Thursday, March 23, 2017

The “El Niño” Effect In Peru, Can Anything Be Done?

After a period of severe drought, per recent news reports the “El Niño” effect is bringing heavy rainfall on Peru´s Northern coast causing overflowing of rivers, mudslides and flooding. This is the worst such disaster since 1997 and 1998, when a similar “El Niño” event in Peru affected over 100,000 people, killing several hundred and causing property losses of over USD 7.5 billion. This time, over 800 cities have been declared in state of emergency, the death toll is nearing 100, and property damage is also on the rise.

The National Oceanic & Atmospheric Administration (NOAA) website explains that “El Niño” and “La Niña” are opposite phases of what is known as the El Niño-Southern Oscillation (ENSO) cycle. The ENSO cycle is a term that describes the fluctuations in temperature between the ocean and atmosphere in the east-central Equatorial Pacific. As part of the “El Niño” effect warm waters appear on the ocean surface near or during December thus causing rainfall to increase.

Although public awareness of this climatic phenomenon may be recent, the “El Niño” effect is hardly new. It is said that fishermen off the coast of South America had identified it as early as the 1600s. The NOAA has been able to establish past ENSO events as far back as 1897 based on a Multivariate ENSO Index.

As part of his emergency response, Peruvian President Pedro Kuczynski has prioritized re-opening the Panamericana Norte roadway in the Viru área, for which a provisional bridge needs to be constructed. This would allow a connection with the capital city of Lima. The Peruvian President also underlines the importance of repairing the Chavimochic canal to secure potable water for the population.

A few days ago the Peruvian banking, insurance and pension authority “Superintendente de Banca, Seguros y AFP” (SBS) issued Rogatory 10250-2017 requesting that Banks re-schedule financial obligations pertaining to clients in emergency zones who have trouble honoring their debts. In reply, the members of Association of Banks (“Asociación de Bancos” or ASBANC) committed to re-scheduling financial obligations of affected clients in certain areas of  Lima, the Province of Callao, Piura, Lambayeque, La Libertad, Tumbes and Ancash. Clearly, this is not enough.

Fortunately, Peruvian authorities are also seeking to find better, long-term strategies for coping with climate-related disasters. In 2011, under the auspices of the German Society for International Cooperation (GIZ gMBh), the Peruvian insurance regulatory authority and the Peruvian Ministries of Economy and Finance, Environment, and Agriculture organized a workshop to discuss “Insurance Solutions for Adaptation to Climate Change for the Public, Productive and Financial Sectors.”

As part of the discussions, Index-based insurance was proposed as a way of curbing the negative economic effects of extreme “El Nino” conditions in Peru such as has been used for insuring cattle in Mongolia, flood and drought in Vietnam, or earthquakes in Indonesia.

Unlike traditional insurance, which pays out only when damage has occurred, this type of protection uses an index specified in the policy -such as the amount of rainfall– as a payment trigger. Payment would be made irrespective of the actual damage, with which costly damage measurements can be avoided. The result is affordable coverage in reach of the poorer sections of the population. This is not a comprehensive solution to all, and there are even legal issues to address, but it is an interesting starting point.

The 2016 World Economic Forum Global Risks Report situates “extreme weather events” in second place amongst other relevant world risks in terms of likelihood of occurring, and with high impact. Such as has been the case for hundreds of years, the people of Peru as well as those of other Latin American nations will probably continue to be affected by climate disasters. Initiatives such as that of the Peruvian authorities should be applauded for helping to create the necessary discussions that will surely lead to finding better ways of coping with the problem.

Posted by Daniel Baron*

*Not licensed to practice law in Florida.

Tuesday, March 14, 2017

The Graber Opinion is Confirmed as an Outlier in Matters Involving Texas Appraisals

With the continued onslaught of hail and other weather related litigation in Texas, insurance carriers often elect to resolve claims through the appraisal process outlined in the policy. Insurance carriers historically demanded appraisal under the policy knowing that as part of the ordinary adjustment process set forth in the policy, the full and timely payment of an appraisal award would preclude the policyholder from seeking statutory penalties found in the Texas Prompt Payment of Claims Act (TPPCA) and other extra-contractual remedies. This legal precedent had previously been confirmed by the Fifth Circuit, several federal district courts, and multiple Texas courts of appeal.
In 2015, however, one federal court judge in the Northern District issued the Graber v. State Farm Lloyds opinion, and for the first and only time, held that an insurer’s “full and timely payment of [an] appraisal award d[id] not preclude [the insured’s] claim for statutory interest under the TPPCA.” Policyholder lawyers rejoiced over the opinion as a win. Our firm, however, predicted Graber was an outlier opinion, and we were right.
Since the 2015 Graber opinion, two federal courts interpreting Texas law have disagreed with the rationale of Graber and held that the full and timely payment of an appraisal award still insulates an insurer from TPPCA. Both opinions were issued by other federal court judges in the Northern District.
The first opinion opposite Graber is Aguilar v. State Farm Lloyds. In Aguilar, the plaintiff made a timely claim for damage from a June 15, 2013 storm. After notice of the claim, the carrier adjusted the loss, paid the claim and understood the matter was resolved. The carrier was unaware of any dispute until the plaintiff filed suit on June 26, 2015 – almost two years after the carrier made what it understood was an undisputed payment. Despite the suit, the parties agreed to submit the matter to appraisal. An appraisal award was issued and the carrier timely paid the award in full, which in the ordinary case, should have been the end of the matter. The plaintiff and her lawyers, however, persisted in pursuing the breach of contract extra-contractual claims.
The federal district court granted summary judgment to the carrier on all claims, noting if such claims were allowed to survive, “[t]he entire purpose of the appraisal process would be rendered nugatory.” The federal district court also found it “especially galling” that the plaintiff waited almost two years to “notify” the carrier of the dispute by filing suit, instead of simply picking up the phone.
More recently, another federal judge for the Northern District issued a March 2017 opinion on these same issues - also opposite Graber. In Mainali  Corp. v. Covington Specialty Insurance, Judge Fitzwater dismissed all TPPCA claims against the carrier after its timely payment of an appraisal award. The court held “that an insurer is not liable for statutory interest for the time between an initial payment and the timely payment of an appraisal award.” In the Mainali opinion, Judge Fitzwater acknowledged the Graber opinion, but noted it as an “outlier.” 
The policyholder rejoicing from the “outlier” opinion of Graber should be over.
Closing note…State Farms Lloyds appealed the federal district court’s decision in Graber to the Fifth Circuit. Before the Fifth Circuit ruled, however, the plaintiff and plaintiff’s counsel unilaterally dismissed the action. They likely did so to avoid the Fifth Circuit overturning the unusual and unprecedented Graber opinion.
Posted by Todd Tippett

Tuesday, March 7, 2017

Damn Ice Dams

After over 2 feet of snow was dumped on most of New England in the beginning of February, the submission of those “damn” ice dam claims may start at any moment. Record high temperatures may have melted the snow in a blink of an eye, but the potential damage caused by those ice dams over that time period is still fresh in everyone’s memory.

The damage arising from ice dams is a constant and recurring threat from winter CAT storms.

Many times a threshold question for both insureds and insurance companies is quite simply: what is an ice dam? An ice dam is a ridge of ice that forms at the edge of a roof and prevents melting snow (water) from draining off the roof. The water that backs up behind the dam can leak into a home and cause damage to walls, ceilings, insulation, and other areas.

Numerous coverage issues can arise from ice dam claims. Although ice dams themselves or the removal of the ice damage are not generally covered losses under insurance policies, the water damage arising from the ice damage itself may be covered and may be the bulk of the damage being sought. Other claims arise from roofs that may have collapsed from the weight of the ice dam.

Like many winter claims, the insured first must prove that it sustained a direct loss or physical damage during the policy period. During Winter CAT storms, damage from ice dams as well as other related damage happens over much longer periods of time. Insurers should determine whether the damage was in fact related to the ice dams in question.

Insurers should also determine whether the insured took steps to mitigate its damage including hiring someone to clear snow or ice. In some policy provisions, this duty is explicitly set forth in the policy.  If such mitigation costs are being claimed, are these costs recoverable by insureds under “Sue and Labor” provisions?

Even if the policy does not contain a “Sue and Labor” clause, there is a duty under the policy to take all reasonable steps to prevent further “property damage,” with reasonable costs incurred to prevent additional damage covered under the policy. 

Typically, policies do not specifically provide coverage for ice damage removal costs. However, many insurers may cover part or all of these removal costs as an act of good faith and as part of mitigation efforts. 

Posted by Seth Jackson