to policyholders with losses. It was not uncommon for them to arrive, arm in arm, with an insurance adjuster. In response, insurance companies obtained the promise of a bid proposal and work which would be less than local contractors. Insurance companies essentially controlled the scope of work and therefore, the adjustment by having a "favored vendor" do the repair work. Whether the work was excellent or left something to be desired is hard to tell when covered up with paint. If the policyholder did not want to choose that contractor, the adjuster would simply use the lowball estimate of that contractor against the policyholder. These contractors wined and dined field adjusters and claim departments to get these leads.

After the 2004 storms, these restoration contractors more frequently directly marketed their services to policyholders. They claim to be "insurance recovery and restoration" firms and go so far as to claim that they will negotiate the policyholder’s rights with the insurance company. This is illegal, but this is how many, not all, market their services. They will contract to do the work for whatever the insurer will pay.

This scenario sets up a situation where the insurance company often is overcharged on pricing, especially labor charges, and the policyholder gets inferior work. There is no bidding and negotiation regarding quality and price. Insurers are overpaying for what is done and policyholders are not getting enough done and in the quality the policy provides. But, that industry, unlike other aspects of construction, is booming.

Computerization of claims and the sophistication of database mining is evolving. Before long, insurers will be able to profile very private and subtle aspects of every policyholder. "Good" policyholders will be those who pay premiums and never call an agent, much less report claims. Your risk as an insured will be tracked on your property and how aggressive you are expecting payment. CSC Corporation is a leader in this insurance computerization field.

The message is clear--"if you make a claim, you are not as good a policyholder as one that does not. Do not rock the boat or we will make you somewhat uninsurable." Risk managers are often evaluated on how well they keep premium costs down. They should also get evaluated on how much courage and effectiveness they have getting the insurer to pay promptly and fully.

Mega-disasters and the effects of global warming was the subject of prominent discussions. The concern is that the floods, tornados, and hurricanes are getting stronger and bigger. Whether this plays out over the long term or is just something which appears as a trend, is something we will find over time. Yet, there were many more "disaster preparation" seminars and vendors at the convention.

Trends are important to me as I try to analyze the decisions and circumstances that affect my clients. Many lawyers seem to think you become an "expert" (lawyers do not ethically call themselves "experts" in certain types of cases) in a field of law by reading cases and doing enough of them to advertise some experience. The truth is that the best in my field know what has, and is, going on with our opponents and their motivations for various activities. This is learned by talking with people at various levels and in different disciplines of the insurance industry and by observing--not by reading insurance case law, which a second year law student could do.

A recent news article, Disaster Planning By Businesses Helps Even When Minor Disruptions Hit, noted a book that I suggest every small business owner or manger consider purchasing. Donna Childs’ Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses, 2nd Edition, contains specific considerations and practical applications of how small businesses (the rules apply to large ones as well) can mitigate and prevent losses. Her initial findings are on point and a warning to business owners and communities that do not take these measures:

"Disasters occur more frequently than we realize. Research consistently shows
that for small businesses, the effects of a disaster can be devastating:

• More than one in four businesses will experience a significant crisis in any year.
• Of those businesses that experience a disaster and have no emergency plan, 43% never reopen.
• Of those that reopen, only 29% are operating two years later.

The losses that these figures represent do not appear to have motivated
preparedness efforts by small businesses: A recent survey of 2,500
small business owners found that 71% did not have a disaster preparedness
plan in place. Nearly two-thirds of them stated that they do not need one.
63% expressed confidence that they would resume business within 72 hours
if they were affected by a natural disaster, even though historical experience
shows that this is absolutely not the case.

Disasters are, for the most part, manageable. We cannot prevent disasters
from occurring, but we can equip small business owners with the knowledge that they will need to mitigate their risks and to recover quickly when disasters do strike."

Natural disasters, losses and insurance controversies are as certain to occur in the future as death and taxes. While they can be minimized, my law firm is there to help policyholders recover as fully and as quickly as possible. Insurance defense attorneys are there to advocate for the insurance companies and attempt to justify their denial and excuses for delay.

Recognizing this, we are distributing a small handout with some suggestions for business owners and risk mangers, A Risk Manager’s Guide To Property Insurance For The Upcoming Hurricane Season. We think some easy pre hurricane season risk management techniques can help all in the possible wake of a hurricane. Spring is here, and now is the time to prepare for possible catastrophes that we all hope will never come.