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Hurricane Sandy

October 30, 2012

We have all seen the damage wreaked by this Super Storm.  Models are predicting that the damage will be anywhere from 5 billion to 10 billion depending on the course the storm takes.  Though small in comparison to Katrina, which wreaked 45 billion in damage in and around New Orleans in 2005, this is still a massive hit to the east coast and to the insurance industry.

What has made matters worse is the storm arrived during a full moon (with higher than normal tides) so there is a lot of water loss.  And because damage caused by surging storm water generally isn’t covered by a homeowner’s or renter’s insurance policy, I suspect it is going to get ugly.

Why?  Because there will be lots of arguing about cause of loss.  Flood or wind?  Wind is covered in a standard homeowner policy, which is good, even though there is usally a large deductible.   However, most homeowners do not carry flood insurance– and even if they do, coverage is capped at $250,000 for the home and $100,000 for contents.  

Insureds in some Katrina cases argued that because “storm surge” (wind-driven waves) was not specifically mentioned in flood exclusion language, the flood exclusion was ambiguous, so there should be coverage for the flooding in New Orleans.  The courts rejected this argument in Lousianna, but I’m sure the decision will be revisited in New York.  Stay tuned.

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