Insurers To Be Reimbursed for Cerro Grande Fire Claims

The federal government is working to reimburse insurance companies for all claims they paid to their customers for damage caused by the Cerro Grande fires in New Mexico last year. Payments are expected to begin in January 2002.

The Federal Emergency Management Agency (FEMA) told insurers at a meeting in Santa Fe, N.M., that FEMA has closed 12,000 claims by individual fire victims and obligated $200 million of the $455 million Congress appropriated for that purpose. Attending the meeting were representatives of several insurance companies and the National Association of Independent Insurers (NAII), which worked closely with U.S. Sen. Pete Domenici (R-N.M.) and others in Congress to enact the law to compensate the fire victims.

The fires near Los Alamos were set by the National Park Service as a controlled burn in May 2000, but they ran out of control and burned 50,000 acres and 220 structures, leaving more than 400 families homeless.

Congress appropriated a total of $661 million in response to the fires–$455 million for individual fire victims and their insurers; $45 million for the Office of Cerro Grande Fire Claims to administer the reimbursement program; $138 million to the Department of Energy for damage to the Los Alamos National Laboratory; $10 million for farm agency services; $4 million for damages on Indian reservations; and $4 million for watershed remedial work. Insurers had an estimated loss exposure of $180 million, plus $20 million in administrative expenses incurred by special offices set up to handle claims.

The special federal act specified that individual injured persons “to the maximum extent practicable” be paid before insurers are reimbursed for claims paid to their policyholders. FEMA anticipates it will have received and paid 85 percent of the value of individual claims by the end of the year, enabling it to begin paying insurance subrogation claims starting in January.

Although FEMA originally anticipated receiving 1,200-1,400 fire claims, more than 16,000 claims were received by late July. The breakdown of claims paid so far is: $93.9 million to individuals, $32.8 million to state and local government entities, $23.2 million to businesses, $20.6 million to Indian tribal governments, $18.8 million in mitigation funds to communities and individuals, and $155,000 to not-for-profit organizations.

FEMA noted that northern New Mexico is now in its late-summer, early-fall rainy season that could cause additional flooding in the burn area. One flood in Los Alamos on July 2 led to 25 new claims. If fire-related flooding recurs, the $455 million now available may be insufficient, in which case the New Mexico congressional delegation will be notified immediately, FEMA said.

At the recent meeting with insurers in Santa Fe, FEMA said it would consider, on a case-by-case basis, paying more than insurance policy limits for claims insurers paid prior to Oct. 25, 2000. FEMA said it would not pay higher limits for claims paid after that date.

Insurers may reopen closed claims if they subsequently are obligated to pay more. FEMA also said the question of whether insurers are to reimbursed for their overhead emergency staff is separate from the subrogation of claims and probably will have to be settled in arbitration after insurers file a separate business loss claim with FEMA.

Topics Carriers Claims Mexico New Mexico