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!

Top 10 Rules to be a Successful Lawyer

James Gray Robinson | ABA Journal | June 20, 2019

A third-generation trial attorney, I have spent a majority of my life either working as a lawyer or hearing about it at the dinner table growing up. I was a trial attorney in North Carolina for nearly 27 years and retired in 2004 to go into consulting. I moved to Oregon in 2016 and decided to take the Oregon state bar exam because I had an in-house counsel job offer that required a law license.

Once I passed the bar exam and got my law license, the job did not materialize. I decided to continue consulting with a focus on lawyers. After all, lawyers seem to have many unique skill sets and problems that only lawyers can appreciate. As I prepared for the exam, I began to reflect deeply on my years spent as a family law attorney and as a business consultant working with lawyers and law firms.

In hindsight, many past challenges and issues I experienced became very clear. We are here to live life and be as successful as we can possibly be. I have collected some thoughts about practicing law—and life in general—that can help lawyers to be successful, whether they are young or old.

1. Do not be a prisoner of your past. What happened in your life is a lesson, not a life sentence. We are our own jailors, and our minds are the key. You do not have to obsess over events that were painful or not what you wanted. You are not a victim, so don’t act like one. True leaders and winners accept what has happened and move on. However, we do have to learn and not repeat behavior that produces unpleasant results. This may be more important for older lawyers, as they would have more past experiences than a younger lawyer.

2. What comes out of your mouth is more important that what goes in it; however, you are what you eat. This can become a vicious cycle because when we eat or drink things that aren’t healthy, it makes us feel depressed, stressed or angry. We can say things we will regret when we feel terrible. So, if you are eating unhealthy foods or drinking too much, you will feel bad, which makes you say negative things, which makes you feel worse. So you will eat and drink more—and on and on. Alternatively, if you are depressed, stressed or angry because of your circumstances, eating unhealthy foods and drinking too much will make you feel worse, which makes you behave poorly and the cycle repeats.

James Gray Robinson

James Gray Robinson.

3. People will admire you more for your health and happiness than your bank account. Think about it; who are the people you admire most? What is the object of this game called life? Is it to die with the most toys or the most friends? Wealth and possessions are addictive; you will never have enough. If you are healthy and happy, wealth will naturally come to you in whatever form you choose. Wealth is relative when you are healthy and happy. Wealth will not be enough if you aren’t healthy and happy. True wealth is in your heart, not your bank account.

4. Take 10 minutes each day to not think but just breathe.One of the most common complaints among lawyers has to do with overthinking. Everything. We are trained to analyze, anticipate and avoid problems. The problem is we love to think, and that is not always good for us 24-7. Take 10 minutes every day and focus on your breathing. It will make you feel much better and give your brain a reboot.

5. Lawyers are admired more for their honesty (and/or humanity) than winning. We all know those lawyers who are aggressive, confrontational, disagreeable and just plain unlikeable. People may dislike dealing with them or fear them, but they are rarely admired. Think carefully when you choose how to deal with your colleagues, clients and the court. Would you rather be admired for your honesty and integrity or feared because you are a jerk?

6. You have to balance and take care of your body, your mind and your family/community. One of my senior partners once told me, “To be successful, you have to focus on your legal practice, your family and your church.” I believe that was incorrect. You have to focus on your physical body, your emotional body and your family, however you define that.

7. Nothing is more powerful than kind words. You can get your point across without being hateful. You will attract more clients with honey than bitterness. There has been a trend lately of lawyers threatening each other with ethics complaints or similar actions. This is ridiculous. Lawyers don’t have to threaten each other to make their point.

8. Embrace change. Change is good. Change is growth. Presidents and administrations change at least every eight years. Each time there is change, there is opportunity. Look for the opportunity in change. Don’t resist. If you leave a law firm or change your practice, that is a good thing! If we are struggling in our practice, it is evidence that something needs to change. Perhaps you need new partners, a new practice area or to get out of practicing law altogether. Most of the lessons we learn as lawyers are valuable in the business world and can translate to success elsewhere. Alternatively, get a new hobby.

9. If you don’t control your emotions, they will control you. Many people don’t understand how powerful their minds are and what they can do with them. When we don’t focus on positive events and thoughts, chances are we will focus on negative events and thoughts. That is what lawyers do because we focus on worst-case scenarios. It may come as a surprise, but most successful people do not focus on worst-case scenarios, they focus on the best thing that can happen.

Admittedly, if you are stressed, angry or depressed, it is difficult to focus on positive thoughts. However, it is the only way to heal whatever is causing the stress, anger or depression. As a footnote, if you are clinically depressed, best you seek medical advice. Abnormal brain chemistry may need more than positive thinking.

10. Being a lawyer is a gift. Remember we choose to be lawyers, we weren’t drafted. Many times, we feel like we are in prison or worse: hell. We are only required to do the best we can and that is always enough. If practicing law is not for you, you can do something else. If you are good at it but aren’t having fun, you need to get your mind in proper working order.

When practicing law gets dicey, that is the time you need to be grateful. It is easy to be grateful when you win the big case; it says more about your character and integrity if you can be grateful when times are rough.