Insurance Claims And Issues

Captured on Film, Here! Sector Snapshot Insurance.

     The reappearing "Sector Snapshot" recently featured "Insurance" in the New York Times Business Section, briefly.   Then it disappeared unless you bought the print edition!  It apparently never appeared online, or at least is more elusive than a moonshiner.

     For those without moonshine, or who for any reason missed the "Sector Snapshot/Insurance," it is enlightening.  As a service to our readers, as they say, here is a link to a tif we have experimented with so that you can access a copy of it.  This is a good place to link to the Sector Snapshot Insurance as of Friday, 10.26.07: Download heremarket_gauge102607.tif.  We have also experimented with a rich text format that you may find easier to access Download here_is_another_market_gauge.rtf.

     As before, notice that almost all of the Insurance Companies shown in the "best" of the four quadrants are all Life Insurance-only Companies, i.e., involved only in Life Insurance.

     Here is another striking fact that comes clear from a close review of this graph.  Property and Casualty Insurance Companies are below the middle bar of this graph and they are all shown as "Behind S&P 500 Over The Last Year".

 Happy Halloween!

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Catastrophic California Fires and Catastrophic Gulf Coast Floods: ...

              ... The Top Ten Reasons You Can Call Them All by the Same Name
                      But They Are Still Cousins And Not  Sisters and Brothers.

     The Fires in California are Catastrophes.  The Gulf Coast Floods from Hurricanes Katrina and Rita are Catastrophes.   FEMA calling them by the same name does not make them all the same.  Here are the top ten reasons why they are different even if they get called by the same name by the people in Washington, D.C. currently in charge, or who want us to think they are:

     (1)  Approximately 300,000 homes were damaged in Hurricane Katrina alone.   The current California fire devastation has, thankfully, stopped for at least the moment, with the destruction of either "about 2,000 houses,"
Solomon Moore & Eric Lipton, "Fires Provide Chance to Evaluate Changes in Disaster Response Since '05 Storms" p. 18, col. 1 (Sunday New York Times Nat'l Ed., October 28, 2007),  or "1,575 residences destroyed".   Kirk Johnson & Jesse McKinley, "Rethinking Fire Policy in the Tinderbox Zone" p. 1, col. 2 (New York Times Nat'l Ed., Sunday, October 28, 2007).   Either way, the horrors of California are not the same as the horrors on the Gulf Coast of America in 2005--thank the Good Lord.

     (2)  Fire "is a standard part of home insurance coverage, unlike flooding".  All remaining facts and quotations, unless otherwise indicated below, come from Solomon Moore & Eric Lipton, "Fires Provide Chance to Evaluate Changes" published as noted above in the New York Times National Edition, Sunday, Oct. 28, 2007.  In 2007 in  California,  AIG  also makes available  wildfire protection for its AIG Private Client Group.  That is a group of AIG Homeowner's Policyholders who average $19,000.00 per year on their Premiums and whose home value averages $1,700,000.00, it is reported in Daniel Taub, "AIG's Fire Trucks Save Homes of Wealthy Californians (Update 1)", Bloomberg.com, Last Updated Friday, Oct. 26, 2007.

     (3)  "California requires insurance companies to pay for temporary living expenses."  Most if not all Homeowner's Insurance Policies provide for "additional living expense," but apparently California has made efforts to reduce or eliminate the resulting Insurance Coverage battles over this Coverage.

     (4)  FEMA in 2007 will "visit homes to confirm the damage before money can be released."  This is a reported change in FEMA practice from 2005.

     (5)  FEMA will require applications for disaster assistance in 2007 to contain a Social Security number which FEMA will check out, a check "that did not consistently take place in 2005."

     (6)  FEMA has not announced plans to send trailers to California for temporary housing.  Instead, FEMA in 2007 is exploring "available rental housing".

     (7)  The Red Cross, for its part, "is trying to compile a list of damaged houses" left by the 2007 California fires, which it reportedly did not do on the Gulf Coast in 2005.

     (8)  The 2007 Red Cross is also reportedly "checking names in a computer database," also a step reportedly "generally not taken after Hurricane Katrina."

     (9)  The Federal Government received 3,000,000 applications for aid after Hurricanes Katrina and Rita on the Gulf Coast, plus applications for disaster assistance after Hurricane Wilma hit Florida, all in 2005.  "As of Friday afternoon," or October 26, 2007, "4,418 applications had come in for federal aid" as a result of damage from the fires in California, it is reported.  That means that some 682 times-- 6,820% -- more applications for Federal aid were received by the Federal officials after the 2005 Hurricanes than they have so far received after the 2007 California fires.  If the Federal regime in place then and now cannot get this Catastrophe right, then they never will.

     (10)  The tenth or maybe top reason.  This reason is not expressly mentioned as a difference in the newspaper reports read today, or at any other time:  This has happened to unlucky California before.  In 2003, Catastrophic Fires swept California at the interface between wildlands and urban areas, then as now fueled by the streaming Santa Ana winds.  Parenthetically, the results of the fires in 2003 were so horrendous in California, that in 2004 California reportedly re-wrote many Housing Construction Codes, much as Florida has done since the Hurricanes of 2004 and 2005.   In 2005, there had been no recent Hurricanes to match the furies unleashed by Hurricanes on America's Gulf Coast and there had been no previous experience of a Federal collapse of competence so complete as it was then, either.
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"Who You Gonna Believe, Me Or Your Lying Eyes?"

     Is the Homeowner's Insurance "industry" doing well?  Is the Property Insurance "sector" solvent?  Who you gonna believe?

     As the doctor asks in your eye exams, "Which is better, Number One?"  The Property Insurance "industry" has "more than $513 billion in capital".  It "can take that kind of loss in stride," meaning an estimated $1,000,000.00 in insured loss so far to homes and other property set on fire in California to date.  Property Insurance Companies "reported more than $450 billion in sales of policies last year, and a record profit of nearly $65 billion."  Joseph B. Treaster, "Fires' Cost to Insurers is in Range of $1 Billion" p.A20, col. 6 (New York Times Nat'l Ed., Thursday, October 25, 2007).

     The doctor asks you next if you can see better with "Number Two?"  Aon Reinsurance Company ("Aon Re") has reported for years that Homeowner's Insurance Companies are not making a profit at all,  they are staggered by losses.  It has just released its 2007 evaluation.  Aon Re's report on the Homeowner's business sector depends on its measure, "return on equity" or "ROE".

     That is a new phrase to me in my 30 years of following the Insurance industry, perhaps new to everyone.  The most recent study by Aon Re showing negative returns on equity for Homeowner's Insurance Companies is not yet publicly available on the company's web site, although some reports have surfaced in Insurance industry publications:  Check out the availability of the 2007 Aon Re study or press release at www.aon.com.  Past Press Releases of Aon Re are available and you can access these here or at the Aon Re site:  Aon Re Press Release of Oct. 10, 2006, "Aon Re Study: Hurricane Risk Reduces Prospective Profit of Homeowners Insurance" and Aon Re Press Release of Oct. 27, 2003, "Homeowners ROE Still Improving But At Slower Rate, According to Aon Study".

     What do you see is the economic state of Homeowner's Insurance Companies and Property Insurance Companies?

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Expert "Guesswork And Speculation" Disallowed, "Physically Impossible Assumptions" Not Excludable, ...

                               ...  and Case Dismissed.   

     "Generally, Fed. R. Evid. 702 provides the standard for admission of expert testimony [in Federal Courts].  The Rule states that an expert's opinion must be based on facts established by independent evidence properly introduced, and that expert witness testimony must be both reliable and helpful to the jury as a predicate for admissibility."  Mayton_v. Auto-Owners Insurance Co. (E.D. Va. Case No. Civ.A.3.05CV667, Opinion Filed May 2, 2006).pdf. A subscription-required report of this interesting decision is at 2006 WL 1214831.

     The Defendant Insurance Company filed a motion to exclude two Insurance Experts in that case.  One was "an independent insurance adjuster who was initially hired by Defendant Auto-Owners to conduct an investigation after the Hurricane."  Official slipsheet Opinion, linked above, at page 3.  This Expert offered opinions about "the cause of damage to a structure".  Id. at 3-4.  The Federal Judge granted the Defendant's Motion to Exclude the Expert Testimony as to the proposed opinions of this Expert.  The Federal Court held that his "proposed opinions are not the product of reliable principles and methods are are in violation of Fed. R. Evid. 702....  [Further, his] opinions regarding wind and the storm surge are unsupported by his training and education.  They only amount to guesswork and speculation."  Id. at 4.

     The other Expert at issue fared better in the Federal Court's eyes.  The other Expert is "a professional engineer," who offered opinions about wind causing damage, when in what sequence, and at what angle.  The Defendant contended that this Expert's conclusions were incorrect, that he misunderstood facts, and that his observations were based on what the Defendant argued "are physically impossible assumptions."  Id.  Without mentioning Rule 702 in regard to the proposed testimony of this Expert, the Federal  Court denied  the Defendant's Motion to Exclude his Expert Testimony.  Id.

     It is of further interest that in the same Order, the Federal Judge addressed and GRANTED the Defendant's Motion for Summary Judgment on both claims, for alleged Breach of the Insurance Contract and for alleged Bad Faith.  Id. at 7-13.  That meant that the entire case would be closed (which it was), that there would be no Trial absent a reversal on appeal (an appeal apparently was not taken), and that the Expert who was not Excluded from Testifying, will never testify at a Trial in this case because on the same day, in this same Order, the Federal Judge ruled in essence that there was no genuine issue of material fact for a Trial.

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Florida Hurricane Deductible Applies to Condominium Association Loss Assessments.

     A Federal Judge in Florida has recently applied the Hurricane Deductible on a Homeowner's Policy to "loss assessments" imposed by a Condominium Association.  The loss assessments were imposed as a result of Hurricane Wilma damage.

     Like most if not all Floridians, Mr. and Mrs. Stanley and Audrey Fabricant know, because they are the Plaintiffs-Policyholders in this new case, that the Hurricane Deductible is separate from and usually a lot larger than the ordinary Deductible on a Homeowner's Policy.  The Fabricants' Homeowner's Policy is a good example.  In their Policy, the usual Deductible is or was $500.00, whereas the Hurricane Deductible is $2,800.00.   A Federal Judge ruled recently that the after-Hurricane-Wilma loss assessments of the Fabricants' condominium association are clearly covered, but subject to the Hurricane Deductible and not the regular Deductible:  Fabricant_v. Kemper Independence Insurance Co. (S.D. Fla. Case No. 06.80527, Opinion Filed Feb. 9, 2007).pdf.  This case is also reported as 474 F. Supp. 2d 1328 (subscription required) or as 20 Fla. Law Weekly Federal D 731 (also subscription required).  This of course means a greater out-of-pocket cost to persons fortunate enough to have Coverage for loss assessments by owner associations, before the Coverage will kick in, if it is available at all.

     Specifically, ruled the Federal Judge, the Policy in that case "makes clear that the hurricane deductible is to be applied to all losses payable under 'Section I - Property Coverages' that occur as a result of a hurricane."  Page 8 of Official slipsheet Opinion, linked above.  Section I is where the Coverage provision for "loss assessments" is located.  "Reading the policy as a whole, it is apparent that the $2,800 hurricane deductible applies to the plaintiffs' loss assessment claim, and the court declines to adopt the plaintiffs' strained interpretation of the policy."  Id. at 9.

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Florida Court Interprets Ambiguous Homeowner's Exclusion With Insurance Company Aid ...

          ... By Quoting the Homeowner's Insurance Company's Internal Documents.

     In the recent case of Castillo_v. State Farm Florida Insurance Co. (Fla. 3d DCA Case No. 3DO6.2874, Opinion Filed October 17, 2007).pdf , also reported as 2007 WL 3005974 (subscription required) and as 32 Fla. Law Weekly D2474 (also subscription required), a Florida Appellate Court was confronted with the second appearance of a case on appeal.  In an unusual twist, the new appeal, which the Court dubbed Castillo II, was filed by different people who shared the same name as the appellants in the prior appeal.  The new appeal similarly involves claims under a Homeowner's Insurance Policy.

     The Policy was held ambiguous because its Earth Movement Exclusion "does not specifically address" damages caused by the matters alleged.  The Castillos alleged in their Complaint for Coverage "that vibrations and shockwaves caused by blasting and without displacement of the earth resulted in damages to an insured dwelling."  Id. at 6.

     The Florida Appellate Court then turned to extrinsic evidence for an explanation of the Earth Movement Exclusion in the Homeowner's Policy in this case, namely, evidence provided by the Homeowner's Insurance Company itself in its own internal documents:  "Given that the policy is ambiguous as to whether damages caused by shockwaves and vibrations in the absence of displacement of the earth are covered, State Farm's internal operating guideline OG 75-105 ('OG 75-105') is both instructive and admissible as parol evidence."  Id. at 6-7.

     After consulting OG 75-105, the Florida Appellate Court reversed the entry of summary judgment in favor of the Homeowner's Insurance Company.

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Notre Dame's Offense.

    The Notre Dame Fightin' Irish have not begun a football season with a record as bad as their present record, since 1960.  I yield to no-one in my support for the University of Notre Dame (Class of '73) and all things Notre Dame.  I even played Quarterback under Coach Ara Parseghian (more about that another time).

    This is the first time since I began my Web Logs many months ago that I am writing a post about something other than Insurance.  If my readers look for a "hook" to insurance, then there is this:  The shameful way in which the present leaders of the University of Notre Dame let Coach Tyrone Willingham go, after 3 years of a 5 year contract and with a better record than the present football coach, is the best 'insurance' for the job security of the present football coach. It is not likely that the people currently making decisions for the University of Notre Dame' will summon the courage to fire the current coach also after 3 years.

     Notre Dame's Offensive Coordinator of the recent past left to go to another university or college this year.  Notre Dame's offense is nonexistent this year.  The latest debacle came last Saturday at the hands of U.S.C.  "The score became lopsided thanks to Notre Dame's conservative offense, disjointed special teams and offensive linemen who at times were little more than turnstiles."  Pete Thamel, "Easy Win Over Irish Does Little For Trojans" (New York Times Sunday Nat'l Ed., Sports Section, P.7 col. 1 (Sunday, October 21, 2007).

    Coach Tyrone Willingham's recruits for Notre Dame's football team have almost all graduated after last year's comparatively successful football season.  This would be the first season of the current coach's recruits.

     Yet it all comes back to the coaching.  Does anyone have Tyrone Willingham's telephone number?  If you do, please give it to Notre Dame.

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Auto and Homeowner's Insurance One-Site Comparison Premiums Available Online.

     Comparison shopping can be a good thing.  You can check out Comparative Quotes for Auto and Home Insurance Coverages available in Delaware at the Delaware Insurance Commissioner's online site, here.  Why, you say, should you be interested in these Coverages that are available in Delaware if you do not live in Delaware?  Well, for one thing, it may provide Comparisons to your own locality!  You have nothing to lose by becoming more informed, on this issue at least.  Check it out if you can.

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Allstate Third Quarter 2007 Results Weakened by Past Catastrophe Estimates.

     Here is a link to Allstate's own Third Quarter Results Press Release.  Here are some interesting results revealed in its 33 pages.

     First, it is good to know independently that there were few if any Catastrophe Claims in the Third Quarter 2007.  Certainly, none were identified by Allstate that occurred during that time.  However, the Allstate Press Release attributes its Third Quarter 2007 economic results in part to the increased cost of catastrophe reinsurance.  See page 3 of the Allstate Third Quarter Results Press Release.

     Second, Allstate made a mistake in estimating reserves for CatClaims in past years.  Its Press Release does not actually say that it made that mistake, of course.  However, Allstate "restates" the reserves for CatClaims in past years, and inputs them as a deficit against its performance in the Third Quarter 2007.  Thus, Allstate's results for the quarter just past in 2007, are made less by Allstate's mistaken estimates in past years, including as far back at least as 2005.  See id. page 4.

     2005 was the year of Katrina and Rita.  So, in Allstate's own words, its "increased claim expense reserves for 2005 events", i.e., its increased claim expense reserves for Hurricanes Katrina and Rita and other Catastrophes in 2005, were the "primary" cause of Allstate's own "prior year reserve reestimates" in The Third Quarter of 2007.  See id. at 5.  This does not mean that anything wrong was done here; in fact, all of this accounting may be in accordance with Generally Accepted Accounting Principles or "GAAP" and thoroughly lawful.  This does mean, however, that it is not accurate for anyone to read or report based on these numbers that Allstate's reported results in the Third Quarter of 2007 are principally caused instead by Catastrophes this year.

     Third,  it is interesting that Allstate has a list of what it calls "Hurricane Exposure States," and that Allstate breaks them out not only for Homeowner's Premiums, as might be expected, but that Allstate also breaks out the same "Hurricane Exposure States" for Standard Auto Premiums:  Alabama, Connecticut, Delaware, Florida, Georgia, Louisiana, Maine, Maryland, Mississippi, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas, Virginia, and Washington, D.C.  (Each of these States on the Eastern Seaboard has a coastline, of course, but how does that affect Standard Auto Premiums?  Remembering that this breakout of certain locales is for a report on economic results by a large and successful corporation, perhaps this breakout reflects not just the results but some of the thinking that shapes the reporting of those results.  In this instance, it is known that it is more lucrative for Agents to write both Homeowner's Insurance Coverage  and other Coverages offered by Allstate, too, perhaps the biggest line by far and thus the line of greatest interest among those other Coverages being Standard Auto.)

Postscript on Sunday, October 21, 2007:  Orlando Sentinel Reporter Anika Myers Palm has this to say, after reading the above Third Quarter Results Press Release:  "Allstate's results for the quarter, which include all its lines of business, stand in contrast to the results of the property-insurance industry."   Anika Myers Palm, "Allstate OK With 16% Drop in Profits" P.C1, Col. 5 (Orlando Sentinel Central Florida Business, Thurs., October 18, 2007).

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Florida Subpoenaes Two: State Farm Settles, Allstate to Decide Response.

     State Farm Florida is in the news for three things in a report published primarily about Allstate on Wednesday, October 17, 2007:  (1) State Farm Florida reportedly agreed earlier in October, 2007 to cut its "rates" further (by a total of 9%)  than it originally announced (by 7%); (2) State Farm Florida reportedly "also agreed to change the way" it will still cancel or non-renew a reported 50,000 Florida Policyholders; and (3) apparently these concessions are part of a settlement with the Florida Office of Insurance Regulation over subpoenas issued in August, 2007, another result of which is that State Farm Florida representatives will not  be forced to testify about its Premium rates at a public hearing.

     As noted above, the focus of the current news reporting is on Allstate.  Allstate recently received subpoenas served by the Florida O.I.R., presumably the same or similar subpoenas as those served on State Farm Florida.  Allstate is mulling its response.  Here is a link to the newspaper report containing these developments:  Kathy Bushouse & Tonya Alanez, "Florida Orders Allstate to Turn Over Records on Property Insurance" (South Florida Sun-Sentinel.com,  published online Wed. October 17, 2007) and   also published in The Orlando Sentinel under the headline, "State Demands Allstate Documents" Page C1, Col. 2 (Orlando Sentinel Wed., October 17, 2007).

     One thing the Florida investigators are reportedly looking for is information about "the companies' relationships with storm risk-modeling firms".  See previous posts here in this space under the Category, "CatClaims," for related developments regarding the rapidly increasing use of new opinion-based 'models' of future Hurricane activity--and so of possible future Hurricane losses.

     Postscript on Sunday, October 21, 2007:  For one person's opinion that subpoenas of this kind likely do not cause much concern to huge corporations like Allstate, see Robert Trigaux, Times Business Editor, "Insurance Show Must Not Go On/Ever Feel Like You're Stuck Watching the Same Melodramatic and Pointless Skit in Tallahassee Over Property Insurance?" (St. Petersburg Times Online, Sunday, October 21, 2007).

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