Concurrent Causation and Texas Law

Hurricane Harvey initially hit the Texas Gulf Coast with damaging winds and storm surge. As it downgraded to a Tropical Storm, Harvey dumped the highest amount of rainfall on the Houston area ever recorded from a single storm, resulting in record flooding. In analyzing Harvey claims under a property insurance policy, standard residential policies exclude flood, and most commercial policies either exclude or sub-limit flood damage.

Continue reading.

Quick Harvey Claims Offer Little Payoff For Policyholders

While some Texas lawyers are encouraging property owners to quickly lodge claims for Hurricane Harvey damage before a new state property insurance law takes effect on Friday, the reality is that the potential downsides of the legislation — including a lower interest rate on successful lawsuits against insurers — don't warrant such swift filings, several attorneys, including Steven Badger of Zelle LLP, told Law360. 

Continue to Law360 (subscription required).

New Texas Legislation Does Not Change Texas' Insurance Claim Process

From the Texas Department of Insurance:

House Bill 1774

• Does not apply to claims with the Texas Windstorm Insurance Association (TWIA).

• Does not apply to claims with the National Flood Insurance Program (NFIP).

• Applies to claims made under an insurance policy providing coverage for real property, such as homes and other buildings. The legislation also applies to claims made under the Fair Access to Insurance Requirements (FAIR) Plan Association.

• Requires policyholders to provide notice before filing a lawsuit. The legislation also makes changes to the requirements for inspections related to a lawsuit, recovering attorney’s fees, and statutory penalty interest.

We’ve received questions about House Bill 1774 from the last regular session. The legislation does not change how you file a claim or how your insurer will process your claim. Contact your insurance agent or company to file a claim.

For more on the claims filing process, see How do I file a homeowners insurance claim?

House Bill 1774:

For help with insurance questions and recovery resources, visit TDI’s Help After Harvey website.

Posted by Thomas Cook

Hurricane Harvey – Texas Department of Insurance Bulletins

The Texas Department of Insurance (“TDI”) issued the following bulletins pertaining to Hurricane Harvey on August 26, 2017, many of which apply to property and casualty insurers. They can be accessed by clicking the highlighted links below.

The bulletins most directly relevant to P&C insurers are as follows:

• Premium Payments Grace Period – encourages insurers to suspend (but not forgive) premium payments.
• Recommending Building and Repair Contractors – reminds insurers that homeowners are entitled to have their property repaired by a contractor of their choice.
• Claims Adjusters and Adjusting – reminds insurers that they are authorized to use non-resident and emergency adjusters; that roofing contractors are prohibited from adjusting claims; and that public adjusters must be licensed in Texas.
• Rating and Underwriting – opines that it is inappropriate for insurers to re-rate, cancel, non-renew, or refuse to provide coverage due solely to a policyholder's status as a victim or evacuee of Hurricane Harvey.
• Denial of Wind Losses – encourages insurers who deny coverage for wind losses to inform policyholders of potential coverage under the Texas Windstorm Insurance Association (TWIA) if the loss occurred in the TWIA coverage area.
• Vacancy Provisions - encourages insurers to provide relief to those residents and policyholders who have been temporarily displaced, including the suspension of any vacancy provision in the policy, to allow continuing insurance coverage.
• Credit Scoring and Credit Information – reminds insurers to follow the guidelines of §559.103 of the Texas Insurance Code. 

We will update as additional bulletins are issued. 

Posted by Thomas Cook

TDI Catastrophe Bulletins Issued August 26, 2017

Bulletins Home

2017
Bulletin Number	Date Issued	Reference	Subject
B-0009-17	August 26, 2017	Hurricane Harvey – Premium Payments Grace Period	Property and Casualty
B-0017-17	August 26, 2017	Hurricane Harvey – Recommending Building and Repair Contractors	Property and Casualty
B-0010-17	August 26, 2017	Hurricane Harvey – Medical Equipment and Services	Life and Health
B-0011-17	August 26, 2017	Hurricane Harvey – Claims Adjusting and Adjusters	Financial
B-0012-17	August 26, 2017	Hurricane Harvey – Preauthorized Health Care, Referrals, Notification of Hospital Admissions, and Medical Necessity Reviews	Life and Health
B-0013-17	August 26, 2017	Hurricane Harvey – Commercial Automobile Insurance	Property and Casualty
B-0014-17	August 26, 2017	Hurricane Harvey – Prescription Medication Coverages	Life and Health
B-0015-17	August 26, 2017	Hurricane Harvey – Property and Casualty Rating and Underwriting	Property and Casualty
B-0016-17	August 26, 2017	Hurricane Harvey – Credit Scoring and Credit Information	Property and Casualty
B-0018-17	August 26, 2017	Hurricane Harvey – Denial of Wind Losses	Property and Casualty
B-0019-17	August 26, 2017	Hurricane Harvey – Vacancy Provisions	Property and Casualty

Hurricane Harvey First Party Property Claims Checklist (Texas)

With the Arrival of Hurricane Harvey, Insurers Should Keep in Mind the Following Texas Insurance Code Claim-Handling Guidelines  

• Acknowledge claim in writing and commence investigation within 15 days. § 542.055
• Request all necessary items from insured and provide instructions and blank proof of loss forms for insured to complete. § 542.055
• A reservation of rights should be issued as appropriate.
• Accept claim, reject claim, or state in writing additional time is needed, explaining why more time is needed to conduct an investigation within 15 days. § 542.056
• If additional time to investigate claim is requested, accept or reject claim within 45 days after the notice requesting additional time is provided. § 542.056(d)
• Make payment within 5 business days after acceptance of claim. § 542.057(a)
• The claim-handling deadlines above can be extended by 15 days in the event of a weather-related catastrophe or major natural disaster as defined by the insurance commissioner. § 542.059(b)
• Failure to comply with any of the deadlines set forth above can subject an insurer to statutory penalties of 18% per year on the amount of the claim, plus reasonable attorney’s fees even if there is a good faith basis for not paying the claim. § 542.060 (effective through August 31, 2017, amended by H.B. 1774) 

Some Additional Issues to Consider:  

• Civil Authority – Mandatory evacuations have already been issued in several Texas counties.
• Service Interruption – Power and telephone/cell service may be disrupted.
• Sue and Labor – Businesses may shut down operations in advance.
• Adjuster licensing – Texas requires all adjusters and public adjusters to be licensed in the State of Texas. There is a provision for emergency licensing of adjusters in the event of a catastrophe.
• Flood hazard zone areas—Areas identified on the Flood Insurance Rate Map can change so be aware of applicable policy limits by hazard zone.
• Flood and Wind sublimits

Click here for a PDF version of this checklist.

Posted by Thomas Cook and Jason Reeves

Cyber Claims in Mexico: A Reactionary Evolution of an Insurance Sector

In the wake of numerous cross-border, well-publicized cyber-attacks, cyber-insurance has quickly become a hot issue. This area has also become a trending topic because of the abrupt and quick need for response in a generally uncharted area. The increasing levels of revealed vulnerabilities, the multiple methods of security breaches and the domino effect damage exposure are all major concerns.  Aware of this problem, it becomes imperative to understand best practices aimed at solving and/or minimizing issues that may arise in the context of reporting a cyber-attack or breach to a carrier.  Looking specifically to the practice in Mexico, here are some examples of claim reporting and handling in this field.

Notice of Claim:

Article 66 of the Mexican Insurance Contract Law indicates that the occurrence of a claim must be reported to the insurer within 5 days, unless the policy has another reporting provision. In the event that the claim is untimely reported outside of the statutory or policy deadline, the insurer may reduce the indemnity to what would have been paid had the claim been timely reported (Article 67). In view of the nature of the risk, it is best to report a cyber loss immediately upon learning of it.  One of the obvious reasons is that even with timely reporting, the claim investigation is time-sensitive and very involved.  Between the identification of the attack, verification, provisional decision-making, notice to the risk management area and to the corresponding insurer and to those impacted by the cyber breach, critical hours, days and even weeks may pass.

What would be the impact of failure to report cyber-attacks "immediately" or at the "first opportunity" or "promptly"? Presently, cyber claim teams are very scarce throughout Latin America, and insurers sometimes rely on general adjusters that may not have a wealth of experience in this area.  The scarcity of these types of claims cause steep learning curves, difficulty in launching teams that may not be geographically ideal, or have individuals unfamiliar with the insured’s computer systems and unable to quickly stop the loss of information. Because of this, one critical question may be, “can the insurer reduce the amount of its obligations by arguing that it would have taken immediate steps to reduce the loss?” 

Early Intervention:

It has become common for insurance policies to include a panel of cyber forensic consultants and suppliers in the event of a loss.  However, many times these suppliers’ fees are likely to fall below the deductible.  If the insured wishes to utilize an off-contract consultant or supplier that may charge a lesser fee, the issue of compelling the insured to stick to the policy’s listed consultants and suppliers even where the amount is below the deductible may arise.

In addition, Article 113 compels the insurer to pay expenses incurred by the insured in mitigating its damages post-loss.  Therefore, one may wonder, are Article 113 and the policy supplier provisions at odds?

In practice, consultants and suppliers written into the policy usually have the function of verifying that there was an actual "attack" -a trigger of many cyber policies- therefore assisting the claim progression by streamlining the verification and recommendation process. One of the reasons why this becomes imperative is because there have been instances where the policy – subject to Mexican law and delivered in Mexico – requires the insured to absorb the costs of the cyber consultant or supplier in completing this otherwise claim handling role.

In case the "advisers" swing quickly into action to assist, if it is then established that the loss is excluded for some reason, the insurer has already intervened through the experts appointed in the policy to provide crisis control, which might be interpreted as an acceptance of coverage for the claim.

As with any facet of claim handling, but particularly in the context of cyber-attacks, it is imperative to have a specialized strike force.  Knowing the local law, the practical realities, and keeping up with the continual evolution of this growing area are vital tools that make each type of consultant and supplier uniquely qualified for the challenge.

Posted by Daniel Baron* and Nestor Rodriguez, Socio Director en Medina y Rodriguez Abogados

*Not licensed to practice law in Florida

The Dance of the Cyclones

On August 7, 2017, powerful Typhoon Noru made landfall in Japan, lashing the island nation with heavy rainfall and maximum sustained winds near 75 mph.  While the dangers associated with Noru ought not to be underestimated, there is a sigh of relief, considering that last week, media outlets worldwide characterized Noru as the “Earth’s strongest storm of 2017.”

What had happened for Noru to achieve such notoriety?  After its birth on July 20, 2017, Noru roamed the Pacific Ocean at a strength equivalent to a Category 1 Hurricane in the Atlantic Basin.  However, roughly four days later, Noru encountered Tropical Storm Kulap, causing the two systems to engage in what experts call the “Fujiwhara effect.”  After dancing around each other, Noru—the stronger and bigger of the two systems—simply swallowed Kulap, resulting in a much more potent storm.  After engaging in this dance with Kulap, Noru crossed over its path from earlier in the week and began heading towards southern Japan.

In layperson’s terms, what is the Fujiwhara effect?  Discovered in the 1920s by Sakuhei Fujiwhara, a Japanese researcher and meteorologist, the Fujiwhara effect—or, Fujiwhara interaction—explains a phenomenon where two tropical cyclones less than 900 miles apart rotate about a common midpoint.  As a result of this movement, the distance between the two vortices decreases.  Depending on the size of the systems, as these severe weather patterns circle each other, they have the potential to merge into one storm.  Usually, the bigger system will absorb the smaller system.  Noru and Kulap engaged in this merry-go-round-like weather pattern around July 24, 2017.  However, it is also possible that this binary interaction might deflect the original path of one, or even both, of the systems. 

This graphic explains the Fujiwhara effect:

How common is the Fujiwhara effect?  The Fujiwhara effect is relatively well documented in the annals of weather history.  More or less around the same time as Noru and Kulap engaged in their dance, tropical cyclones Hilary and Irwin engaged in a similar ritual in the eastern Pacific Basin, with Hilary’s wind shear eventually weakening Irwin.

In 1995, Hurricane Iris danced with Hurricane Humberto, before interacting with, and eventually absorbing, Tropical Storm Karen. There was also major concern back in October 2016 that Hurricane Matthew, a powerful late-season hurricane, could interact with Tropical Storm Nicole, a smaller system that formed and continued to linger in the Atlantic Basin northeast of Hurricane Matthew.  Experts feared that after engaging in their cyclonic dance, Hurricane Matthew would take aim at Florida for a second time within a few days, further devastating the area.

Superstorm Sandy, one of the largest and most costly tropical storms in the history of the United States, also experienced this effect before hitting the East Coast of the United States in late October 2012.  Sandy interacted with a low-pressure trough to its southwest that steered the storm west towards New Jersey.  Eventually the two systems merged to form the devastating “Superstorm” or “Frankenstorm” Sandy.

What are the implications for the insurance industry?  With the 2017 hurricane season in full swing—and the National Oceanic and Atmospheric Administration predicting above-normalactivity—the Fujiwhara effect plays a prominent role in severe weather patterns that the insurance industry has a vested interest in observing.  One issue to potentially consider is to what extent a system that undergoes the Fujiwhara effect changes in its meteorological makeup from the original system.  As the threat of Hurricane Matthew interacting with Tropical Storm Nicole before taking aim at Florida for a second time has demonstrated, another issue to consider is the number of occurrences.  With that said: Welcome to the dance of the cyclones!

Posted by Isabella Stankowski-Booker

Survive the Summer Sizzle! Speaking of HVAC’s…

Theories on global warming aside, the scientific community predicts there is a greater than 57% chance that 2017 will turn out to be the second-hottest year on record. During June there were 4,343 warm daily high (1,848) and low (2,494) temperature records. Specifically, high temperatures were between ten and twenty degrees higher in the upper Midwest eastward into the northeast and mid-Atlantic. Over on the west coast, southern California experienced record high temperatures. Death Valley, California hit a record-high temperature of 127 degrees, and Phoenix, Arizona suffered temperatures reaching 119 degrees.

Not only are the temperatures miserable, but the heat also has affected aspects of everyday living. In Arizona, over forty flights were cancelled in one day because of the extreme heat. On the day Arizona endured unprecedented record-high temperatures, the state also broke energy consumption records—three of the largest utilities all broke their records for most simultaneous electricity use. Texas has already set two monthly records in energy demand. The Electricity Reliability Council of Texas (ERCOT), which manages the power grid for most of the state, said its customers used 67,512 megawatts of power in one day. ERCOT predicts customer demand will reach 73,000 megawatts this summer. Unsurprisingly, much of the usage stems from maintaining cool temperatures in homes and businesses resulting in heavy reliance on the heating, ventilation, and air conditioning (“HVAC”) systems.

Additionally, catastrophic lightning storms during these summer months are prevelant. Property insurers receive more claims for lightning damage to the HVAC system. But often times, the purported lightning damage to an HVAC compressor has been wrongly assessed, and the actual cause of loss is wear and tear. Wear and tear is not a covered cause of loss. It is no surprise then that over 40% of claims are denied when the insured initially alleges lightning damage that is later determined to be merely wear and tear. If the HVAC is not properly maintained, the extreme summer heat only intensifies the existing stress on the compressor, and it could result in an uncovered loss. Misreporting is apparently common with both residential and commercial property HVAC damage claims. Data from 2015 sheds some light on the subject.

For 2015 commercial claims, 35% of all HVAC claims were categorized as wear-and-tear, claim withdrawn or not damaged. Of the 45% of claims originally reported as hail damage, only 33% had actual damage. Of the 9% reported as lightning damage, only 2% of claims had actual damage.

The intolerable heatwaves spreading across the nation inevitably generate heavy reliance on HVAC systems. Insurance coverage for HVAC claims probably does not include stress-related damage that has only been exacerbated by extreme heat. So, during the summer months, when our functioning HVAC systems are crucial to survival, insureds should be aware of the types of claims the policy may cover, tend to any existing wear and tear, and properly maintain the HVAC system…that is, if you want any chance at surviving the summer sizzle. 

Posted by Victoria Vish