Superstorm Sandy struck the eastern United States on October 29, 2012. The storm affected 24 states, including the entire eastern seaboard from Florida to Maine, and west across the Appalachian Mountains to Michigan and Wisconsin, with particularly severe damage in New Jersey and New York. Damage in the United States is estimated at over $63 billion. As a result, thousands of insurance claims—for both property damage and business interruption—have already been made.
Of greater significance are the thousands of claims that have not yet been made. Significantly, the insurance industry has encountered the storm’s six-month anniversary—the time when seemingly simple claims start to become complicated; unresolved claims shift from frustration to litigation; and new claims of latent (or allegedly latent but possibly fraudulent) damage are made. Several complicating factors result from later-filed claims, including the difficulty that comes with identifying losses and attributing those losses to a particular cause. This is especially true when a severe weather event causes damage in multiple ways—such as both water and wind—involving separate coverage issues.
Minimizing extra-contractual exposure has three components, which, preferably, should be implemented within six months after the event: First, early recognition of the coverage issues and respective rules in each relevant jurisdiction. Second, a good understanding, on the part of insurers, of the statutory or common-law standards for bad faith applicable in each relevant jurisdiction (with regard to Sandy, the three most relevant states are New York, New Jersey, and Pennsylvania). Third, early recognition claims-handling protocols that identify potentially problematic claims; these claims require special attention to ensure they are quickly and fully resolved. This article addresses each of these components.