Nobody Seems to Know Why Hail Storm Losses Suddenly Began Rising in 2008

Brian K. Sullivan | Insurance Journal | June 17, 2019

In 2008, the year the stock market crashed and Barack Obama won the presidency, the U.S. was hit with a weather phenomenon little noted by anyone beyond the insurance industry.

The country’s losses from hail breached $19 billion in inflation-adjusted dollars that year, far exceeding the $8 billion to $12 billion norm seen previously.

By itself, that was a curiosity. But consider this: Damage from hail then continued to sit near $19 billion or higher in each of the next 10 years, according to Steve Bowen, a meteorologist for Aon, a risk assessment firm. It’s a surprising run of events that has spurred an ice-encased mystery among weather watchers: Why then, and why since?

“There are a number of scientific and socioeconomic reasons that can explain why U.S. thunderstorm losses have increased over time,” Bowen said by phone. “But it remains a bit of a headscratcher as to why 2008 seems to be the magic year that started this trend.”

Frozen Rain

Hail forms in thunderstorms when updrafts blow rain so high it freezes, according to the U.S. National Severe Storms Laboratory in Norman, Oklahoma. Those pellets grow as they collide with super-cold water drops that freeze on contact, adding more ice until gravity wins the battle with the wind and the pellets comes crashing out of the sky.

Hail stones come in all sizes. In 2010, for instance, an 8-inch (20 centimeters) Vivian, South Dakota weighing in at just under 2 pounds (0.9 kilograms) and setting a new U.S. record. However, it remains unclear whether the size of hail has anything to do with the rising costs.

Just one year, 2011, saw a dramatic increase in the number of hailstorms following 2008. With a La Nina holding sway in the Pacific, 2011 was marked by nine large outbreaks of severe thunderstorms and tornadoes from the Rocky Mountains through the Midwest and into the U.S. South, according to the National Centers for Environmental Information in Asheville, North Carolina.

“Hail is a bit challenging for us to confidently quantify because it is all based on eyewitness reports,” said Robert Jeffrey Trapp, head of the Atmospheric Sciences department at the University of Illinois. “It only gets reported if someone reports it. People are pretty bad at estimating size.”

While no one seems able to pinpoint why costs expanded starting in 2008, there are clues that suggest why they’re generally higher. There’s probably more things to hit, and they may be more valuable, the experts say.

“People are moving from the urban areas to the suburbs, and from the suburbs to the exurbs,” said Patrick Marsh, a warning coordination meteorologist at the prediction center. “And so cities are getting bigger. And as cities expand, that is more area for severe storms to impact. Ten years ago, the storm was outside the city limits. It may be in the city limits by now.”

More Expensive Things

While it’s logical to say there are more people with more expensive things that can be broken, that answer doesn’t completely answer what’s happening, said Ernst Rauch, head of Climate and Public Sector Business Development for Munich Re, a Germany-based reinsurer.

His company raises premiums as property values increase, he said, but the costs from hail are overwhelming the numbers in both the U.S. Midwest and Europe changing the probabilities.

The worst U.S. losses are in an area that starts midway through North Dakota and then follows the Great Plains into Texas, according to FM Global, a Rhode Island-based industrial insurer. Damaged roofs are among the biggest ticket items for FM Global’s clients.

From 1997 to 2006, FM Global’s clients lost about $32 million per year on average. From 2009 to 2018, however, those costs jumped to $130 million a year, according to data supplied by the insurer.

At the same time, forecasters say the increased losses have nothing to do with storm frequency. “It has more to do with what gets hit,” Marsh said. “One hail storm in Denver would take you 10% of the way to a $10 billion loss.”

While no one can say for sure what is driving the losses, the odds are they’ll continue to rise in a time of climate change, Trapp said.

Why 2008, and why since?

“It is an open research question,” said Andreas Prein, a researcher at the National Center for Atmospheric Research in Boulder, Colorado. “And as far as I know, nobody has an answer to that. It might be maybe just luck that in the last 11 years, hail storms just hit the big cities randomly.”

Pending California Property Insurance Legislation – A Continued Expansion of Insured’s Rights

Victor Jacobellis | Property Insurance Coverage Law Blog | June 23, 2019

The string of natural disasters that struck California in 2017 and 2018 resulted in new legislation expanding the rights of California policyholders. The California legislature has drafted and introduced new legislation that would continue to expand policyholders’ rights.

Pending legislation is summarized below. Although the legislation is not yet law, by gaining familiarity with the legislation now, you will be better equipped to immediately use the laws to insureds’ advantage. We will continue to keep you updated once the legislation is officially passed and becomes law.

  • Senate Bill 240 – This law would require an insurer to establish a single point of contact for the insured and provide the insured with one or more direct means of communication with the single point of contact if, within a six-month period, the insurer assigns a third or subsequent adjuster to be primarily responsible for a claim. The law would also require the single point of contact to remain assigned to the insured’s claim until the insurer determines that the claim is closed. This bill has passed the Senate.
  • Assembly Bill 188 – This law would require that when a building is a total loss and the policy requires an actual cash value payment, that the building’s valuation be based on the damaged building’s replacement cost less depreciation. This proposed legislation has passed the Assembly. Merlin Law Group attorney Derek Chaiken provided an analysis of this proposed legislation in a previous blog post, Potential Changes to California’s Insurance Code §2051 Impacts Total Loss Valuation on ACV Policies.
  • Assembly Bill 740 – This law would establish the Climate Change Catastrophe Compensation Fund. The money for the Fund would come from California utilities and the initial proposed Fund amount is $5 billion. The purpose of the Fund would be to ensure that victims of wildfires caused by climate change are compensated in a timely manner, to provide reimbursements to insurers for a portion of those wildfire losses, and to avoid lengthy legal proceedings. The Fund would also have money available to policyholders that are underinsured. This bill is still in the Senate Insurance Committee.
  • Assembly Bill 1813 – This law would require a notice of cancellation or a notice of nonrenewal of a property insurance policy to include a statement that the policyholder may have the department review the cancellation and would require those notices to include specified contact information for the department. This proposed legislation has passed the Assembly.
  • Senate Bill 508 – This law would require an insurer provide all insureds under a tenant, renter, or condominium policy to provide a copy of the California Residential Property Insurance Bill of Rights to the named insured. This bill has already passed the Senate.

Florida Creates Right of Contribution Among Liability Insurers for Defense Costs

John David Dickenson and Chad Pasternack | Cozen O’Connor | June 20, 2019

The Florida Legislature recently created a right of contribution among liability insurers for defense costs. Prior to the enactment of this legislation, it was long the law in Florida that there was no right to contribution among co-primary insurers. Without a right of contribution, some insurers were incentivized to delay accepting the defense of their policyholders in the hope that another insurer will foot the bill. By creating this right of contribution for liability insurers, the Florida Legislature took a positive step forward in protecting policyholders and leveled the playing field for insurers that play by the rules.

This right of contribution in Florida is of particular significance because of Florida’s construction industry and the accompanying wealth of construction defect litigation. In construction defect litigation and lawsuits involving progressive injuries, there are often difficult questions of which insurance policies are triggered and when.1 In Carithers v. Mid-Continent Cas. Co., the Eleventh Circuit applied an injury-in-fact trigger to a construction defect claim. Applying the injury-in-fact trigger, “the only inquiry is when the property was damaged,” regardless of “when the damage is discovered or discoverable.”2

The seminal case on contribution in Florida, Argonaut Ins. Co. v. Maryland Cas. Co.,3 explained:

If an insurance company refuses to defend or provide contractual coverage to its insured, then it may expose its policy limits to a third party and faces a breach of contract suit with other statutory remedies (e. g., Section 627.421(1), Florida Statutes) [b]y the insured. An insured is adequately protected when its insurer breaches its contract. Further, third parties are protected for required liability coverage by public policy pursuant to established law. All necessary remedies and protection to the proper parties are available to enforce all necessary rights. …

The Legislature has not seen fit to allow contribution for costs or attorney’s fees between insurance companies. If contribution for costs were allowed between insurance companies, there would be multiple claims and law suits. The insurance companies would have no incentive to settle and protect the interest of the insured, since another law suit would be forthcoming to resolve the coverage dispute between the insurance companies. This is contrary to public policy, particularly since the insured has been afforded legal protection and has not had to personally pay any attorney’s fees.

The Florida Legislature listened to Argonaut’s suggestion, and passed H.B. 301. The law creates Florida Statutes Section 624.1055, which provides, in part:

624.1055 Right of contribution among liability insurers for defense costs. — A liability insurer who owes a duty to defend an insured and who defends the insured against a claim, suit, or other action has a right of contribution for defense costs against any other liability insurer who owes a duty to defend the insured against the same claim, suit, or other action, provided that contribution may not be sought from any liability insurer for defense costs that are incurred before the liability insurer’s receipt of notice of the claim, suit, or other action.

Section 624.1055 provides that, if multiple liability insurers have a duty to defend an insured, the insurer(s) that defends the insured is entitled to contribution of defense costs from the insurer(s) that fail to defend the insured. Contribution may only be sought for defense costs incurred after the insurer is given notice of the claim or suit — the focus of the law is insurers that neglect their contractual obligations, and not insurers that may provide coverage but are unaware of the claim or lawsuit.

Not only is Section 624.1055 a substantial change in longstanding law, the statute is wide-reaching:

(4) APPLICABILITY. — This section applies to liability insurance policies issued for delivery in this state, or liability insurance policies under which an insurer has a duty to defend an insured against claims asserted or suits or actions filed in this state. Such liability insurance policies include surplus lines insurance policies authorized under the Surplus Lines Law, ss. 626.913-626.937.

The right to contribution exists regardless of whether an insurance policy was delivered in Florida or the policy otherwise has a connection to the state. Section 624.1055 applies where liability insurers, including surplus lines insurers, have a duty to defend an insured in Florida. Therefore, foreign insurers that fail to defend their insureds in Florida can be subject to a contribution action. By creating Section 624.1055, Florida took bold action to protect not only its own residents, but any person or organization who may be forced to defend a lawsuit in the state.

To enforce contribution rights, Section 624.1055 creates a right of an insurer to “file an action for contribution in a court of competent jurisdiction.”4 Section 624.1055 applies to any claim, suit, or other action initiated on or after January 1, 2020. Section 624.1055 does not, however, apply to motor vehicle liability insurance or medical professional liability insurance.5

Section 624.1055 is another in a series of insurance reforms recently passed by the Florida Legislature and signed by Governor DeSantis.6 In situations where more than one liability insurer has a duty to defend an insured in Florida, Florida law now discourages insurers from playing the “waiting game” and neglecting their contractual obligations in the hope that another insurer will defend and relieve them of the expense. For insurers that defend their policyholders in these circumstances, there is now a reasonable mechanism to recover those costs that should have been borne by another insurer.

1 See, e.g., Carithers v. Mid-Continent Cas. Co., 782 F.3d 1240 (11th Cir. 2015).

2 Id. at 1247.

3 Argonaut Ins. Co. v. Md. Cas. Co., 373 So. 2d 960, 964 (Fla. 3d DCA 1979).

4 Fla. Stat. § 624.1055(2).

5 Fla. Stat. § 624.1055(5).

6 See, e.g., John David Dickenson & Chad A. Pasternack, Florida’s “Assignment of Benefits” Bill: A Guide Through the New Statutory Framework.

The Best Insurance Lawyers Study Insurance Practices and Not Just Insurance Law

Chip Merlin | Property Insurance Coverage Law Blog | June 21, 2019

The best insurance lawyers are students of the insurance industry rather than just students of insurance law. I learned this truth from insurance claims expert Gary Fye and the late Eugene Anderson. Let me paraphrase what Anderson used to tell me, ‘for the same reason doctors don’t learn medicine by reading medical malpractice case law, judges and lawyers wanting to understand insurance should not expect to learn insurance by reading insurance case law.’Amen.

So, why do so many lawyers profess to be alleged specialists in insurance law after a few years of law practice or doing some cases in a particular field of insurance? Probably because their potential clients do not know that the best insurance lawyers study at least as much about insurance operations, claims practices and what the insurance companies are teaching their own insurance adjusters as they do insurance case law.

Most newer law firms no longer have a law firm library because all the case law is available on the internet. The best insurance law firms have an extensive repository of insurance industry reference materials and books so their attorneys can access and use those in cases. At the Merlin Law Group, we not only have that library, but a law librarian whose job it is to help us track down reference materials to help us destroy the creative but clearly wrong arguments that the insurance defense attorneys make to win their cases.

I do not want to be one of those leaders in my law firm and a speaker to others that “do as I say, not as I do.” I gave a unique speech at the Florida Association of Public Insurance Adjusters Spring Conference about “the why” being a public adjuster is so important to policyholders and the public. One topic I mentioned was the inherent requirement to be the best you can be for the people you are serving. I stressed the importance of learning and obtaining certificates showing the world the credentials of one’s depth of knowledge as a commitment to one’s self, clients, and the public.

So, I am signed up with The Institutes (link) to obtain an Associate in Claims Designation with a Property Insurance Track. After I finish that, I will start on another designation through The Institutes and hopefully end up with a CPCU Designation. Here is what the first of numerous courses to get the AIC Designation—the AIC 30—teaches:

AIC 30 Segment A Topics:

  • The claim function and professional ethics
  • The claim handling process
  • Setting case reserves and investigating claims

AIC 30 Segment B Topics:

  • Documenting claims
  • Communicating effectively
  • Dealing with fraud

AIC 30 Segment C Topics:

  • Negotiating claims
  • Litigating claims
  • Good faith claim handling

Policyholders wanting to hire the best insurance lawyers should look for lawyers dedicated to knowing not just insurance law, but insurance lore and practice which can actually change insurance law and win cases otherwise unwinnable. For me, I owe it to my clients, other lawyers in my firm, and to anybody else I am trying to teach, to be the best insurance law attorney I can and that is why I try to improve everyday—and God knows it is not easy for an old dog like me to learn new tricks!

Insurance Policies: Where Is the Proper Balance Between Limitation of Liability and Adherence to Public Policy

Cheryl Shoun | Nexsen Pruet | June 11, 2019

It is well established that policies of insurance are contracts, subject to basic contract law. While parties are generally permitted to contract as they wish, such privilege is not absolute in the context of insurance; required coverage may not be omitted. Rather, statutory obligations relating to insurance contracts become part of an insurance agreement. Thus, while insurers may generally limit their liability and impose conditions on their coverage obligations, they may not contravene public policy or statutory inhibition. Not surprisingly, legitimate questions abound from the efforts to balance contractual freedom and adherence to public policy. Where are the boundaries? The South Carolina Court of Appeals recently examined an insurer’s limitation of liability against the backdrop of public policy, while contrasting an earlier and somewhat similar limitation. Nationwide Mutual Fire Insurance Company v. Sharmin Christine Walls, et al, 2019 WL 2363539 (June 5, 2019).

Sharmin Walls (Walls), along with two others were passengers in a vehicle she owned that was being driven by Korey Mayfield. A state trooper attempted to stop the vehicle for speeding. Despite the requests of Walls and the other passengers to stop the car, Mayfield instead led the police on a high speed chase, ultimately leaving the highway and heading down a residential road. The officer abandoned the pursuit, following which Mayfield lost control of the car and crashed, killing one passenger and catastrophically injuring the other two, including Walls. Mayfield was charged with and pled guilty to reckless homicide, which is a felony.

Walls was a named insured in a policy issued by Nationwide that provided liability coverage of $100,000 per person and $300.000 per accident. The policy contained an exclusion, providing that the coverage did not apply to any amount above minimum limits required by the South Carolina Motor Vehicle Financial Responsibility Act to bodily injury or properly damage caused by the insured, the insured’s relative or anyone else operating the insured auto while committing a felony or while fleeing a law enforcement officer. 

Nationwide instituted a declaratory judgment action seeking the court’s determination that because Mayfield was fleeing law enforcement at the time of the loss, and pled guilty to a felony, its liability was limited to the statutory limits, to the exclusion of the additional, optional coverage. The trial court concluded that while Mayfield’s conduct fell squarely within the policy’s exclusions, the exclusions were unenforceable because Nationwide failed to inform Walls of the exclusions or conspicuously place them on the policy, the exclusions were ambiguous and they violated the public policy of protecting innocent insureds, specifically the three passengers. The case came before the court on Nationwide’s appeal. In its review of Walls, the court examined and contrasted it to Williams v. Gov’t Emp. Ins. Co.[1] wherein a family “step-down” provision was found violative of South Carolina law.      

In Williams, a husband and wife were riding in a car insured under both their names at the time of a fatal accident. A dispute arose when the estates argued the proper coverage was $100,000, as shown on the policy declaration page, but GEICO asserted its liability was limited to the statutory minimum based upon a family “step-down” provision. The “step-down” policy provided, in part, GEICO’s responsibility under the policy would be reduced to the statutory minimum when an injured party was a family member of the insured. The trial court found the step-down was enforceable as it provided at least the statutory minimum coverage. Upon appeal by the estates, the South Carolina Supreme Court reversed. Noting SC Code §§38-77-142(A) and (B) require a policy insure the named insureds and permissive users against liability for negligence incurred ‘within the coverage of the policy,’ the court found that phrase to equate to the face amount of coverage shown on the policy – not the minimum statutory coverage. The court went on to find the GEICO policy also violated SC Code Section 38-77-142(C), as it appeared on its face to provide $100,000 in coverage to its insureds, including the named insured and family members, but reduced that to the minimum limits under the family step-down provision. Because the family step-down conflicted with the amount of coverage shown on the declarations page, the provision was found invalid.

In contrast, Nationwide’s exclusions were only triggered when an insured sought coverage for injuries sustained in the context of certain acts, such as fleeing law enforcement. The exclusions were based on the conduct of the driver, not the injured party’s relationship to the insured. In short, Nationwide’s coverage remained intact if the injury did not result from foreseeably dangerous conduct the insured could reasonably avoid. The court concluded that an insurer may impose reasonable limitations on coverage above the statutory minimum as long as the mandatory coverage limits are satisfied. In other words, an insurer may exclude coverage above the minimum limit against conduct inherently more dangerous than what is anticipated in the regular operation of a vehicle. 

Finally, the court found no support for the position that the exclusions of the Nationwide policy were arbitrary and capricious, as they were based upon the conduct of the driver. Because the exclusions act to discourage dangerous behavior all the while preserving coverage for innocent victims they are not violative of public policy. The interest in protecting innocent passengers of a vehicle evading law enforcement is balanced by the mandatory insurance coverage. 

It is not difficult to draw a distinction between the exclusions at issue, e.g. those in Williamsare based only upon a family relationship while in Walls the exclusions are based upon dangerous conduct of the driver. Nonetheless, this case raises interesting issues. In Williamsand Walls, the policies set forth conditions pursuant to which the required coverages differed from those shown in the declarations page. Such difference was determined to be dispositive in Williams, but not in Walls. Additionally, Walls may, in fact, act to violate the public policy of protecting the innocent. The three passengers in Walls were clearly innocent; they were placed in the path of deadly harm at the hand of a driver who made the unilateral decision to flee law enforcement and thereby commit a felony. As the recitation of facts establishes, the passengers, including Walls, instructed Mayfield to pull over and he instead accelerated.

Literal application of Nationwide’s exclusions to a more overarching scenario suggests the result would be the same if Mayfield had taken and used Walls’ vehicle without her permission or knowledge and injured others. Such situation would result in harm to those injured as well as to Walls who would face personal exposure for Mayfield’s act. Again, the exclusions affect harm to the innocent. 

It seems the freedom of parties to contract within statutory requirements is not an impossible accomplishment, but the exclusions of the Nationwide policy at issue appear to lack necessary refinement.


[1] 762 S.E.2d 705 (2014).