Thursday, December 29, 2016

Global Hail: China

Hailstorms have been occurring for centuries across the globe. However, some regions of the world, particularly southern China, seem more prone to these destructive storms. High-impact weather (HIW) is defined as weather that can impact safety, property, or socioeconomic activity. Because of the complex topography and monsoon circulation, hailstorms are a prevalent HIW in China. One study analyzed HIW patterns throughout China by distributing meteorological stations in each region—Northeast China, North China, mid-lower Yangtze River valley, South China, Northwest China, and Southwest China. The study analyzed hailstorm occurrences from 1959 through 2014. Interestingly, the annual average days and spells of hailstorms decreased significantly in all regions except for South China. Theories seeking to explain weather patterns across the globe have varied over the years. Nevertheless, the scientists involved in the China HIW study stipulate that global warming is likely to increase the intensity levels of certain types of HIW—notably, thunderstorms and hailstorms.

Seemingly consistent with this prediction, southern China has experienced intense hailstorms over the last few years. In April 2011, Guangdong Province endured a hailstorm that affected 5,067.7 hectares of farmland and caused 50 million yuan (or 7.65 million U.S. dollars) of economic loss. This same hailstorm later hit the Guizhou Province of southwestern China and caused 75 million yuan in direct economic losses.

Another severe hailstorm pummeled southern China in March 2013, and the region suffered an economic loss of 357 million yuan (or 57.5 million U.S. dollars). At least twelve people were killed by this storm, and over 272 others were injured.

In April 2016, egg-sized hail stones showered over southern China and affected over 387,000 people. In particular, the Guilin and Liuzhou of the Guangxi region of southern China were hit by the hailstorms. The storm also damaged 5,010 hectares of crops and caused seventy-four homes to collapse, totaling an economic loss of 86.69 million yuan (or 13.4 million U.S. dollars).

Most recently, and only a few months after the April 2016 storm, another hailstorm wreaked havoc in southern China. An airbus, travelling from Guangzhou to Chengdu, was pummeled by a hailstorm in July 2016. While the aircraft landed safely, it was severely damaged during its descent.

The combination of South China’s potential for large, catastrophic hail events and China’s fast-growing insurance market could result in a large number of litigated hail claims.  However, because Chinese courts do not recognize tort liability for wrongful denial of claims, and because Chinese law generally requires judges to conclude civil lawsuits within six months upon acceptance of a complaint, hail claim litigation in China will likely yield distinguishable results from the current hail claim crisis insurers are currently experiencing in the United States. 

Posted by Jennifer Gibbs and Victoria Vish

Tuesday, December 27, 2016

Claims Journal Names Hail Top-Trending Story of 2016; Steven Badger Quoted

Claims Journal has named their top-five national trending stories affecting the property casualty claims industry in 2016, and hail tops the list. The video segment on the Claims Journal website notes: 

According to Steven Badger, a partner with Dallas-based Zelle LLP and the author of several articles on the subject, “The property insurance industry is under attack. The present battle has nothing to do with repairing roofs actually damaged by hail, but instead putting money in the pockets of individuals who can find a way to inject themselves into the insurance claims process. The individuals may be contractors, public adjusters and policyholder attorneys.” Badger said that more than 11,000 hail damage-related lawsuits were filed in just one county in South Texas after a hail storm. 

Click here to see the video detailing Claims Journal’s top-five trending stories of 2016.

Tuesday, December 20, 2016

Hacktastrophe: How cyber-attacks on critical U.S. infrastructure could lead to catastrophic property loss

Although cyber-attacks have traditionally implicated more liability-leaning coverages, several attacks in recent years should give property insurers cause for concern going into the future. Hackers have proven they can seize control over governmental and industrial computer systems and manipulate them to cause tangible—and substantial—real-world property damage. Armed with the ability to cause real-world property damage, sophisticated computer criminals will undoubtedly target the systems of critical, and vulnerable, U.S. infrastructure operations, looking to cause catastrophe-level property destruction. They could be successful.

Property damage from cyber-attacks is not only possible, it has already happened.

In 2000, a hacker infiltrated the computers of a wastewater management system in Queensland, Australia. Over the course of two months, the hacker broke into the system 46 times, instructing it to spill hundreds of thousands of gallons of raw sewage into rivers, parks, and public areas.

In 2008, hackers used a program known as Stuxnet to access and disrupt the operations of an Iranian nuclear facility being used to enrich uranium. The uranium enrichment process required the operators to precisely control the speed of the centrifuges in order to produce viable uranium. Knowing that precise control over the centrifuges was absolutely critical to the enrichment process, the hackers used Stuxnet to manipulate the speed of the centrifuges, making them spin wildly out of control. At the same time, the hackers made it appear to the facility operators that the centrifuges were operating correctly, even though in reality they were tearing themselves apart. By altering the speed of the centrifuges, the hackers destroyed the operators’ ability to effectively enrich uranium. 

In 2014, German officials confirmed that hackers with advanced knowledge of both IT security and industrial processes seized control over a German steel mill, compromising components and systems, rendering the mill unable to shut down a blast furnace in a regulated manner, which resulted in “massive”—though unspecified—damage to the mill.

And in 2015, hackers infiltrated the controls of three regional electric power distribution companies in the Ukraine, shutting down a power grid and impacting more than 225,000 customers. Highly sophisticated, well-trained, well-funded hackers hijacked the credentials of workers at the control center and used those credentials to access the systems that controlled the breakers. In a coordinated attack, the hackers reconfigured the systems, blocking out the operators; turned off power to the grid, plunging customers into the dark; and launched a secondary denial-of-service attack against customer call centers, preventing customers from reporting the power outage. Although the power wasn’t out for long—between one and six hours—the control centers weren’t fully operational for months after the attack.

U.S. infrastructure is vulnerable to attack.

The Department of Homeland Security lists 16 critical infrastructure sectors “whose assets, systems, and networks, whether physical or virtual, are considered so vital to the United States that their incapacitation or destruction would have a debilitating effect on security, national economic security, national public health or safety, or any combination thereof.” Indeed, cyber-attacks on these sectors—which include dams, energy companies, chemical facilities, nuclear facilities, and water and wastewater facilities—could be catastrophic.

It is impossible to eliminate the threat hackers pose when a system is connected to the internet. (Even when a system is “air gapped” (having no direct connection to the internet) safety from hackers, is still not assured.) Protecting these facilities is critically important, since many of them are particularly susceptible to cyber-attacks. Over the past 25 years, hundreds of thousands of old analog control systems in these facilities have been replaced with digital systems connected to the internet. Any device that is computer-controlled and connected to the internet is vulnerable to hacking.

Not only are these systems vulnerable because of their internet connectivity, but many of these systems were built without cyber security in mind. Even where security measures, such as software firewalls, are used, the software can be misconfigured or circumvented by human error, allowing hackers access. 

These concerns aren’t overblown. Indeed, hackers have already targeted and accessed such systems in the U.S. Such hacks often require little more than Google searches and default passwords to succeed. Indeed, in 2013, Iranian hackers were able to access systems into the Bowman Avenue Dam in Rye Brook, N.Y. using nothing more than a simple, legal search engine that surfs for and identifies unguarded control systems online. Although hackers have not yet caused catastrophic property damage in the U.S., efforts to accomplish precisely that are clearly ongoing by various actors.

Cyber-attacks may lead to catastrophic property loss. 

It’s not hard to imagine the type of catastrophic property loss that could occur if hackers effectively took control over critical infrastructure. In the real world example of the Iranian hackers who broke into the control systems of the dam in New York, the hackers could have caused a flood by manipulating the dam, damaging or destroying homes in the area.

Attacks on industrial, nuclear, or chemical facilities—similar to those on the Iranian nuclear facility and German steel mill noted above—could cause unsafe conditions that lead to a chemical spill or explosion that, in turn, leads to large scale property loss. Similarly, an attack on a railway company could cause a train carrying explosives or hazardous or combustible materials to derail, causing substantial damage to property. Indeed, there are any number of scenarios where hackers could cause catastrophic property loss by seizing control over vulnerable infrastructure.

The takeaway is this: Insurers covering the risk of property loss from cyber-attacks should be aware that the risk of loss is very real given the vulnerabilities in critical U.S. infrastructure and the increasing sophistication of cyber criminals and that the scope of property loss from a well-coordinated attack could be akin to traditional catastrophes.

Wednesday, December 14, 2016

Return of the Polar Vortex??

Russia appears to be in a giving mood this holiday season.  As the allegations of Russian election tampering escalate, Russia has been kind enough to send the United States another gift – the return of the Polar Vortex.  But, what is the Polar Vortex anyway?  According to the National Weather Service, the Polar Vortex is a large area of low pressure and cold air surrounding both poles.  The term “vortex” refers to a counter-clockwise flow of air that helps keep much colder air near the poles.
For some time, meteorologists have noted the build-up of ultra-cold air in Siberia, which now seems destined to hit the U.S. over the next several weeks.  Apparently, forecast models of the upper atmosphere are very similar in scale and magnitude as the now infamous January 2014 Polar Vortex and are hinting at formidable shots of cold weather hitting vast stretches of the U.S. during mid to late December and through the remainder of winter.
If the forecast models prove accurate, parts of the Midwest, East and Southeast could see temperatures plummet to more than 30 degrees below their historic averages – meaning high temperatures in only the single digits and lows well below zero.  On the bright side, these forecast models could also mean significant needed rain in California and possibly huge snowfalls in the Rockies.
It is currently unclear what the impact would be to the U.S. economy from this latest chapter of the Polar Vortex franchise.  If the forecast models are even close to being accurate, which is always debatable, the potential cost to the U.S. economy could approach the $5 billion level experienced in 2014. During our most recent experiences with the Polar Vortex, many in the insurance industry considered the Polar Vortex to be a weather catastrophe as a result of the extensive property damage and business interruption throughout the U.S.  Of course, the impact of a 2016-17 Polar Vortex would vary by region and industry.  However, many industries could certainly expect greater than normal incidents of freezing pipes along with the potential for power outages.  As in 2014, there is also the potential for losses in energy, tourist and transportation sectors as a result of the ultra-cold weather.
Similar to the potential impact to the U.S. economy as a whole, the insurance industry can reasonably expect to experience a significant rise in claims if the Polar Vortex in any way mirrors the levels in 2014.  As experienced in 2014, there were a plethora of coverage issues resulting from the Polar Vortex including number of occurrences, freeze/thaw damage, deductible/waiting periods, civil authority, ingress/egress and many others.  Of particular interest were the positions taken by many policyholder representatives in 2014 that the entire Polar Vortex was actually one occurrence.  While no two policies are exactly alike, one can anticipate that policyholder representatives will again trot out the one occurrence argument asserting that the 2016-17 Polar Vortex is one occurrence that encompasses any loss or series of losses arising out of this one alleged event.
Consequently, people should not only plan accordingly for these potential gifts from Russia, but the insurance industry in particular should also leave room under the tree for prospective claims that could likewise be forthcoming this holiday season.

Friday, December 9, 2016

A Recipe for Disaster

Since November 23, 2016, the Chimney Tops and Cobbly Nob fires have wreaked havoc on Sevier County, Tennessee. These fires have burned through an estimated 17,000 acres and 2,400 properties. This disaster has taken the lives of 14 people and reportedly injured another 175 people. Adding to the emotional devastation and turmoil of this expansive threat, local authorities in Tennessee just announced that the arson investigation led to the identification and detainment of two juveniles whom they believe ignited the first blaze. While the news of the responsible parties for this horrible fire may have been surprising to many, the breadth of destruction that these fires left behind is not unexpected when examining basic facts about fires in the United States. Wildfires, along with their associated events (heat waves and drought), were responsible for the third highest rate of losses in the U.S. in 2015.

From 1995 to 2014, fires accounted for 1.5% of insured catastrophe losses, totaling about $6.0 Billion. The majority of wildfire-related costs are suffered in the State of California.
While California has reported the largest amount of estimated insured losses and number of wildfire-related incidents, other states have been identified as wildfire prone states. All in all, in the U.S., about 38 states are identified as wildfire risks.
The figures showing the frequency, severity and cost of these fires will likely continue to rise. The risk of wildfires is likely to continue to grow as temperatures rise, lengthening the fire season, and more people move into steep forested areas once largely uninhabited. Additionally, there is the human element.  According to the U.S. Department of Interior, as many as 90% of wildland fires in the United States are caused by humans. The confluence of causal factors is perfect kindling and a recipe for disaster.
Posted by Anaysa Gallardo Stutzman

Tuesday, November 29, 2016

Fracking, Earthquakes and Civil Authority

In last week’s post, we discussed the rapid development of the hydraulic fracturing (“fracking”) industry in the United States, and some of the innate risks presented by those operations. In particular, the post focused on a recent study that has found a causal link between wastewater disposal/injection, a by-product of fracking, and earthquakes occurring around high-fracking areas in the United States. Initially, it was speculated that earthquakes were caused by fracking itself, a process whereby millions of gallons of water, sand and chemicals are injected underground to break apart rocks to release gas.  However, it has now been proven that most of these earthquakes are caused by the underground injection of disposal water (see original post for more detail).

The popularity of fracking as an extraction method has extended beyond the United States, and has been readily adopted in countries like Canada, Argentina and Australia with huge shale oil and gas potential. In Canada, the provinces of British Columbia, Alberta and Saskatchewan have the highest concentrations of (fracking) wells. A group of scientists from the University of Calgary has recently released a study evaluating whether there is a causal connection between fracking in western Canada, and an increase in seismic activity around the well-sites. The study revealed that unlike the United States, where earthquakes are induced by the subsoil disposal of wastewater, a series of earthquakes in Alberta within the last five years has been attributed to fracking, or hydraulic fracturing, in which water, chemicals and sand are injected at high pressure into a well drilled in a shale formation to break up the rock and release oil and gas.

According to the study, the quakes were induced in two ways: by increases in pressure as the fracking occurred, and, for a time after the process was completed, by pressure changes brought on by the lingering presence of fracking fluid. To the east in the fault zone, the earthquakes occurred during the fracking process itself, which continued for up to a month after the fracking process was completed. To the west, most earthquakes occurred intermittently over several months after the fracking ended. While Alberta and other affected areas do not have the infrastructural density that Oklahoma has, several major pipelines and operations are found within the proximity of Fox Creek, where these earthquakes have been occurring.

Last week we discussed earthquake coverage and how it may respond to losses caused by human-induced earthquakes. Another, often-forgotten, coverage that may become relevant in the next few years as the risk of earthquakes increases in these areas is Civil Authority coverage. Civil authority provisions are usually written as additional coverage provisions, not exclusions, and provide coverage for lost business income due to an action taken by a civil authority. So, how do civil authority clauses and earthquakes interact? Generally, civil authority claims arise out of the loss of business income due to mandatory curfews, evacuations, or restrictions of access (e.g. Hurricane Katrina, 9/11, etc.).

Following the occurrence of a MW 3.9 earthquake on 23 January 2015, the Alberta Energy Regulator, introduced new regulations for the notifications and monitoring of earthquakes around well areas.  Included among them, was the implementation of a “traffic light protocol” that requires the immediate shutdown of hydraulic fracturing operations following an earthquake of local magnitude 4.0 or greater within 5km of an affected well. While these shutdowns tend to be temporary, an increase in occurrences or severity may result in a long period of operational shutdown. Failure to comply with these procedures may result in an enforcement action which could include the prolonged shutdown of operations.

Other jurisdictions have implemented similar protocols, and some U S. states, and countries have banned this type of operation altogether.

While it is hard to predict the likelihood of a catastrophic event resulting from a fracking-induced earthquake, several of the areas affected by this peril are pipeline and oil/gas hubs. A large enough earthquake or series of earthquakes could result in a prolonged shutdown of operations by order of the relevant regulatory body, thus causing severe business interruption losses to well and pipeline operators. Traditional civil authority provisions read: we will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss. Most often, these clauses are also subject to the BI waiting period, and only offer coverage for limited periods of time.

For coverage under Civil Authority provisions, an insured is usually required to demonstrate that the physical damage to its property is the result of a peril covered under the policy. And, as discussed in our last post, insureds will first have to demonstrate that earthquake is a covered peril under the policy, and the denial of access or “action” must be the proximate cause of a loss of business income.

As the risk of fracking-induced earthquakes increases, regulatory authorities may take a harder stance against widespread fracking in the future. In the short-term, a significant enough earthquake may result in the interruption of operations of wells and pipelines surrounding the quake-affected areas. While most of the coverage issues will have to be sorted out on a case-by-case basis, insurers should be aware of this new, or at least unconventional, risk that may affect their insureds’ business operations.

Friday, November 18, 2016

Fracking, Earthquakes and Insurance. What the Frack is Going on?

The advances and proliferation of hydraulic fracturing (“fracking”) in oil and gas exploration and extraction have provided the United States with tremendous benefits with respect to previously unaccessible fossil fuels. Those benefits, however, come with a price. Among other complaints about the negative impacts of fracking, it now seems certain that the wastewater injection process associated with fracking can and will cause earthquakes of varying degrees of severity. In a study published in the September 2016 issue of Science, Stanford University researchers demonstrate a causal connection between the fracking wastewater disposal/injection process and a series of earthquakes in east Texas, including the largest earthquake ever recorded in that region. A study published earlier this year found that fracking itself was inducing earthquake activity. The authors of the study concluded that the danger of earthquakes caused by “hydraulic fracturing has received less attention than that from wastewater disposal, but it is clearly of both regional and global importance,” and that “the likelihood of damaging earthquakes and their potential consequences needs to be carefully assessed.”
While the United States Geological Survey has been traditionally more reluctant to confirm that fracking and wastewater injection are responsible for the rash of seismic activity in and around the areas where fracking is taking place, they have at least officially acknowledged that at least some of the observed earthquakes have been caused by fracking wastewater injection. In a study released in April 2015, the USGS identified 17 areas within Alabama, Arkansas, Colorado, Kansas, New Mexico, Ohio, Oklahoma, and Texas, as showing sharp increases in seismic activity due to injection of wastewater in deep wells.
And it stands to reason that fracking operations are triggering earthquakes. Earthquakes are now just as likely to occur in Oklahoma as they are in California. Just last week, Cushing, Oklahoma sustained an earthquake of a 5.0 magnitude. Cushing is the largest oil storage hub in the world, holding billions of dollars worth of oil, and is nicknamed the Pipeline Crossroads of the World. While the storage infrastructure and pipelines did not sustain major damage, more than 40 buildings in Cushing sustained severe damage spread over a 16-block area and dozens of people were displaced. Oklahoma regulators said they would shutdown some disposal wells and reduce volume in others following the earthquake. 
The earthquake in Cushing was just the sixth 5.0 earthquake to hit Oklahoma since 1882, but 3 of those 6 major earthquakes occurred in 2016, including the strongest earthquake in Oklahoma history, a 5.8 Mw earthquake in September. In 2016, Oklahoma sustained 518 earthquakes of 3.0 magnitude or higher. From 2004 to 2008, right before the fracking oil boom hit, there was a total of nine. George Choy, a geophysicist with the U.S. Geological Survey, was quoted by USA Today as saying "The oil companies have said for a long time that these are natural earthquakes, that they would have occurred anyway, but when you look at the statistics, that argument does not fly."
Generally speaking, losses due to the peril of earthquake/earth movement, are typically excluded from coverage under standard commercial all-risk property policies. However, most carriers will give policyholders the option to purchase this coverage through an endorsement to the policy. And, in historically seismically stable areas, such as Oklahoma, such an endorsement might have been offered at a premium price that no longer corresponds to the risk. 
Some insurance regulatory bodies are taking proactive steps to prevent uncertainty regarding property insurance coverage for fracking-related earthquake damage. The Pennsylvania insurance commissioner has prohibited insurance carriers from denying homeowners insurance claims for earthquake damage on the basis that the quake was caused by fracking. In Oklahoma, the insurance commissioner required insurers to give official notice to policyholders as to whether or not coverage extends to earthquakes resulting from fracking. 
Despite these steps, it presently appears that most of the coverage questions surrounding fracking-related earthquake damage have yet to be answered. Given the variation in property insurance policies, the first questions will center on whether or not earthquake damage is covered or excluded under the policy wording. If earthquake damage is excluded, perhaps there is supplemental coverage for a resulting fire or water damage by virtue of a covered ensuing loss provision? Or coverage might be eliminated completely by an anti-concurrent causation provision? Perhaps the policy/endorsement covers earthquakes but excludes earthquakes or earth movement caused by non-natural or man-made causes such as fracking. What evidence might an insurer need to bring to court to prove that some earthquake damage was definitively induced by fracking operations as opposed to natural seismic activity. Additionally, if an insurer pays insurance proceeds under any of the coverage scenarios outlined above, what evidence will be required to make a recovery from the oil and gas extraction firm through subrogation?
While these issues will need to be sorted out on a case-by-case and policy-by-policy basis, it seems that it would behoove property insurance carriers to make certain they are aware of the new seismic coverage risks they face in traditionally stable areas in North America.
Posted by Matt Gollinger

Tuesday, November 15, 2016

Zika Claims Fly In

The Zika virus is a mosquito-borne flavivirus that was first identified in Uganda in 1947. Although the primary form of transmission is mosquitos, there have also been reports of sexually transmitted cases of Zika. Adults infected with Zika virus may not display any symptoms. If they do manifest symptoms, they range from fever, rash, joint pain, conjunctivitis, muscle pain and headache. These symptoms can last for several days to a week and are commonly confused as being the flu. 
While the virus is not fatal to adults, it presents severe complications for fetuses and infants. The CDC reports that Zika infection during pregnancy can cause a birth defect of the brain called microcephaly and other severe fetal brain defects. CDC also reports that in areas affected by Zika other problems have been detected among fetuses and infants infected with Zika virus before birth, such as defects of the eye, hearing deficits, and impaired growth, as well as increased reports of Guillain-Barré syndrome, an uncommon sickness of the nervous system.
According to the Centers for Disease Control and Prevention, as of late October, there were 32,814 confirmed Zika cases in the U.S., including 4,091 cases in the continental U.S. and 28,723 confirmed cases in the U.S. territories of Puerto Rico, the U.S. Virgin Islands and American Samoa.

Source (

In Florida, the number of reported Zika cases to date has risen to 1,144, with 915 stemming from people who brought the virus into the state after being infected elsewhere. Florida has had three identified Zika Zones where there have been local transmission of Zika virus. The first Zika Zone in Wynwood was announced on September 19, 2016. The Wynwood Zika Zone was originally about one square mile. After 45 days of localized spraying and public quarantine announcements, the Zika Zone designation was lifted when was no evidence was found of active Zika transmission. The second identified Zika Zone is about 4.5 square miles in Miami Beach within the boundaries of 8th and 63rd streets.

The third Zika Zone is about one square mile within the boundaries of NW 79th Street to the North, NW 63rd Street to the South, NW 10th Avenue to the West and North Miami Avenue to the East.

The spread of Zika is not only terrifying for overall public health and safety, but this well-publicized health problem also has a chilling effect on Florida’s lifeline, tourism. In 2012, Florida welcomed 89.3 million visitors who spent $71.8 billion. In 2014, the state tourism data estimated 97.3 million people visited Florida. In the first six months of 2015, Florida welcomed 54.1 million visitors. The majority of those tourists (about 96%) come into the state through Miami. Miami International Airport is the state's busiest for international travelers, who make up 70 percent of all foreign visitors to Florida annually. That overall revenue comes from individualized tourism, as well as the appeal of hosting events in Florida.
The emergence of Zika Zones in South Florida has caused major concerns for travelers and directly impacted the hospitality industry. This is noted in the recent emergence of Zika-related event cancellation claims that insurers are receiving. These lines of viral demarcation now become pivotal pieces of claim and adjustment information as Zika related cancellation claims begin to fly in. 
The key to addressing these claims, as it is with all insurance-related issues, is to perform a thorough review of the governing policy language in determining coverage. Event cancellation policies are not standard, and the indemnity language may be tailored to the insured’s traditional business needs. On the one hand, you may have language that may recognize a Zika Zone as a related peril, such as the following:
Coverage Extension.
A. Cancellation of Bookings - This Policy is extended to cover a loss sustained by the Insured resulting from the cancellation of, and/or inability to accept booking or reservation from accommodation and/or interference with the business at any Insured location sustained as result of the occurrence of:

2.  contagious or infectious disease

*          *          *
5.  any of the following:
            a.         outbreak of contagious and/or infectious disease

within a radius of 25 miles of the Insured Location to the extent such Time Element loss is not otherwise covered under this Policy such as under the Civil or Military Authority or Ingress/Egress Extension. 
Or, you may have an event cancellation policy that contains language similar to the following:
INSURING CLAUSE - Subject always to the terms, conditions, limitations and exclusions contained herein or endorsed hereon:
1. This Insurance is to indemnify the Insured for their Ascertained Net Loss should any Insured Event(s) be necessarily Cancelled, Disrupted, Rescheduled which necessary
Cancellation, Disruption or Rescheduling is the sole and direct result of a cause not otherwise excluded which occurs during the period of insurance and is beyond the control of both the Insured and the Participant therein.

2. This Insurance also indemnifies the Insured for proven additional costs or charges reasonably and necessarily paid by the Insured to avoid or diminish a loss payable hereunder, provided such additional costs or charges do not exceed the amount of loss thereby avoided or diminished.

3. The Underwriters' maximum liability shall not exceed the Limit of Indemnity stated in the Schedule for the relevant Insured Event(s) nor the Aggregate Limit of Indemnity stated in the Schedule.

EXCLUSIONS - This Insurance does not cover any loss directly or indirectly arising out of, contributed to by, or resulting from:

20. any communicable disease or the threat or fear of any communicable disease whether actual or perceived. A communicable disease means an illness caused by a pathogen and transmitted from an infected person or animal to another person or animal. 

The determination of coverage for Zika-related event/booking cancellation claims under each respective policy will have divergent results. However, the complexity of handling these types of claims does not cease with the analysis and application of policy language. The process of adjusting the claim itself requires relentless attention to detail and the ability to pilot insurers through murky waters.  
The best way to deal with these unique claims is to prepare yourself with the most effective and knowledgeable adjustment team, which starts with knowledgeable counsel. In these trying times of Zika Zones and cancellation confusion, Zelle is poised to help guide insurers and its insureds in the handling of Zika-related event cancellation claims.  

Friday, November 11, 2016

Global Hail: India

India has a warm and moist climate – ideal conditions for thunderstorms and hail.   India’s hailstorms frequently cause property damage and injuries to people and livestock.  The most damaging storm hit India on April 30, 1988, resulting in deaths to approximately 250 people and 1,500 livestock.   A hailstorm of that intensity has not happened in India since, but hail remains a common occurrence there. 

For example, in March 2014, ten thousand villagers of the Madhya Pradesh were adversely affected by a severe hailstorm and suffered heavy loss to the Rabi crop (wheat, cereals, millets, pulses and oilseeds). The 2014 storm was noteworthy because two-thirds of India’s population is dependent on agriculture for their livelihood. After the March 2014 hail storm, Agriculture Insurance Company of India (AICI), a carrier part of the National Agricultural Insurance Scheme (NAIS), denied liability.

Insurance issued through AICI is compulsory for all farmers who access seasonal crop production credit from the lending institutions and is voluntary for non-loanee farmers. NAIS has three overall objectives: (1) provide a measure of financial support to farmers in the event of crop failure as a result of an insured peril; (2) to restore the credit eligibility of farmers after a crop failure for the next season; and (3) to support and stimulate the production of cereals, pulses and oilseeds.

AICI insures against yield loss due to non-preventable risks, including damage caused by hailstorms. AICI developed a complex weather index program which has subsequently attracted government premium subsidies. Government financial support for the NAIS is split between the federal government and the state and union territory governments. Since AICI is heavily subsidized by the government, banks market and administer the NAIS scheme on behalf of AICI. The banks’ charges comprise 5% of AICI’s premium while operating costs amount to another 2% of premium. Because the AICI operates at a low overall cost structure, the company maintains low premiums for farmers.

Litigation resulting from AICI’s denial of claims resulting from the March 2014 hail storm was later considered by the Madhya Pradesh High Court. The bench of justices SK Gangele and Sheel Nagu ordered the company to process all the farmers’ claims under the scheme and compensate for the losses. This marked the first time that insurance claims for crop loss due to hailstorm were ordered to be paid by AICI.

Despite the ultimate outcome of the 2014 hailstorm litigation, it seems that Indian farmers are still skeptical of crop insurance programs. Only 42.82 million hectares (or 22 percent) of crops were covered by crop insurance in 2014. Furthermore, the average sum insured (maximum amount that insurance would pay in the event of crop damage) is far below the gross value of output for most crops. The combination of these two factors likely deters many farmers from investing in crop protection. However, in 2016, the Narendra Modi government implemented a new crop insurance scheme with lower premiums.

Because India’s agriculture industry remains critical to its economy, and weather conditions are favorable to hailstorms, crop insurance for hail damage should play an important role in the future of India’s insurance market, and other jurisdictions experiencing similar damage to crops from hail may look to India for guidance in addressing such claims.

Wednesday, November 2, 2016

Adding Fire to the Fuel

For the second time in as many months, a pipeline supplying gasoline to millions of people on the U.S. East Coast was shut down.  On Monday, October 31, 2016, Colonial Pipeline Co. shut down its main gasoline and distillates pipelines in Shelby, Alabama after an explosion and fire occurred when a repair crew hit the gasoline pipeline with a trackhoe, igniting its contents.

Colonial Pipeline, based in Alpharetta, Georgia, operates 5,599 miles of pipelines, and transports more than 100 million gallons of gasoline, jet fuel, home heating oil, and other hazardous liquids per day from the U.S. Gulf Coast to the New York Harbor area.  At the time of the explosion, a nine-man crew was working on the Colonial Pipeline system intending to restart a section of the pipeline that one month earlier (September 9) suffered Colonial’s biggest gasoline leak in nearly two decades.  The September 9 leak released as much as 8,000 barrels (336,000 gallons) of gasoline in Shelby County and led to days of dry pumps and higher gas prices in Alabama, Georgia, Tennessee, and the Carolinas while repairs were performed.  We understand that the cause of the September leak remains undetermined.  But the restart has been planned for mid-November after removal of a bypass line that was installed following that leak.

According to the U.S. Energy Department, the Colonial Pipeline system is the biggest refined products system in the United States, and is responsible for supplying about one-third of the 3.2 million barrels of gasoline consumed per day on the East Coast.  The effects of the latest disruption were not immediately clear.  But there appears to be concern that the explosion creates the possibility of another round of gas shortages and price increases.  In fact, U.S. gasoline futures jumped on Monday as much as 13% to $1.6351 a gallon—their highest since early June—following news of the explosion.

According to PHMSA data, the pipeline has already had five spills reported in 2016 in Alabama, including the one in September.  And, pipeline safety has come under increased scrutiny in recent months following a dispute over Energy Transfer Partners’ 1,100-mile (1,770-km) North Dakota Access Pipeline.

It is uncertain how these recent events will impact the oil and gas industry.  One can certainly expect oil and gas consumers on the East Coast to feel the pinch.  This could result in business interruptions generating insurance claims separate and apart from any claim for damages sustained by Colonial Pipeline from the explosion.  Daily fluctuations in fuel prices could impact these claims and, as such, insurers should pay close attention to prices during any claimed period of interruption.  Separately, given the increased scrutiny for pipeline safety that appears to have resulted from recent industry events, insurers can expect increased delay claims for future losses as regulatory agencies become more involved in the investigation and repairs.     

Posted by Matt Gonzalez