In this chapter of our Annual Insurance Review 2018, we look at the main developments in 2017 and expected issues in 2018 in the US.
Key developments in 2017
Parts of California were devastated in 2017 by some of the largest wildfires ever recorded in the state.
Wildfires in northern California in October caused $9.4bn in insurance claims, according to the state insurance commissioner. And when losses from wildfires in southern California are added in, total insured losses from natural disasters in 2017 could reach a record high.
This has led to a variety of first- and third party claims stemming from vast property losses and personal injury.
What to look out for in 2018
With claims for losses caused by the wildfires set to continue in 2018, insurers will need to be aware of the following practical considerations when handling California wildfire claims.
Wildfire claims can touch on any of: first-party coverage issues; subrogation; and other third party claims for everything ranging from personal injury to wrongful death, property damage, product liability, statutory claims, allegations of constitutional takings, and professional negligence claims against brokers and agents regarding the policies they procured.
Such claims also implicate governmental rights to seek reimbursement for public funds spent on responding to wildfires. Both the state and federal governments have the right to seek recovery of fire related costs. The California Health and Safety Code allows the state government to seek recovery for the costs of fire suppression and investigation, as well as administrative expenses, associated with any fire caused by negligence or a violation of law. Likewise, the federal government is permitted to seek reimbursement under these statutes and/or under the common law for claims against private parties.
With regard to coverage issues, fire insurance policies in California are governed by the Insurance Code.Insurers must use a standard form for such policies, which provides coverage for, among other things, all loss caused by fire or lightning. These and other statutory requirements bind insurers, even if the policy provides otherwise.
Insurance policies must be interpreted broadly to afford the insured the greatest possible protection,while a policy’s exclusions must be interpreted narrowly against the insurer. All policy exclusions must be conspicuous, plain and clear.
Issues of causation for fire-related claims are governed by the efficient proximate cause doctrine. The doctrine provides that, when there were contributing, non-covered causes for a fire-related loss, insurers must cover the entire claim if a covered loss was a proximate, rather than a remote, cause.
Finally, the amount of indemnity owed under the policy depends on whether it is a valued policy (in which the value of the subject matter of the policy is agreed on ahead of time) or an open policy (in which no value is set). Under a valued policy, the insurer owes the amount necessary to repair or replace the structure or items up to the set amount. Under an open policy, the insurer owes the fair market value or limit of insurance for a total loss (whichever is less), or the cost of repair for a partial loss.
Third-party claims can include personal injury and wrongful death allegations, and attendant non-economic damages claims that are not capped by any law in California. These cases require the strategic evaluation of jury pools, the scope and prognosis of bodily injuries, and other issues impacting the client’s possible exposure on these potentially sweeping claims.
Third-party claims can also include allegations of professional negligence against insurance brokers and agents, asserting that proper coverage was not obtained. Unlike first-party claims against carriers, these claims benefit from a more defence-friendly general rule that “an insurance agent does not have a duty to volunteer to an insured that the latter should procure additional or different insurance coverage.” Such claims also benefit from a shorter and stricter statute of limitations than those applicable to first-party claims.
With thanks to WSHB for contributing this article.
Download our full Annual Insurance Review 2018 for more insights.