Climate change is generating insurance, legal issues
Demand is growing for more public disclosures about climate risks, especially for out-of-market buyers.
This is the second in a two-part series on the impact of climate change on the legal industry and other businesses. The first part can be read here.
Long-term shifts in our planet’s temperature and weather patterns are taking shape, and that presents a host of threats and opportunities for litigators, insurance professionals and business owners.
According to experts, those who prepare and adapt now will be in the best position to thrive in the future. Here’s what to consider.
Insurance ramifications
One industry that’s already experiencing problems due to climate change is the insurance sector, which is increasingly pulling out of Florida due to its vulnerabilities.
Insurance broker Joseph Gendelman said there are concerns that some areas in South Florida could eventually go the way of California, where whole towns are now uninsurable because of fire risks.
“We’re at a breaking point with the insurance markets, where people don’t realize that a year from now their rates are going to be dramatically higher,” Gendelman said.
Some carriers no longer write policies for properties east of the I-95 in Miami, while others are requiring upgrades to properties. That’s according to insurance litigator Gina Clausen Lozier of Berger Singerman, who said lawsuits will increase with the effects of climate change.
It’s therefore best to get ahead of the issue now, by retrofitting older properties and carefully selecting new ones based on their base flood elevation levels and wind mitigation reports.
“One of the things that businesses really need to understand is to properly value their property with the increase in the cost of repairs, with the increase in the property values, things like that,” Clausen Lozier said. “If your property is not valued correctly on the policy, that’s going to lead to a lot of problems.”
Lawsuits are coming
Demand is growing for more public disclosures about climate risks, especially for out-of-market buyers. That’s according to Erin Deady, a Delray Beach attorney and certified land planner who consults with the real estate sector and government bodies about preparing for sea level rise.
“If you’re a person and you pay taxes in your community, you don’t want 30 days out of the year where you’ve got to drive through 13 inches of saltwater to get to your property,” Deady said. “These are the types of things where people are coming to the local government and saying, ‘Hey, we pay taxes. We expect to have our tires dry. We expect you to take care of this flooding.’”
Deady said it’s crucial that the real estate industry and property owners work in tandem with the public sector because, “Local government is not going to come and put a higher sea wall in your backyard.”
“That’s your property. That’s going to be your responsibility to do it, whether you’re a commercial property owner, a marina, a hotel, whatever you are, or just a Joe average citizen, you are going to be responsible for adapting your own property,” Deady said.
Eminent domain issues will also emerge, according to Mark Tobin of Tobin & Schreiber.
“I give kudos to the governmental entities that are actually thinking about [climate change], because it’s real, and not ignoring it. At the same time, they need to respect the right of private ownership. Otherwise, the owner, in a way, ends up bearing a disproportionate burden for the public good, and that’s just not right and we won’t allow it.”
It’s possible, Hamptons Group chairman and managing director Jeffrey Bartel explained, that by putting a barrier up to keep water out of one place, that could inadvertently send floodwater to someone else’s property.
“I think we’re going to find ourselves with quite a bit of litigation over the next 10 to 30 years because of property owners alleging that another property owner has adversely affected the usability of their property, or potentially that their view or vista has been impeded because of infrastructure,” Bartel said. “What happens if there is a public works project that is expected to mitigate flooding in an area but, in fact, it is an unsuccessful project and there are issues?”
$1 of mitigation
Investing in climate resilience now will pay off down the line, according to Erik Salna, a meteorologist and associate director of education and outreach for the Extreme Events Institute and the International Hurricane Center at Florida International University in Miami.
“$1 of mitigation today is at least $7 to $8 in damage and cleanup,” he said.
Preparing for flooding and hurricanes should also be an important consideration for commercial clients, the way Salna sees it.
“After an event, if there’s a major hurricane that blows through, there’s no power, there’s nothing, but you’re the first donut shop to open because you have generator power, you have staff that were prepared at home as part of their business plan and they’re ready to go and they knew how to get the generators going and open up that donut shop, where are all those insurance adjusters, FEMA folks and EMS folks going to go and get something to eat? … If they’re not ready to function afterwards, it’s going to cost them a lot.”
At Schwartz Media Strategies, Aaron Gordon represents various companies, investors, real estate developers and public sector clients, and he says clients often ask about how they should communicate with the public about climate change in South Florida.
Gordon said he believes it’s a good thing for business leaders to openly discuss problems and solutions, as that signals to global investors that the community is taking the situation seriously.
“We have been living with climate change for 150 years. It’s in our DNA,” Gordon said. “We are a resourceful, innovative community. This is what we do, and if any community in the world is going to rise up and be an illustration of how to develop a region responsibility, I think it’s South Florida.”