The author of this article is Mr. Randy Maniloff. Randy J. Maniloff is an attorney in the Business Insurance Practice Group at White and Williams, LLP in Philadelphia . He concentrates his practice in the representation of insurers in coverage disputes over primary and excess policy obligations for various types of claims, including construction defect, mold, general liability (products/premises), environmental property damage, asbestos/silica and other toxic torts, first-party property, homeowners, director's & officer's liability, a variety of professional liability exposures, including medical malpractice, media liability, community associations, public official's liability, school board liability, police liability, computer technology liability, managed care and additional insured/contractual indemnity issues. The author expresses his gratitude to Gale White, Anthony Miscioscia, and Ira Bergman, also of the firm's Business Insurance Practice Group, for their invaluable contributions to this article. The views expressed herein are solely those of the author and are not necessarily those of his firm or its clients.

Topics covered:

Introduction

Coverage issues

Case law

Conclusion

Introduction

The pictures of destruction and despair caused by Hurricane Katrina are incomprehensible. While each one may be worth a thousand words, no descriptions are adequate to convey the tragic human suffering and loss of life and property that have taken place on the Gulf Coast since Katrina had her way.

But as hard to believe as it is, this ravaged region will rebuild. History is full of seemingly impossible comebacks after natural disasters, and the Gulf Coast will eventually make its way to that list. Of course, it will take a lot of time, will, and money to make that happen. One catastrophe modeling firm placed an estimate of the economic losses caused by Katrina at $100 billion, with $35 billion of that amount being insured. But at this infancy stage, catastrophe modeling may be no more accurate that wetting your finger and holding it in the wind. Katrina's final price tag—even an accurate preliminary assessment—is a long way off.

The money needed to rebuild Louisiana, Mississippi, and Alabama will come from several sources—principally government, charity, and insurance. The federal government has initially pledged $10.5 billion in aid. And there will no doubt be a lot more where that came from. Relief organizations are moving heaven and earth to respond, as well as doing a superb job of getting Americans to open their wallets. And, lastly, many of the affected residents and businesses have surely begun to assess to what extent insurance may cover their enormous losses. Indeed, some insurers announced their potential financial exposure from Katrina within days of their appreciation of the extent of destruction.

Some might call it selfish or callous to be thinking about insurance coverage at a time when caring for the dead and providing humanitarian relief for the thousands of evacuees are the principal tasks at hand. However, while food, water, medical treatment, and the like are the necessities of short-term humanitarian relief, the most important form of humanitarian relief will ultimately prove to be economic redevelopment. People can't live in the Astrodome forever. Once the short-term crisis is stabilized, getting people back to their homes and places of work will become the real humanitarian issue. There is no doubt that insurance will play a significant role in that process.

The insurance industry has substantial experience handling property losses from hurricanes. Last year alone the industry was required to respond to a hurricane trifecta in Florida—Charley, Frances, and Jeanne—as well as Ivan in Alabama. But Katrina is like no other hurricane. All hurricanes involve damage caused by wind and rain. But in Katrina's case, this was just the opening act. Many of the claims that are made for property damage caused by Katrina's destruction will involve a confluence of some of the following additional factors: flood, looting, vandalism, pollution, fire (arson and other causes), power failure, governmental action, mold, further deterioration of property on account of its inaccessibility for weeks, if not months, and the list could surely go on. Katrina will also likely cause far more claims for business interruption than normally results from a hurricane, even a powerful one. Not to mention, the business interruption claims will involve unusually long periods of interruption.^[1]

Given such a wide variety of causes of loss and that first-party property policies often significantly vary in their terms and conditions, it is difficult to describe a prototypical Katrina claim and what the insurance response may be. What's more, first-party property claims in general are often complicated by the need to determine the "proximate cause" of a loss—a concept that one legal scholar says has caused more disagreement than any other in the entire field of law.^[2] Considering all these factors, it is easy to see that the adjustment of property losses caused by Hurricane Katrina is shaping up to be an arduous and challenging process for all concerned.