Adjusting Our Focus

It was a beautiful fall morning. I had been running late that morning and then had gotten lost in the rolling hills of Northern New Jersey on the way to a meeting, but the cool breeze brushed away my concern at being late. The meeting was a conference of coverage counsel from around the country interested in evaluating where the hot spots in insurance would be in the next few years. I looked forward to a day of discussion and debate.

When I arrived, the room was filled with experienced and well-known insurance coverage lawyers and experts from around the country whose crystal balls, like mine, saw asbestos (seemingly the never ending problem) and cyber tort-like claims as the issues to evaluate and prepare for in the near and mid-term. We had barely started, however, when a frightened face peered through the door and timidly interrupted our meeting. She told us that a horrible accident had taken place just a scant few miles down the road in Manhattan. Several attendees who lived in Manhattan quickly exited to find phones and the rest of us wondered how such a horrible accident could happen. Moments later we were told that a second plane had hit the second of the two World Trade Center towers. Everyone ran from the room to find a phone or a television. Listening to the broadcast, surrounded by people concerned about their families, we had a sense that something had changed. Surrounded by a sense of tragedy, our vision became totally obscured. In sorrow and shock, surrounded by stoic but worried friends, our thoughts turned from our quotidian business concerns to friends, family, and the land that we love.

Later that afternoon, we stood on a hill and saw the smoke rise from Manhattan. The overwhelming sense of loss was profound. Two dominant landmarks had disappeared from the New York skyline with only a tower of dust and smoke remaining to mark, and shroud, the place where they had proudly stood. Even as we mourned for those lost, we considered the loss. What would this bring, what changes in our lives, our land, our industry?

The next few months revealed many tales of personal tragedy and triumph, which animated our country. Heroes were recognized, villains were identified. The insurance industry, in the face of catastrophic losses, responded well, and even heroically, to meet the immediate needs of its insureds. Several carriers immediately set up offices to help those in need. Indeed, many carriers and insurance related businesses were among the victims, losing whole offices; people whose value cannot be measured in dollars and who can never be replaced.

Over the months, most aspects of insurance practice have returned to a semblance of normalcy despite the war we are now engaged in. As we had thought, many of the issues we had gathered to discuss on that September morning are issues of great import to the industry. But there are new concerns, ones of article import, that have arisen due to the tragic and horrid events of last September. Even as carriers struggled to deal with the losses in Manhattan, new problems arose. For instance, reinsurers, horribly beaten by these catastrophic losses, inserted terrorism exclusions in many renewals that would become effective in January 2002. But many carriers, especially those who insure risks in potentially targeted areas, were precluded by regulators or statute from excluding terrorism on certain types of risks such as worker’s compensation. This left many carriers in a position of deciding whether to renew policies without cover or potentially withdrawing from the market. Congress began working on a solution, and both reinsurers and insurers worked with state regulatory bodies to resolve what appear to be intractable issues. Still, many of these issues remain unresolved.

One response to this crisis was the creation of terrorism insurance for the commercial real estate industry. As of January 1, most reinsurers had withdrawn from providing terrorism coverage. Most primary insurers followed suit on large commercial policies as they come up for renewal. Many looked to the federal government to address the issue, and the House passed a bill that would have provided, or rather lent, insurance companies money to help pay for future terror claims, but the Senate has not acted on it. Some carriers have offered terrorism coverage, but the scope of such coverage is at best a band-aid, it is by no means a final solution.

Indeed the effect on both service industries and the real estate market is profound, and new issues stemming from the attacks continue to arise. A Wall Street Journal article from last June told the story of mortgage holders on the Conde Naste building in Times Square requiring the owner to buy terrorism insurance while they battled in court over whether the insurance should be made permanent. The implications of such a requirement, when the availability of such insurance is spotty and limited, raises serious negative implications for the commercial real estate market, not just in Manhattan, but in many potentially targeted areas.

Even as I write this article, our leaders in Washington are attempting to focus and define the war on terrorism. The leaders of the insurance industry are attempting to address and focus on the myriad issues raised by the increased risks of terrorism on our own soil. How we address this crisis that affects our industry, and our nation, will say much about who we are as a people. John F. Kennedy, shortly after his election, told the Massachusetts legislature that, “courage-judgment-integrity-dedication-these are the historic qualities, . . . which with God’s help,- . . . will characterize our conduct in the stormy years that lay ahead.” As an industry, we need to meet these challenges, adjusting our focus on the problems, and employing vision, these qualities, to meet the crisis ahead.

Brian S. Martin is a partner in the Insurance and Coverage Section of the Houston office of Thompson, Coe, Cousins & Irons, L.L.P. He has extensive experience in insurance coverage and defense matters, specializing in environmental, toxic tort and products cases. Martin is a frequent author and CLE speaker on insurance topics, including coverage and bad faith issues.

Topics Catastrophe Carriers