A plenary session at the ICLC Annual Meeting on February 28 was entitled “Confronting Catastrophe: Pandemics, Hurricanes, Terrorists – Oh My!” The program noted that “The extreme ruin caused by Hurricane Katrina would pale in comparison to a nationwide calamity, such as a flu pandemic. This audience interactive session will leverage the advice of experts, including professionals who endured Hurricane Katrina and its aftermath, to explore the role of the legal profession in confronting catastrophes.”
The panel presenting the program consisted of James M. Davis of Reed Smith LLP (Moderator); Dominica C. Anderson of Duane Morris LLP; Nancy Brechtel of Abbot, Simses & Kuchler, APLC; Sara Lunsford of Continuum Recovery; and Scot W. Ferrell of Marsh Risk & Insurance Services. The program was accompanied by a paper written by James M. Davis and Noel C. Paul, entitled, “Compensating Victims Of Catastrophe: Reforming The Insurance Industry, The Tort System, And Government.”
The authors of the paper assert, “After Katrina, the insurance industry refused, often in bad faith, to cover the property losses of thousands of families and businesses who reasonably expected coverage.” They maintain that “the US insurance industry is clearly incapable of providing adequate security to US residents in the event of a catastrophe either because they do not sell the right products, they do not stand behind their products, or people will not buy the products.” They state that to cope with a national catastrophe, several reforms are required.
The authors argue for the repeal of the anti-trust exemption essentially granted to the insurance industry by the McCarren-Ferguson Act of 1945. As insurers are able to share data as to claims and losses and join together in underwriting and reinsuring certain risks, there is a “culture of collective action [that] encourages uniform decision-making.” The authors aver that this has led to a collective decision not to underwrite property insurance in the Gulf Coast and that a competitive, diverse marketplace will provide some incentive to insure such risks.
The authors propose that “the federal government should require that insurers no longer deny insurance to homeowners in disaster-prone areas, and courts must see that insurers cease from denying coverage that policyholders reasonably expect to protect them in the event of risk.” As an incentive to insurers, they call for state and federal governments to provide “backstop” reinsurance. They suggest that the federal backstop scheme used in the Terrorism Risk Insurance Act could be used as a model for other catastrophic funding. The authors further urge that a national disaster compensation fund be established for victims of catastrophes.