Did the Fire Come Before the Wind (and Other Questions From California)
In hurricanes, the big claims debate is between wind versus water. No such issue confronts adjusters tackling losses from the California wildfires, though wind could impact claims. Not just because the Santa Anas were powering the flames with reported 100 mph gusts. Many property losses out of the event could be directly caused by the wind itself.
"What we're really picking up is the wind claims," said Bud Trice, head of catastrophe claims for adjusting firm Crawford & Co., a week into the fires.
In fact, at the time, Trice reported that the number of wind claims reported to him was outpacing fire claims. He expected more to come. The reason, he suggested, is because many adjusters haven't even been sent out to wind-damaged properties yet. Because of the political sensitivity of the situation, properties hit hardest by the conflagrations would get first priority.
Many people from evacuated areas, as well, hadn't yet had the chance to return home and inspect their property for losses. If they don't find fire loss, they might notice a downed fence, shredded shingles or other wind-related losses--the kinds of losses, Trice said, that happen when the Santa Anas get gusty.
It is interesting to note, as well, that the insured loss estimates for these fires tallied by modelers do not include this wind damage. Wildfire models do not factor wind damage.
"We treat just the burn damage, and what's directly related to burn damage, which is smoke damage," says Tomas Girnius, research scientist with AIR Worldwide Corp.
AIR, the modeling subsidiary of ISO, estimated $1.2 billion in total insured losses. Competitor Risk Management Solutions Inc. estimated as much as $1.6 billion.
Commercial clients' losses could make up a fraction of that, much of which could be business interruption (see main story). But direct losses will come from the fires, no doubt, including from smoke damage.
"We're starting to hear some questions about direct damage," said Arnold Mascali, managing director for Aon's Horizon and Rapid Response groups, while the fires still raged. "Even though the fire doesn't get to their location, there's certainly a lot of smoke and soot particles in the air."
"We do have those claims, or potential claims, where smoke damage needs to be addressed," also reported Tom Vincent, senior vice president of Marsh Risk Consulting Property Claims practice.
Claims could also be expected when insureds expect to collect on their sue-and-labor provision and other loss-mitigation clauses in their property policies. "I think that the No. 1 question I've been receiving from clients ... mitigation efforts," said Mascali.
Vincent anticipated them as well.
The sue-and-labor provision could cover policyholder's expenses in "buttoning up a building" to protect against smoke damage and other ways to mitigate potential loss, says Mascali, and could be triggered even if the fire did not directly impact a location.
Mary Gallagher, manager of risk and insurance for the Southern California healthcare provider ScrippsHealth, detailed how her company spent to protect air quality within its facilities during the fires--on air scrubbers and on sealing of doors and windows. She said she would probably expect it to be a claim they would look to collect on. She also said she might expect a claim for additional expenses for paying her employees overtime to keep the hospitals and clinics at full staff.
Loss mitigation claims, however, are not all clear cut even with a sue-and-labor provision.
"The rule is that if there is any existing damage, your efforts to mitigate the rest of the damage is covered," said Rich Lewis, partner at the New York office of law firm Anderson Kill & Olick. If an insured hadn't suffered any damage first, though, "it's a real tough road to hoe," he adds.
But all it could take to trigger, he says, would be "a molecule of fire damage."
The point--if insureds are reasonable in their mitigation expenses, they should be compensated.
December 1, 2007
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