Early property insurance policies, first introduced in seventeenth century England, insured against only a single peril: fire. That made sense at the time—most structures were wooden, making fire the most common risk of loss. Yet, in modern times with ever-changing and expanding risk profiles, fire is no longer the singular menace to property it once was.
Showing posts with label wildfires. Show all posts
Showing posts with label wildfires. Show all posts
Thursday, February 13, 2020
Wednesday, May 8, 2019
The Disaster Recovery Reform Act of 2018 intends to increase disaster preparedness
As referenced in our recent CAT-Law post on the Catastrophic Losses of 2018, at the end of 2018 Congress passed the Disaster Recovery Reform Act of 2018 (DRRA) in an effort to improve the nation’s overall capacity to respond to large-scale disasters. The DRRA reflects lawmakers’ concern that the Federal Emergency Management Agency (FEMA) alone was ill-equipped to respond to large-scale disasters, which appear to be occurring with increasing frequency and severity since Hurricane Katrina in 2005. Notably, 2017 and 2018 brought Hurricanes Harvey, Maria, and Irma in rapid succession, as well as massive wildfires in California and elsewhere.
Wednesday, April 10, 2019
The Catastrophic Losses of 2018
Last year, the United States experienced the top three largest natural catastrophes in the world with overall losses. The three most significant events were the California Wildfire, Hurricane Michael, and Hurricane Florence. The United States sustained 14 significant weather- and climate-related disaster events in 2018. According to the National Oceanic and Atmospheric Administration (“NOAA”), the overall damage from weather-related catastrophes and climate disasters reached approximately $91 billion.
Thursday, November 15, 2018
California Wildfires and Related Insurance Claims Show No Signs of Stopping
“We can’t stop and we won’t stop.” Is this the refrain to a Miley Cyrus song, the creed of the thousands of firefighters currently battling California’s wildfires, or the mantra of the fires themselves? While any self-respecting Miley fan knows these are the lyrics to her hit “We Can’t Stop,” everyone who has seen the footage coming out of the California wildfires knows that the fires have been ferocious in their destruction, and the firefighters have been equally unrelenting in their efforts to contain them. Unfortunately, and fortunately, there is no wrong answer.
Tuesday, May 8, 2018
Calif. Landslides Prompt 'Efficient Proximate Cause' Rehash
Mother Nature recently reminded California, as she often
does, of how cruel she can be. In December 2017, the state experienced its
largest wildfire in history.[1] The wildfire, known as the Thomas Fire, burned
more than 281,000 acres in Southern California and destroyed more than 1,000
structures.[2] A month later, California experienced its heaviest rainfall in
nearly a year.[3] Experts posit that the heavy rains, coupled with the absence
of vegetation from the fires, triggered catastrophic mudflows that killed 21
people and caused significant property damage to homes and infrastructure.[4]
Friday, January 12, 2018
2017 – A Record Setting Year
2017 was a year of records for sure. Most notably, professional eater Joey Chestnut set a new record by eating 55 glazed doughnuts in eight minutes.[1] At a university in Ohio, 972 people set a record by dressing as penguins.[2] And, Ayanna Williams of Texas set a record thanks to her fingernails reaching a combined total length of 18 feet, 10.9 inches.[3] Unfortunately, the U.S. also set a record in 2017 with a total of $306 billion in damage resulting from several natural disasters. In fact, the 2017 season was the first time that three Category 4 hurricanes — Harvey, Irma, and Maria — made landfall in the United States and its territories in a one-year period.
Tuesday, October 24, 2017
Is Event Cancellation Coverage Up In Smoke?
As of the date of the publication of this blog entry, the wildfires that have been ravaging Northern California since October 8, 2017 have been somewhat contained. However, the slightest change in weather conditions could frustrate the efforts of firefighters and first responders and cause even more devastation to the region. The investigation into the cause(s) of the fires is still ongoing. Early reports indicated that faulty equipment of California utility PG&E may have ignited the fire, but at least one person has since been arrested on suspicions of arson.
Thursday, July 27, 2017
2017 Wildfires Expected to Cause Surge in Insurance Claims
Wildfire season in North America
is off to a raging start this year. Fire activity in the western United States
increased significantly in June as preexisting dry conditions and
record-setting heat events created the perfect conditions for wildfires across
portions of the American Southwest, southern Great Basin, and southern
California. According to the governmental National Interagency Fire Center
(NIFC), from January 1 to July 17, 2017, 34,586 wildfires had burned 4.3
million acres in the U.S., compared to 28,992 fires that burned 2.4 million
acres in the same period in 2016.
On July 1, 2017, the NIFC predicted above normal significant fire potential through August. That prediction is proving to be accurate. Just in the past few weeks, wildfires have caused extensive damage in Alaska, California, Montana, Colorado, Arizona, and in Canada. As of July 17, 2017, 42 large fires were burning more than 867,000 acres in 12 states, including Alaska, Arizona, California, Colorado, Idaho, Montana, Nevada, North Dakota, Oregon, Utah, Washington, and Wyoming.
Multiple California wildfires have recently left scenes reminiscent of a “zombie apocalypse.” On Monday, July 18, in California’s Central Valley, residents were forced to flee their homes after authorities ordered evacuations.
Source: www.reuters.com/news/picture/wildfires-rage-across-california-idUSRTX3BHQW
Wildfires have charred more than twice as much land mass in California so far in 2017 than a year earlier, according to a Forestry and Fire Protection spokeswoman. That should come as no surprise, since California is the most wildfire prone state by nearly any measure.
In 2016, California ranked second both in terms of the number of fires and number of acres burned.
Source: www.iii.org/fact-statistic/wildfires
Historically, California also tops the list of U.S. states with the costliest wildfires. According to Munich Re, California wildfires are the second most expensive natural hazard after earthquakes.
Source: www.iii.org/fact-statistic/wildfires
But as that chart shows, there’s plenty of costly damage caused by wildfires elsewhere. The damage from the 2016 wildfires in the Tennessee Great Smoky Mountains killed 14 people, led to mandatory evacuations, and caused more than $500 million in damage. The 2012 Waldo Canyon fire in Colorado Springs, Colorado was the costliest wildfire in Colorado with insurance costs of $453.7 million from more than 6,600 claims.
Massive and costly wildfires are also a problem for our northern neighbors. Wildfires that broke out northeast of Vancouver nearly three weeks ago continue to spread rapidly across large areas of British Columbia. In addition to the 3,000 firefighters currently battling the flames, local authorities have asked for Canadian federal military assistance, and Australia sent 50 firefighters to assist. Local officials have declared a state of emergency, and more than 45,000 people have been forced to evacuate, including an entire town with a population of more than 10,000. Not surprisingly, the wildfires have already disrupted industry in the region. Forestry producers have suspended operations, due in part to employees who have been forced to evacuate. Pipeline operator Enbridge Inc. took a natural gas compressor station offline and has no present timeline for restarting it. And the British Columbia Cattlemen’s Association says 30,000 cattle are threatened by the fire. Authorities anticipate that the wildfires will get stronger before they are contained. From the start of wildfire season on April 1 through July 12, British Columbia has seen 604 fires, with damage estimated at US $41 million. In 2016, wildfires in the oil-rich area of Fort McMurray, Alberta displaced nearly 90,000 people and caused more than $3.58 billion in damage, making it the most expensive disaster for insurers in the country’s history.
Thirteen states in the western U.S. that are currently at high or very high risk of wildfire damage represent a combined total property value estimated at more than $237 billion. California, Colorado, and Texas have a combined property value exceeding $188 billion in areas of high or very high risk.
Source: www.iii.org/issue-update/wildfires
Most losses in a wildfire event result from destroyed or partially burned structures and their contents. Of course, damage to real property caused by fire or smoke from a wildfire, and even damage from water used to fight the fire, is usually covered by homeowners, renters, and commercial property insurance policies. The contents are typically covered up to a certain limit, and homeowners’ and renters’ policies commonly cover living expenses incurred by the insured during repair or rebuilding.
A critical coverage for business owners in high wildfire risk areas may be business interruption coverage, which—with some limitations—covers the profits a business would have earned if the wildfire had not occurred. Business interruption coverage generally covers income loss sustained if operations are suspended because of physical damage to insured property and resulting from a peril insured by the policy. Such coverage may also cover additional operating expenses incurred as a result of the wildfire, including the expense of operating out of a temporary location even if business activities are temporarily halted. Most policies include a “waiting period” so that the loss-of-income coverage does not begin until a specified number of hours/days after the triggering event.
In Oregon Shakespeare Festival Association v. Great American Insurance Company, No. 1:15-CV-01932-CL, 2016 WL 3267247, at *1 (D. Or. June 7, 2016), vacated by joint request of parties, No. 1:15-CV-01932-CL, 2017 WL 1034203 (D. Or. Mar. 6, 2017), the insured sought coverage for business income losses that it incurred after nearby wildfires caused smoke, ashes, and dust to infiltrate the theater, coating the seating, HVAC, lighting, and electronic systems with dust, ashes, and smoke. The plaintiff insured was forced to suspend operations and cancel performances for several days to perform cleaning, replace air filters, and allow the smoke in the air in the theater to dissipate. The court found that the insured sustained “physical loss of or damage to property” when the wildfire smoke infiltrated the theater and rendered it unusable for its intended purpose, and concluded that the policy covered the insured’s business interruption losses. The case was later vacated by joint stipulated request of the parties, but it remains an excellent example of the type of wildfire damage that can trigger business interruption coverage.
Coverage may be available for the income a business loses due to a mandatory evacuation order by civil authorities, even if the insured business itself incurs no physical property damage. Civil authority orders commonly lead businesses to suspend operations, either due to the threat of the wildfire itself, or the loss of employees or customers who have been evacuated. As a general matter, a civil authority clause provides coverage for lost income when access to insured property is prevented or impaired by an order or action of a civil authority because of damage to property other than the insured property. Civil authority coverage varies widely by policy, but generally the insured must demonstrate that (1) a peril covered under the policy (e.g., fire) caused physical damage to some property; (2) that said peril also gave rise to an action or order of a civil authority (e.g., the denial of access to the business), that (3) proximately caused a loss of business income. When a civil authority order alone causes the business interruption loss, without any related property damage caused by a peril covered by the policy, there usually be no coverage. See e.g., Bamundo, Zwal & Schermerhorn, LLP v. Sentinel Ins. Co., No. 13-CV-6672 RJS, 2015 WL 1408873, at *4 (S.D.N.Y. Mar. 26, 2015) (holding the plaintiff’s business interruption loss arising from New York City’s evacuation order related to Hurricane Sandy was not covered under the policy’s civil authority provision because the evacuation order was issued as a direct result of flooding, which was an excluded peril under the policy). Likewise, if the civil authority order simply makes access more difficult, without actually prohibiting access, there often is no coverage. See, e.g., Southern Hospitality, Inc. v. Zurich Am. Ins., 393 F.3d 1137 (10th Cir. 2004) (finding no coverage under plaintiff hotel’s civil authority policy because FAA order prohibiting airplanes from flying did not prohibit access to hotel operations); Kean, Miller, Hawthorne, D’Armond McCowan & Jarman, LLP v. Nat’l Fire Ins. Co. of Hartford, No. 06-770-C, 2007 WL 2489711 (M.D. La. Aug. 28, 2007) (finding no coverage under plaintiff hotel’s civil authority policy because the recommendations by Baton Rouge officials to stay off the streets did not deny access to business’s premises).
Given the substantial 2017 wildfire activity, we expect a corresponding surge in wildfire-related insurance claims.
Posted by Matt Gollinger and Laura Bartlow
On July 1, 2017, the NIFC predicted above normal significant fire potential through August. That prediction is proving to be accurate. Just in the past few weeks, wildfires have caused extensive damage in Alaska, California, Montana, Colorado, Arizona, and in Canada. As of July 17, 2017, 42 large fires were burning more than 867,000 acres in 12 states, including Alaska, Arizona, California, Colorado, Idaho, Montana, Nevada, North Dakota, Oregon, Utah, Washington, and Wyoming.
Multiple California wildfires have recently left scenes reminiscent of a “zombie apocalypse.” On Monday, July 18, in California’s Central Valley, residents were forced to flee their homes after authorities ordered evacuations.
Source: www.reuters.com/news/picture/wildfires-rage-across-california-idUSRTX3BHQW
Wildfires have charred more than twice as much land mass in California so far in 2017 than a year earlier, according to a Forestry and Fire Protection spokeswoman. That should come as no surprise, since California is the most wildfire prone state by nearly any measure.
In 2016, California ranked second both in terms of the number of fires and number of acres burned.
Source: www.iii.org/fact-statistic/wildfires
Historically, California also tops the list of U.S. states with the costliest wildfires. According to Munich Re, California wildfires are the second most expensive natural hazard after earthquakes.
Source: www.iii.org/fact-statistic/wildfires
But as that chart shows, there’s plenty of costly damage caused by wildfires elsewhere. The damage from the 2016 wildfires in the Tennessee Great Smoky Mountains killed 14 people, led to mandatory evacuations, and caused more than $500 million in damage. The 2012 Waldo Canyon fire in Colorado Springs, Colorado was the costliest wildfire in Colorado with insurance costs of $453.7 million from more than 6,600 claims.
Massive and costly wildfires are also a problem for our northern neighbors. Wildfires that broke out northeast of Vancouver nearly three weeks ago continue to spread rapidly across large areas of British Columbia. In addition to the 3,000 firefighters currently battling the flames, local authorities have asked for Canadian federal military assistance, and Australia sent 50 firefighters to assist. Local officials have declared a state of emergency, and more than 45,000 people have been forced to evacuate, including an entire town with a population of more than 10,000. Not surprisingly, the wildfires have already disrupted industry in the region. Forestry producers have suspended operations, due in part to employees who have been forced to evacuate. Pipeline operator Enbridge Inc. took a natural gas compressor station offline and has no present timeline for restarting it. And the British Columbia Cattlemen’s Association says 30,000 cattle are threatened by the fire. Authorities anticipate that the wildfires will get stronger before they are contained. From the start of wildfire season on April 1 through July 12, British Columbia has seen 604 fires, with damage estimated at US $41 million. In 2016, wildfires in the oil-rich area of Fort McMurray, Alberta displaced nearly 90,000 people and caused more than $3.58 billion in damage, making it the most expensive disaster for insurers in the country’s history.
Thirteen states in the western U.S. that are currently at high or very high risk of wildfire damage represent a combined total property value estimated at more than $237 billion. California, Colorado, and Texas have a combined property value exceeding $188 billion in areas of high or very high risk.
Source: www.iii.org/issue-update/wildfires
Most losses in a wildfire event result from destroyed or partially burned structures and their contents. Of course, damage to real property caused by fire or smoke from a wildfire, and even damage from water used to fight the fire, is usually covered by homeowners, renters, and commercial property insurance policies. The contents are typically covered up to a certain limit, and homeowners’ and renters’ policies commonly cover living expenses incurred by the insured during repair or rebuilding.
A critical coverage for business owners in high wildfire risk areas may be business interruption coverage, which—with some limitations—covers the profits a business would have earned if the wildfire had not occurred. Business interruption coverage generally covers income loss sustained if operations are suspended because of physical damage to insured property and resulting from a peril insured by the policy. Such coverage may also cover additional operating expenses incurred as a result of the wildfire, including the expense of operating out of a temporary location even if business activities are temporarily halted. Most policies include a “waiting period” so that the loss-of-income coverage does not begin until a specified number of hours/days after the triggering event.
In Oregon Shakespeare Festival Association v. Great American Insurance Company, No. 1:15-CV-01932-CL, 2016 WL 3267247, at *1 (D. Or. June 7, 2016), vacated by joint request of parties, No. 1:15-CV-01932-CL, 2017 WL 1034203 (D. Or. Mar. 6, 2017), the insured sought coverage for business income losses that it incurred after nearby wildfires caused smoke, ashes, and dust to infiltrate the theater, coating the seating, HVAC, lighting, and electronic systems with dust, ashes, and smoke. The plaintiff insured was forced to suspend operations and cancel performances for several days to perform cleaning, replace air filters, and allow the smoke in the air in the theater to dissipate. The court found that the insured sustained “physical loss of or damage to property” when the wildfire smoke infiltrated the theater and rendered it unusable for its intended purpose, and concluded that the policy covered the insured’s business interruption losses. The case was later vacated by joint stipulated request of the parties, but it remains an excellent example of the type of wildfire damage that can trigger business interruption coverage.
Coverage may be available for the income a business loses due to a mandatory evacuation order by civil authorities, even if the insured business itself incurs no physical property damage. Civil authority orders commonly lead businesses to suspend operations, either due to the threat of the wildfire itself, or the loss of employees or customers who have been evacuated. As a general matter, a civil authority clause provides coverage for lost income when access to insured property is prevented or impaired by an order or action of a civil authority because of damage to property other than the insured property. Civil authority coverage varies widely by policy, but generally the insured must demonstrate that (1) a peril covered under the policy (e.g., fire) caused physical damage to some property; (2) that said peril also gave rise to an action or order of a civil authority (e.g., the denial of access to the business), that (3) proximately caused a loss of business income. When a civil authority order alone causes the business interruption loss, without any related property damage caused by a peril covered by the policy, there usually be no coverage. See e.g., Bamundo, Zwal & Schermerhorn, LLP v. Sentinel Ins. Co., No. 13-CV-6672 RJS, 2015 WL 1408873, at *4 (S.D.N.Y. Mar. 26, 2015) (holding the plaintiff’s business interruption loss arising from New York City’s evacuation order related to Hurricane Sandy was not covered under the policy’s civil authority provision because the evacuation order was issued as a direct result of flooding, which was an excluded peril under the policy). Likewise, if the civil authority order simply makes access more difficult, without actually prohibiting access, there often is no coverage. See, e.g., Southern Hospitality, Inc. v. Zurich Am. Ins., 393 F.3d 1137 (10th Cir. 2004) (finding no coverage under plaintiff hotel’s civil authority policy because FAA order prohibiting airplanes from flying did not prohibit access to hotel operations); Kean, Miller, Hawthorne, D’Armond McCowan & Jarman, LLP v. Nat’l Fire Ins. Co. of Hartford, No. 06-770-C, 2007 WL 2489711 (M.D. La. Aug. 28, 2007) (finding no coverage under plaintiff hotel’s civil authority policy because the recommendations by Baton Rouge officials to stay off the streets did not deny access to business’s premises).
Given the substantial 2017 wildfire activity, we expect a corresponding surge in wildfire-related insurance claims.
Posted by Matt Gollinger and Laura Bartlow
Tuesday, February 7, 2017
The Wildfires in Chile—Impact on the Insurance Industry
It is well-known that South America is vulnerable to earthquakes, forest fires, floods, and volcanic eruptions. While the risk of catastrophe
is high, no one could have anticipated the devastation wrought by the recent
wildfires that have already blazed through 593,000 acres of Chilean terrain.
The fires have destroyed thousands of homes and killed eleven people. Chile’s
large monoculture plantations and record-high temperatures have contributed to the rapid spread and made it more difficult to prevent
spreading into communities and towns. The devastation will only continue—of the
118 fires, 59 are still active.
In efforts to alleviate the loss, various countries have supplied troops of
firefighters, donated money and provided resources to support humanitarian
needs of the communities where homes were completely destroyed.
The amount of wildfire destruction to date is
unprecedented. When matters of this magnitude are unprecedented in a geographic
region, insurers are bound to incur heavy financial impact. Property is the most exposed insurance business when it comes to wildfires because
the losses include not only the destroyed structures and contents, but living
expenses and home cleaning as well. Most homeowners’ policies cover damage due
to fire, and in turn, when a home is completely destroyed by fire, the
insurance company may be responsible for completely rebuilding the home.
Comparing past wildfire catastrophes in the United States
may provide insight as to the impact the wildfires could have on the Chilean
insurance market. California has become notorious for wildfires over the last
fifty years, and this has caused insurance companies to reassess which homes they will insure. Today, if an insurance
company identifies a home as a “high risk location,” a California resident may
be denied coverage or the policy cancelled. Insurers learned some lessons.
There are various large Chilean, American, and European
insurers that compete for business in Chile. According to the Chilean Insurance
Association, Mapfre carries the largest market share for fire and perils insurance; and after acquiring
one of the largest Chilean-based insurance companies, Liberty Mutual is now the largest provider of property and casualty insurance in Chile.
While the wildfires in Chile may be unprecedented, catastrophes in the country
are not foreign. In 2010, Chile was struck by earthquakes and suffered heavy
insured and economic losses and the large international insurers spent billions of dollars to rebuild and eventually re-stabilize the Chilean economy.
In the wake of this catastrophe, insurers are likely to re-evaluate
their wildfire loss exposure throughout Chile. The risk of wildfires will only
continue to rise in correlation with population expansion into less-developed
areas, combined with longer droughts and heatwaves wrought by global climate
change. In areas of particular risk (such as southern Chile), insurers should
work to mitigate risk as much as possible by zoning certain regions and implementing early warning systems.
Posted by Victoria Vish
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
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