by Robert Ambrogi - Editor
BullsEye Newsletter: September 2005
As insurers and legal professionals begin to sift
through damage claims in the wake of Hurricane Katrina, the demand
for experts in key areas is likely to be unprecedented. The sheer
volume of cases could quickly drain the pool of qualified experts,
leaving lawyers in the lurch.
No one yet knows the full extent of Katrina's damage or of the
litigation that may ensue in its wake. Losses from Katrina could
exceed $100 billion, with insurers facing anywhere from $25 billion
to $60 billion of that tab.
"Even if only 1 percent of the claims results in litigation, that will
be a lot of litigation," says David Stratton, partner with the Washington,
D.C., defense firm Jordan, Coyne & Savits. With such high demand for experts,
lawyers may find it difficult to retain the ones they need, he believes. 
While news reports vividly portray Katrina's
physical devastation, some insurance litigators say that perhaps
the greatest need for expert testimony will come not in assessing
property damage, but in evaluating business losses.
Whether litigated or arbitrated, business interruption disputes
depend heavily on the testimony of experts, says John H. Mathias
Jr., partner with Jenner & Block in Chicago and chair of
its Insurance Litigation and Counseling Practice. They require
accounting experts to assess economic losses as well as experts
to evaluate loss or damage to structures and property.
Lewis
E. Hassett, partner in the Atlanta office of Morris, Manning &
Martin and chair of its insurance/reinsurance dispute resolution
group, agrees that issues surrounding business interruption coverage
will result in a need for experts in forensic accounting. "Many
of these claims will be at the limits of their coverage. I can
see fights over finances. What was the value of the company,
what was the company doing financially?"
Another area likely to require extensive use of experts is property
valuation, says Kenneth A. Kroot, a litigation partner with
Jenner & Block who represented the city of Chicago in numerous
class action and individual cases arising out of the great Chicago
flood of 1992. As part of the valuation of the overall business,
real estate appraisers will be required to assess the worth of
its property, he explains.
"You will need appraisal experts, to appraise the value of property," Kroot
says. "Also, you would need private adjusters to adjust losses and other
consulting experts to prepare proofs of loss."
Wind or Water?
Likely to be less of an issue for businesses than
for homeowners is causation – the question of wind versus
water—because commercial policies are more likely to include
flood coverage.
Standard homeowners' policies cover damage caused by storms but
not floods. One estimate said that only a quarter of houses in
poor areas hit by Hurricane Katrina had flood insurance.
Still, John Matthias says he can foresee a number of circumstances
in which the question may arise of whether the loss was caused
by wind or by flood. In those cases, expert testimony will be
required.
"Insurance companies tend to argue that if the damage is
from the bottom up, it is flooding, if from the top down, it
is storm."
As Lewis Hassett observes, "After 9/11, insurers said they
would not raise the terrorism exclusion. I have not heard insurers
say they will not raise the flood exclusion."
Questions of causation may also require the testimony of "storm
trackers" and other meteorological experts, believes Tiffany
L. Powers, a lawyer in the Atlanta office of Alston & Bird
who concentrates her practice in insurance coverage disputes.
They can help sort through the confusion caused by concurrent
possible causes of loss.
"The issue," she says, "turns on whether the damage to a home
or a business was caused by flooding, which likely is not covered, or by windstorm,
which is covered." A meteorological expert may be able to pinpoint the
precise weather conditions at a specific time and location and help determine
whether wind or flooding was the more likely cause.
But causation issues may extend beyond the question of storm
or flood, says Matthias. Damage to buildings may be linked to
pre-existing structural deficiencies or to outside forces such
as vandalism. Mold in buildings may have been there before any
flooding. Experts such as structural engineers can help sort
through such questions.
"What of damages resulting from the levee break?" Matthias speculates. "What's
the chain of causation there?" Expert testimony could help determine the
answer.
Other Areas of Expertise
There are so many complex layers to this disaster,
says Lewis Hassett, that it is difficult to foresee all the claims
that may eventually arise or the areas of expertise that will
be required. For example, he could foresee claims against businesses
arising from toxic materials that leaked into the New Orleans
floodwaters.
"A plaintiff may say, 'I've developed this cancer because I was exposed
to chemicals A, B and C.' That would result in a fight over causation that
would require experts," Hassett explains.
Another area of high demand for experts will be in insurance
industry matters, particularly if litigation arises between insurers
and their reinsurers. "Insurance experts may be required
to testify on custom and usage within the industry," says
Kenneth Kroot.
Lewis Hassett agrees, noting that reinsurers may seek to demonstrate
that the claim paid by the primary insurer was ex gratia, in
which case the reinsurer would not be bound by it.
In the end, John Mathias predicts, the greatest demand for expert
testimony will come in three core areas: business interruption,
property valuation and loss causation. In the wake of what is
being called the nation's worst natural disaster, whether there
will be sufficient experts to meet the demand remains to be seen.
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