Industry warned over ‘flood’ of Sandy litigation
The steady stream of legal suits that followed Superstorm Sandy may soon turn into a flood, according to the leading US insurance attorney Dennis Wade.
Speaking in London last week, Wade, a founding partner at Wade Clark Mulcahy, warned (re)insurers to steel themselves for many more claims from the brutal October 2012 event, which is estimated to have cost the industry circa $20bn.
"The bad news is the claims are just beginning," Wade said. "The flood of litigation really has not hit the US courts," he continued, adding that he expected cases arising from flood damage to emerge over the coming months and years.
The New York-based attorney also said (re)insurers should examine lessons from the storm, which struck the city on 29 October. He suggested policy writers in London should follow the US example and consider excluding flood damage and cover for power outages in all-risk policies.
He said the majority of all-risk policies in New York now contain exclusions for losses caused directly or indirectly by water damage and pointed to a number of precedents set by US courts.
These dictate that a flood exclusion holds even when water damage is caused by wind or a burst flood wall.
But Wade added that however clear and unambiguous a policy wording was, policyholders were going to challenge the exclusion.
"There's too much exposure in too few locations," he said, while commenting on what insurers could learn from Sandy. He said insurers got too comfortable about Manhattan and did not give enough consideration to the aggregation of risk in areas such as the Chelsea art district.
He said cases arising from art losses were exacerbated because paperwork, which was by and large stored in basements, was destroyed by the floods.
Wade called settling losses involving consignment agreements from memory a "nightmare scenario".
In the fine art world, Wade said too much was given away for too little premium, and advised insurers to collectively charge more to cover their risks.