Tropical Storm Gordon - Impact of Area-Wide Economic Conditions on Business Interruption Coverage in Louisiana and Mississippi

As Tropical Storm Gordon made landfall in Louisiana with wind speeds near hurricane strength, its impact will likely be felt across many states. Unlike the traditional business interruption loss, where the focus is on the impacted business and its pre-loss performance, when tropical storms and hurricanes hit, issues surrounding the impact of the storms on the overall economy can come into play. How courts deal with this issue can vary significantly based on the policy language used to define how the business interruption loss is to be calculated. 

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What's in a Name?

The 2017 Atlantic Hurricane Season started on June 1, 2017, with one preseason storm already under our belt.  The first tropical storm, Arlene, formed on April 20, 2017, only lasted a few days and did not receive much attention.  The presence of a preseason storm also indicates that the 2017 Atlantic Hurricane Season may be particularly active.   On May 25, 2017, the National Oceanic and Atmospheric Administration (“NOAA”) issued a release advising that its Climate Prediction Center advised that the Atlantic could see another above-normal hurricane season.  Based on low-level El Niño activity, which stifles organization of storm systems in the Atlantic, the outlook is expected as follows: 

Source: www.noaa.gov/image_download/4029?itok=VoZr7icX

The early activity and several projected large storms may spur memories of seasons past where names like Andrew, Hugo, Alicia, Francis, Jeanne, Wilma, and Katrina made history and left a mark in the minds of many.  Given the immediate reaction elicited by some of these names, one may wonder why and how weather events tome to be named. 

The main purpose in naming a tropical cyclone/hurricane is to facilitate tropical cyclone/hurricane disaster risk awareness, preparedness, management, and reduction by associating each event with a name that makes it easy to understand and remember the tropical cyclone/hurricane in a region.  The shift to naming storms to assist with dissemination of information and encourage preparedness came in the United States between 1953 and 1979, during which time female first names were used to identify storms and then names associated with both genders were adopted. 

Despite a common misconception, the National Hurricane Center does not control the naming of tropical storms.  The World Meteorological Organization establishes the storm naming procedure.  For Atlantic hurricanes, there is a list of male and female names which are used on a six-year rotation. The only time that there is a change is if a storm is so deadly or costly that the future use of its name for a different storm would be inappropriate. If more than twenty-one named tropical cyclones occur in a season, any additional storms will take names from the Greek alphabet.  Tropical cyclones/hurricanes are not named after any specific person, the tropical cyclone/hurricane names selected are those that are familiar to the people in each region. 

Storm naming has other implications beyond the dissemination of tracking information.  It also affects claim adjustment preparedness.  The existence of a named storm may trigger the application of certain wind deductibles – wind/hail deductibles and hurricane deductibles.  Hurricane deductibles typically apply to hurricanes and named storms, which is when the naming of a weather event becomes a significant factor in the adjustment..  The other type of wind deductible is the wind/hail deductible which typically applies to any kind of wind-related damage.

In the United States, nineteen states and the District of Columbia have statutory hurricane definitions. One of those states is Florida where the Florida Statutes define residential “Hurricane Coverage” as follows:

(2) As used in policies providing residential coverage: 

(a) “Hurricane coverage” is coverage for loss or damage caused by the peril of windstorm during a hurricane. The term includes ensuing damage to the interior of a building, or to property inside a building, caused by rain, snow, sleet, hail, sand, or dust if the direct force of the windstorm first damages the building, causing an opening through which rain, snow, sleet, hail, sand, or dust enters and causes damage.

(b) “Windstorm” for purposes of paragraph (a) means wind, wind gusts, hail, rain, tornadoes, or cyclones caused by or resulting from a hurricane which results in direct physical loss or damage to property.

(c) “Hurricane” for purposes of paragraphs (a) and (b) means a storm system that has been declared to be a hurricane by the National Hurricane Center of the National Weather Service. The duration of the hurricane includes the time period, in Florida:

1. Beginning at the time a hurricane watch or hurricane warning is issued for any part of Florida by the National Hurricane Center of the National Weather Service;

2. Continuing for the time period during which the hurricane conditions exist anywhere in Florida; and

3. Ending 72 hours following the termination of the last hurricane watch or hurricane warning issued for any part of Florida by the National Hurricane Center of the National Weather Service. 

Fla. Stat. 627.4025(2)(a)(2016). 

According to the Insurance Service Office (“ISO”), hurricanes and tropical storms caused approximately $158.6 billion in insured losses (in 2015 dollars) in the United States from 1996 to 2015.  Therefore, understanding the implications of named storms becomes a critical component of claim management and risk projection – another form of preparedness during hurricane season. 

Posted by Anaysa Gallardo Stutzman

What’s in a (Storm) Name?

Since 2012, The Weather Channel (“TWC”) has been naming winter storms according to its own internal procedures—or, as some would see it, internal whims. TWC’s criteria for naming winter storms was first implemented for the 2013-2014 winter season, and is based on “the population and area that is forecast to be impacted by winter weather based on thresholds set by the National Weather Service for winter weather warnings”; however, TWC’s three-person storm-naming committee may override these criteria when, for example, the event is particularly historic or unusual. According to TWC’s announcement for the 2016-2017 season, the names will be “used in alphabetical order to identify winter storms that meet naming criteria.” The exciting list of storm names, including Pluto, Quid, Reggie and Stella, has been contributed to “once again” by “the Bozeman, Montana High School Latin class.”

TWC’s practice is controversial. On one hand, as opined by the editors of the Bulletin of the American Meteorological Society (which TWC linked to its 2016-2017 storm-names page), naming snowstorms is helpful for the efficient dissemination of information to those who might otherwise be unaware of a potential storm, particularly in the era of Twitter hashtags. Indeed, using names as a way to “avoid confusion and streamline communications” is a reason the National Hurricane Center of the National Oceanic and Atmospheric Administration (NOAA) began naming tropical storms some years ago. On the other hand, TWC’s storm-naming practices have come under attack—or, at least, eye-rolling—from those both inside and outside of commercial meteorology. When TWC first decided to officially take on the yoke of naming winter storms, rivals took to the internet to opine that TWC’s practice was for commercial purposes.

Another problem with TWC’s unilateral practice of storm-naming is that, under its naming-rubric, just about any grade of storm could be a “named storm,” since its test links the storm to populations, and also takes advantage of the fact that the National Weather Service’s decision to issue a storm warning varies from region to region. As TWC itself explains, “a [National Weather Service] winter storm warning is issued for Atlanta when 2 inches of snow is expected in 24 hours, but it takes 9 inches to trigger a winter storm warning in Burlington, Vermont.”  Correct: storm warnings are issued by the NWS from local offices, based on “local criteria.”

The extreme looseness of TWC’s formula was evident in its most recently named Winter Storm Kori, which brought rain and snow to the west coast and mostly rain and snow to the northeast. Thus, snow isn’t even a criterion for a TWC winter storm—thanks to TWC’s flexible formula and, one would presume, global warming. Likewise, recent Winter Storm Helena travelled coast to coast, with snow resulting in some regions, sleet, rain and/or ice in others.

Certainly, the practice of naming tropical storms has had a long history. Currently, however, the practice follows strict parameters based on wind speeds. “Tropical storms” that are named by the National Hurricane Center are those that reach speeds of at least 17 m/s (past 33 m/s and they are classified as hurricanes). Most commentators, including those in the insurance industry, would say that the verifiable, measurable classification of these storms makes them valuable benchmarks. In other words, if the storm is named, it has reached a certain level of power.

Still, like it or not, the practice of naming various types of storm events—under varying rubrics and schemes—continues to expand, including expansion to government entities. In 2015, for example, the UK’s National Meteorological Service and the Irish Meteorological Service began naming storms, with the stated purpose of aiding communication to the public. The UK’s criteria are based on its National Severe Weather Warnings alerts service; storm systems may be named “on the basis of impacts from wind but also include the impacts of rain and snow.”

The expansion in storm naming is a phenomenon worth thinking about from an insurance perspective. Will the practice of naming storms eventually cause homeowners to stop paying attention to the weather, the result of “crying wolf syndrome” on the part of the weather vendors and government entities? Or, will naming storms cause homeowners to be on heightened alert for storm-related home damage, a reaction that could result in an increase in both legitimate and illegitimate claims? 

Naming storms could also lead to confusion over what a “named storm” means in the policy context. Typically, property policies use the term “named storm” to refer to storm systems that have been named by the National Hurricane Center or the National Weather Service. In the event of a “named storm,” a named storm deducible may apply, oftentimes a percent of the total insured value of the covered property. A named storm deducible is usually a grade below a hurricane deductible (also named by NWS/NHS) in terms of scope, and a grade above a wind or hail deductible.  To the extent a policy extends windstorm coverage (where it would otherwise be excluded), the policy definition of a windstorm may be based on official “named storm” criteria as well.

While typical policy language is clear that named storms are those that are officially named by NHC or NWS, it is nevertheless a bit confusing that an inland “named” winter storm, that only involves wind and rain, is not actually a true “named storm.” The trend in naming anything and everything might particularly confuse policyholders in the southern US, who are subject to tropical storms and yet are also exposed to “winter storms” that are not always snowy but are oftentimes wind-driven rain events. It may be important to recognize this potential confusion and address the issue with policyholders at the onset of any claim that may arise from one of these TWC “named storms.”

Posted by Megan Shutte

The National Hurricane Center’s Assembly Line of Information

As we continue to track Hurricane Matthew, Tropical Storm Nicole and any other weather event that manifests, it helps to understand the roles of the various organizations behind the forecasts and weather data that we rely upon. 

The purpose of the National Hurricane Center (NHC) is to save lives, mitigate property loss, and improve economic efficiency by issuing the best watches, warnings, forecasts, and analyses of hazardous tropical weather events and by increasing understanding of these hazards. When tropical storm or hurricane conditions are expected within 48 hours, the NHC issues watches and warnings providing updated data, forecasts and imagery that tracks the weather event’s movement throughout the affected area.  In order to provide the information to fulfill its purpose, the NHC relies on the collaboration of multiple units and subunits. 

The Hurricane Specialist Unit (HSU) is the watchdog of the operation keeping a close eye on tropical cyclones and areas of disturbances.   The HSU issues coastal tropical cyclone watches and warnings for the United States and its Caribbean territories.  The HSU also provides preparedness training and exaction to emergency managers and representatives.

The Tropical Analysis and Forecast Branch (TAFB) generates analyses and forecasts over the tropical and subtropical eastern North and South Pacific and the North Atlantic basins year-round. The TAFB supports the HSU by providing tropical cyclone position and intensity estimates.  The TAFB also provides satellite-based rainfall estimates for the international community.

The Technology & Science Branch (TSB) holds a pivotal role in the creation and further development of the Automated Tropical Cyclone Forecasting (ATCF) system, which is used to incorporate various data and model outputs and to generate tropical cyclone forecasts. In addition, TSB maintains a number of statistical and dynamical models used in predicting both tropical cyclone behavior and associated weather conditions.

The Storm Surge Unit, which is part of the Technology & Science Branch, forecasts the abnormal rise in sea level accompanying tropical cyclones using the Sea, Lake, and Overland Surges from Hurricanes (SLOSH) computer model. The Storm Surge Unit prepares storm surge atlases for use by emergency managers in developing evacuation procedures for coastal areas.

The Chief, Aerial Reconnaissance Coordination, All Hurricanes (CARCAH) unit is a remote operating location of the 53rd Weather Reconnaissance Squadron (Hurricane Hunters). CARCAH's mission is to coordinate all tropical cyclone operational reconnaissance in accordance with the National Hurricane Operations Plan. CARCAH also play an integral role in gathering intelligence associated with winter events in support of the National Winter Storms Operations Plan.  CARCAH carries out missions in advance of the high-impact weather events forecasted to affect the U.S.

The Hurricane Liaison Team (HLT), comprised of emergency managers and NWS meteorologists and hydrologists, is tasked with the quick, accurate dissemination of information among the NHC, the National Weather Service (NOAA/NWS), and the emergency management community. These communications address the progress and threat level of storms with affected Federal, state, and local officials by video and/or teleconferences with the NHC, FEMA and other Federal agencies, state Emergency Operations Centers (EOCs), Weather Prediction Center (WPC), Storm Prediction Center (SPC), and River Forecast Centers (RFCs).

The news updates, radar data, and multi-day forecasts that forewarn target areas allowing time for preparations, evacuations and risk management, are the result of the National Hurricane Center’s assembly line of information. 

Posted by Anaysa Gallardo Stutzman

HOPE FOR THE BEST, BUT PREPARE FOR THE WORST: Knowing The Potential for Property Damage in the Advent of Hurricane Matthew

Hurricane Matthew is making its way through the Caribbean towards the eastern seaboard of the United States less than 60 days before the end of the 2016 Atlantic Hurricane Season.  As we continue to track Hurricane Matthew in the possible advent of U.S. landfall, several local authorities have been activated in Florida and other U.S. coastal states. 

During an emergency preparedness press conference on October 3, 2016, Florida Governor Rick Scott announced, “Hurricane Matthew is a life-threatening category four hurricane and we must all take it seriously. If Hurricane Matthew directly impacts Florida, there could be massive destruction which we haven’t seen since Hurricane Andrew devastated Miami-Dade County in 1992. That is why we cannot delay and must prepare for direct impact now. Today, I signed an Executive Order declaring a State of Emergency in every Florida county to ensure we have resources for evacuations, sheltering and other logistical needs across our state. We are preparing for the worst, but hoping for the best and we will not take any chances to ensure our state is prepared.”

As local, state, and federal authorities release updated information throughout the course of this week, it is important to understand the impact of this storm and how it may affect public safety and property risk management.  Even if Hurricane Matthew does not make landfall, the wind projections are sufficiently elevated to anticipate severe property damage in the outlying portions of the storm.  As illustrated in the graphic below, as of 5 am this morning, Advisory No. 29 reports that the entire eastern coast of Florida is under a tropical storm and hurricane warning/watch.

According to the National Hurricane Center (NHC) and National Oceanic and Atmospheric Administration (NOAA), the above graphic shows an approximate representation of coastal areas under a hurricane warning (red), hurricane watch (pink), tropical storm warning (blue), and tropical storm watch (yellow). The white dot indicates the current position of the center of the tropical cyclone, and the dashed line shows the history of its center. Understanding the difference between National Weather Service watches and warnings is critical to being prepared for Hurricane Matthew or other any dangerous weather hazard. 

The National Weather Service issued “watch” lets you know that weather conditions are favorable for a hazard to occur. A “warning” designation means a weather hazard is imminent - it is either occurring or it is about to occur at any moment. Additionally, the issuance of an “extreme wind warning” indicates that sustained winds of a major hurricane (115 mph or greater), usually associated with the eyewall, are expected to begin within an hour in the designated area.

While there is no substitute for the professional analysis of engineering and climatological experts with regard to the effects of storm force winds, a general understanding of the Saffir-Simpson Hurricane Wind Scale is helpful in comprehending the implications of a warning designation in the context of anticipating the potential for devastation.  The Saffir-Simpson Hurricane Wind Scale (a 1 to 5 rating based on a hurricane's sustained wind speed) estimates potential property damage. Hurricanes reaching Category 3 and higher are considered major hurricanes because of their potential for significant loss of life and damage. Category 1 and 2 storms are still dangerous, however, and require preventative measures.

An animated illustration of the various scales of damage is available for observation here.

As Hurricane Matthew heads toward the Bahamas and makes its projected westward turn toward the Florida coastline, its strength should be monitored and preparations undertaken to handle the insurance claims arising from the probable trail of destruction that it is expected to leave behind.   

Posted by Anaysa Gallardo Stutzman