James M. Davis now with Reed Smith LLP presented a paper he wrote with Noel C. Paul at the Feb. 28 Session at the ABA Insurance Coverage Litigation Committee Meeting in Tucson. The paper is titled, ”Compensating Victims of Catastrophes: Reforming the Insurance Industry, the Tort System and the Government.”

Davis and Paul's paper stated that neither the insurance industry, the courts, nor the government currently have fulfilled the promise of making whole individuals and businesses that have suffered the effects of a disaster. As policyholders dispute insurance coverage denials in court, policyholders are suffering Katrina’s “second wave:” joblessness, itineracy and mortgage payments for homes that no longer exist or are uninhabitable.

 

While earthquakes, hurricanes and even acts of terrorism are localized catastrophes that have shaken but not broken our institutions, disasters of a national scope such as an avian flu pandemic would stress our institutions to the breaking point. In order to better respond to regional disasters, and adequately cope with a national catastrophe, the paper argues that several reforms are required, including:

 

·         Anti-trust regulation of the insurance industry;

·         Establishment by Congress of a National Disaster Court with sole jurisdiction over disaster-related civil suits; and

·         Establishment by Congress of a national compensation fund for disasters that meet particular criteria.

 

Messrs. Davis and Paul opined that the McCarran-Ferguson Act “essentially enables insurers to legally collude in creating and pricing their products,” such as by sharing historical data regarding claims and losses and joining together in underwriting and reinsuring certain risks. The paper argues that insurers should be required “to provide adequate coverage” and ought to be viewed in the same context as public utilities as insurance is at the core of society. The federal government, therefore, should require that insurers underwrite property insurance in cities and regions most at risk to calamity. The paper also asks more of the federal government. It asks for similar reinsurance programs to the Terrorism Risk Insurance Act to provide protection against disasters such as hurricanes and earthquakes.

 

Davis and Paul further point to calls for reforms of procedural and administrative complexities that have hampered mass tort litigation and would pose even significantly greater obstacles to compensating victims in disasters of very massive catastrophes.