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Insurance Coverage in the Wake of Hurricane Sandy

Anyone living in the New York Metro Area will not soon forget hurricane Sandy. Sandy may go down as the worst Atlantic storm to ever hit the eastern United States. It may ultimately also prove to be one of the most expensive, considering the most heavily populated city was greatly affected by the storm. For now we have flooded subways, damaged homes, long gas lines and looted stores. However it is the long-term effects, which may give rise to some interesting legal battles.

It is estimated that once all the damage from the storm is calculated it will have caused as much as $33 billion in losses. Much of the cost will fall on the local and federal governments in the form of infrastructure repairs. However, many businesses and homeowners may also have damages that won’t be covered by insurance. CoreLogic estimated that just in the top 25 at-risk zip codes of New York and New Jersey, more than 156,000 properties likely sustained property damage.

Standard homeowners’ and renters’ policies don’t cover flood losses. For residences, people must buy extra flood-insurance coverage, which is typically sold by agents as part of the government’s National Flood Insurance Program. While most commercial insurance policies do include protection against floods, the policies will often contain specific “sublimit” caps, which limit the flood coverage. Even if there is coverage the amounts of the deductibles may be too high to rebuild.

The data following Hurricane Katrina suggests there will be many losses that are not covered. “We, pre-Katrina, had 29 percent of our properties insured for flood. It spiked about 10 percent, up to about a third of the properties, but unfortunately, it slipped back down to about 29 percent today,” said Louisiana Insurance Commissioner Jim Donelon in May 2011.

It will be interesting to see the types of litigation that emerge following the storm. Since Sandy was notorious for the damages it caused by high winds and fire we might see attempts to fit those losses under the terms of the standard policy. Many homeowners will become familiar with the fine print of their policies. Further, there may be lawsuits against the States and City municipalities relating to their preparedness and responses to the storm.

In any event, we can expect to be dealing with the after effects of Sandy for many years to come.

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