In E&O Suits Filed Post-Sandy, The State Could Determine Who Wins
Brokers may be caught in a wave of lawsuits — and errors and omissions claims — in the wake of Hurricane Sandy, but that won't mean they would prevail in court, attorneys said.
"The question isn't whether there will be lawsuits against brokers, the question is whether they will be successful or not," said attorney
Still, cases will face different standards depending on what state they are filed in — highlighted by a
Three months after Sandy devastated the Northeast, insurance claims are still being settled. Policyholders who are unhappy with the amount they received from their insurers are beginning to file lawsuits against their insurer or broker, or both.
"When people have large losses, they will look for ways to recover them," said
Potential claims include disputes over whether or not the broker delivered adequate flood insurance.
Catastrophe-modeling firm RMS estimates total insured losses from the October storm could reach as high as
In one of the first Sandy lawsuits,
Other potential post-Sandy claims include whether damage caused by the storm was due to wind or flood — usually an excluded peril — or if the event should be considered one insured loss or two.
Any type of major catastrophe will trigger lawsuits against agents, said
But the association, which also sells E&O policies to agents, said it hasn't seen an influx of E&O claims emerge yet.
One of the carriers the PIA represents has close to 200 policyholders in
Even if brokers prevail in a court case, defending the case can be costly for insurers, he said. "It's not a highly profitable line," LaLonde said of the broker E&O business. "It's a limited marketplace."
Attorneys are already on the prowl for clients. The PIA has filed a formal complaint against the law firm Jacoby & Meyers over its advertisement: "If your business lost business due to the storm, your insurance policy should cover it. If it doesn't, your agent made an error. We'll work to correct it."
"The approach is if you haven't been paid, your agent did something wrong, which is not necessarily the case," LaLonde said.
Under old case law in
"It was fairly well accepted that a failure to read a policy by an insured would bar recovery from a broker for failing to obtain or advise a client if there was no flood insurance," Ciaccio said, adding that "looking at an insurance policy can make your eyes glaze over."
"It will absolutely encourage more lawsuits in the wake of Sandy," Ciaccio said.
In the Northeast, just 14% of people surveyed by the
"Most policies don't have flood insurance. That's black and white. If flood insurance is not there, the question becomes: Did people ask for it? Then it becomes 'he said-she said'," Ciaccio said.
One potential silver lining in the aftermath of Sandy is there could be a boost in sales of flood insurance going forward. Flood insurance sales rose 5% from 2011 to 2012 in the Northeast after the wake of severe flooding from Hurricane Irene in 2011, the III said.
"People may become more aware of the value of insurance," said Kamaiko. "Sometimes the premium you didn't want to pay before an event occurs becomes well worth it after an event."
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