Come Hell or High Water - It Can Happen To YOU (Or Worse – Your Client) Lease Clauses and Insurance Claims in the Wake of Large Catastrophes Session Leader: Elwood F. Cahill, Sher Garner Cahill Richter Klein & Hilbert LLC, New Orleans, LA Team Members: Neil Kahn, Goodman-Gable-Gould Company/Adjusters International, Baltimore, MD Rocco Sansone, Marsh USA, Honolulu, HI Session Coordinator: R. Marshall Grodner, McGlinchey Stafford PLLC, Baton Rouge, LA 2014 SPRING MEETING - Kauai, Hawaii

2 Elwood Cahill, Jr. Sher Garner Cahill Richter Klein & Hilbert LLC Welcome and Introductions

3 Natural Disasters In the U.S.: Historical Overview Rocco Sansone Marsh, USA

4 Natural Disasters in the United States, 1980 – 2012 Number of Events (Annual Totals 1980 – 2012) Number Geophysical (earthquake, tsunami, volcanic activity) Climatological (temperature extremes, drought, wildfire) Meteorological (storm) Hydrological (flood, mass movement) Source: MR NatCatSERVICE There were 184 natural disaster events in the US in 2012 Information courtesy of the Insurance Information Institute

5 Losses Due to Natural Disasters in the U.S., 1980–2012 (Overall and Insured Losses) Overall losses (in 2012 values) Insured losses (in 2012 values). Source: MR NatCatSERVICE (2012 Dollars, $ Billions) 2012 was the 2 nd or 3 rd most expensive year on record for insured catastrophe losses in the US. Approximately 57% of the overall cost of catastrophes in the US was covered by insurance in Losses Overall : $101.1B Insured: $57.9B Information courtesy of the Insurance Information Institute

6 U.S. Insured Catastrophe Losses *As of 1/2/13. Includes $20B gross loss estimate for Hurricane Sandy. Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute. US CAT Losses in 2012 Will Likely Become the 2 nd or 3 rd Highest in US History on An Inflation- Adjusted Basis (Pvt Insured) Losses Were the 5 th Highest 2012 CAT losses were down nearly 50% from 2011 until Sandy struck in late October Record Tornado Losses Caused 2011 CAT Losses to Surge ($ Billions, 2012 Dollars) Information courtesy of the Insurance Information Institute

7 Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1990– Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2009 dollars. 2.Excludes snow. 3.Does not include NFIP flood losses 4.Includes wildland fires 5.Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation. Source: ISO’s Property Claim Services Unit. Hurricanes and Tropical Storms, $161.3 Fires (4), $6.0 Tornadoes (2), $130.2 Winter Storms, $28.2 Terrorism, $24.4 Geological Events, $18.2 Wind/Hail/Flood (3), $14.8 Other (5), $1.4 Wind losses are by far cause the most catastrophe losses, even if hurricanes/TS are excluded. Tornado share of CAT losses is rising Insured cat losses from totaled $384.3B, an average of $19.2B per year or $1.6B per month Information courtesy of the Insurance Information Institute

8 Neil C. Kahn Goodman-Gable-Gould/Adjusters International Lease Clauses & Claim Issues

9 Hurricane Katrina

10 Hurricane Sandy

11 Pre-Sandy

12 Post-Sandy

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19 Flood Insurance—Not All It Seems To Be NFIP v. Excess Coverage (private) Flood Maps RCV v. ACV Deductibles—Percentage of TIV (5% of $20M TIV = $1M Deductible) Excluded Property—e.g. Basements, Outdoor Property $$ limits--$500k/$250K No BI Coverage in NFIP

20 Flood Insurance Key Lesson—Obtaining Just “Flood” Coverage Per Se, Often Results in Little or No Coverage at All.

21 BI—Time element BI 101 Period of Indemnity – Lease Timing of Notice and Repairs Contingent BI Extended Coverage — Extends Period of Indemnity Key Lesson: Think Through (Business Interruption) What Ifs and Worst Case Scenarios

22 Code Coverage Law and Ordinance—CRUCIAL Partial v. Total Damage – Total Loss Can Be Triggered by % Damage Threshold — Building Codes Often Dictate Future Building Codes/Restrictions – No Systems Below Grade (NYC) Key Lesson: What Will Project Require to Restore Post-Casualty?

23 Leases Specific Lease Clauses—Need to be INTERNALLY Consistent (Focus on ALL Clauses NOT Just Casualty Clause) – Repair and Maintenance Clause – Alterations Clause – Insurance Clause – Casualty Clause Insurance Policy – Needs to be EXTERNALLY Consistent with Lease in Terms of Coverage

24 Leases (continued) Key Lesson: Lease Clauses Clearly Allocate Rights and Obligations of the Parties Consistent with Each Parties’ Required Insurance Coverage

25 Claims 101 in 101 seconds Separate coverage’s Replacement Cost Value (RCV) v. Actual Cost Value (ACV) Insured obligation to establish claim/damage Control the process by submitting one’s own estimate/claim Do not rely solely on the carrier’s adjusters and experts Co-insurance Anti-Concurrent Causation

26 Claims 101 in 101 seconds Key Lesson: Knowledge is Power – a Little Goes a Long Way

27 Public Adjusters Licensing—44 States + DC Role—Measure, Document, Present, Negotiate—QB the Process Interface with Counsel – Damage Expert Fee is Typically % of Recovery