Adjusting and Litigating Weather-Related Catastrophe Claims
Mary-Ellen King and Marty Sadler of Lucosky Brookman, LLP explore the legal landscape of catastrophe claims following serious weather events, and how this affects litigators.
Mary-Ellen King
Contact authorMarty Sadler
Contact authorCatastrophic weather claims are at an all-time high. 2023 saw a historic year for billion-dollar weather catastrophes in the USA, with 28 such events. Between 2018 and 2022, the USA experienced a billion-dollar weather event every 18 days on average, compared to an average 82 days between billion-dollar events in the 1980s. This trend has continued in 2024, with Hurricane Beryl in July and Hurricanes Francine, Helene and Milton less than two weeks apart in September and October, leading the way among at least 21 billion-dollar events so far this year. The increased frequency and intensity of catastrophes, as well as the ensuing insurance claims, will present greater challenges for the insurance industry as it responds.
"The mechanics of catastrophe claim-handling should not be substantially different from handling a non-catastrophe claim, with the key difference being the sheer volume of claims."
Adjusting Claims After a Mass Catastrophe
Intake and initial contact
The carriers’ response to any catastrophe should be guided by a carefully developed response plan – ie, developed before the catastrophe strikes. The plan should include:
• well-crafted protocols for intake and claim response;
• plans for inspection, investigation and supplemental claim handling; and
• metrics for effective documentation of claim activity.
The mechanics of catastrophe claim-handling should not be substantially different from handling a non-catastrophe claim, with the key difference being the sheer volume of claims. Claims will mount rapidly and will be submitted through numerous paths – eg, phone, email, application notification, agents, public adjusters and attorneys. Each claim will need to be processed regardless of how it is asserted. Catastrophe claims require early response and investigation, started as quickly as possible. A 2014 J. D. Power study showed that quicker communication with the insured reduces the number of escalated claims. Fewer escalations will translate into fewer litigated claims.
After initial contact with the insured, the claim handler should quickly obtain as much damage information as possible. In both personal and commercial damage claims, the insured will often have experienced a disruptive loss of their property. The adjuster should always be aware that empathetic claim-handling practices can smooth out emotional claims and generally set a clearer path towards successful resolution of claims.
The claim handler should maintain effective contact with the insured to explain the next steps in the claim, so that the insured knows what to expect going forward. Managing the insured’s expectations from the beginning to the end of the claim can establish better communication as well as facilitate the investigation and resolution of the claim. The sheer volume of claims can overwhelm both field and desk adjusters alike. Responding effectively to the increasing frequency of catastrophe claims will require increasingly efficient management thereof.
Investigation
The investigation begins when the handler speaks with the insured, gathering information regarding the damage. Carriers should effectively map adjuster experience with the complexity of the claim. Complex or large loss claims should be assigned to experienced and large loss adjusters.
Field adjusters should be instructed to:
• photograph all reported damage;
• fully document the building and contents, including undamaged property;
• inspect all rooms in the building;
• work to obtain an agreed scope of repairs during the inspection; and
• if part of the property is not made available for inspection, request a signed statement that the unavailable rooms are not damaged, such that no inspection is required.
Photo documentation of the loss at the first inspection can be invaluable in a claim that goes to litigation. It is thus critical to fully document the property condition at the first inspection – including undamaged property.
Inside claim handlers should thoroughly review the field adjuster’s report and determine whether additional information is needed. If further inspection is needed, it is important to manage the file so the supplemental report is completed promptly. In high-volume claim periods, field adjusters may sometimes miss appointments or assignments. A multilevel system of claim supervision can ensure that inspections are completed, reports are generated and the insureds are informed. When needed, experts should be retained as quickly as possible. At all times, the insured should know what is happening in the claim.
Claim handlers should be vigilant for fraud indicators in catastrophe claims. Inspection reports should be reviewed for red flags, though the handler should remain focused on efficient claim management. Over-emphasis on discovering fraud can slow down the adjusting process and create a backlog in claims, which can also lead to costlier claims.
Late reported claims are common in the catastrophe context. The adjuster should include a reservation of rights in written communications responding to late reported claims.
"For cases that can likely be resolved, informal settlement, early mediation and appraisal should be considered."
Litigating Catastrophe Claims
Attorneys should collaborate with the insurance company for efficient and effective handling of the litigation response to catastrophe claims. The lawyer should identify common coverage and claim-handling issues at the beginning of any engagement in the litigation. Everyone involved – adjusters, inside counsel and outside counsel – should be made aware of the litigation plan, with expectations clearly defined.
The insurer and outside counsel should develop a unified plan for assignment and handling of claims. The plan should:
• emphasise case tracking that is helpful to the insurer and handling attorneys;
• involve holding regular team status calls; and
• involve streamlining the discovery process by developing standard questions in advance.
The plan should emphasise frequent and comprehensive communication between outside counsel and the insurer.
Attorneys should carefully review each litigated matter as it is assigned. This allows for early identification of any need for additional investigation by the field adjuster or experts. Making this determination as early as possible and communicating with the carrier gives the best chance for further investigation before repairs have started or have been completed. To the extent possible, early determination of which cases should be tried allows the litigation team to move forward with preparation for trial from the outset.
For cases that can likely be resolved, informal settlement, early mediation and appraisal should be considered. Early inspection with experts may be pivotal to resolution in cases selected for early mediation. Appraisal in litigation can also be an effective tool for these cases, when the valuation dispute is reasonably close, when there is an agreed scope and when no coverage issues exist.
Frequently in catastrophe litigation, a court will adopt a case management order (CMO) or create a multi-district litigation (MDL). Most CMOs and MDLs mandate early exchange of documents and early mediation.
For the most part, the elements of efficient claim management for catastrophe claims are also the essential elements for management of litigated claims. The litigation team should:
• work to streamline the process;
• have empathy with the insured;
• communicate;
• be proactive;
• investigate;
• document the file; and
• be prepared.