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Wind vs. Water: Learn From What Risks you Should be Protected
Homeowners and business owners have suffered extensive losses from unexpected deadly storms, creating myriad challenges for adjusters. One of the first tasks concerns the prioritization of claims. Adjusters typically handle the hardest hit areas first and then proceed to the lesser damaged areas. One common approach is to provide initial estimates for homes with severe damage (trees destroying roofs, flooded basements, major fires) within 24 to 72 hours of the loss.
Another challenge with hurricane losses concerns the wind-versus-water debate, with wind being a covered peril under the homeowners policy and flood being an excluded peril. Flood insurance through the National Flood Insurance Program covers flood losses. With a large number of homeowners in the affected states passing on flood insurance, the cause of loss becomes a critical issue. (For example, only 1 percent of the residences in New York City are insured for flood, and only 41 percent of the residences in hard-hit Atlantic City, New Jersey, are insured for flood.)
Another ongoing claim issue concerns various building and ordinance requirements on building components such as roofs, electrical, plumbing, and heating, ventilation, and air-conditioning. Many homeowners policies in certain affected areas provide only 10 percent of the dwelling limit for such upgrades, a figure that is woefully inadequate for many victims. Adjusters will need effective communication skills with insureds who are underinsured in this area.
Clearly, there will be many adjusting challenges arising after a big storm hits. Fortunately, insurers have the capital to indemnify policyholders and have the opportunity to showcase their talents and the importance of their product.
Adjusters need to be well trained concerning the complexities that can arise when the flood peril is mixed with other causes of loss. Questions about what constitutes the wind portion and what constitutes the water or flood portion of a hurricane loss have resulted in extensive litigation. For partial losses, the issue is usually fairly straightforward. When a home or a portion of a home is still standing, there will be a mark — a “water line” — showing on the walls. Many courts have ruled that any damage below that line is from flood and is not covered by the standard HO 3, and any damage above that line is from wind and is covered by the HO 3.
A problem arises in the event of a total loss. When nothing is left of a home, the question then becomes what damage was caused by wind and what was caused by flood?