INSURERS SUE TERROR SUPPORTERS FOR 9/11 LOSSES
Dozens of insurance companies, acting as members of five large insurance groups—Chubb, American Re, Zurich American, One Beacon and Crum & Forster—have filed a lawsuit in two cities against Al Qaida and other terrorist organizations to recover billions of dollars they have paid, or reserved for payment, for Sept. 11, 2001 losses. The companies retained Cozen O'Connor to recover losses the insurers either already paid or reserved for payment of approximately $3.5 billion in property damages and $500 million in workers' compensation benefits, as well as damages in 412 wrongful death and personal injury claims assigned to their companies. The case, Federal Insurance Company et al v. Al Qaida et al, was filed in the U.S. District Court for the Southern District of New York, and a companion action was filed in the U.S. District Court for the District of Columbia. The complaint alleges multiple statutory and common law causes of action, including civil RICO and claims under the Anti-Terrorism Act and the Torture Victim Protection Act. The demands are for multiple billions of dollars in judgment against the defendants, including compensatory and treble (triple) damages. Many of the defendants have been designated as Foreign Terrorists Organizations (FTO) by the US Government under section 219 of the Immigration and Nationality Act, as amended by the Anti-terrorism and Effective Death Penalty Act of 1996. Others are designated as State Sponsors of Terrorism pursuant to the Export Administration Act of 1979 and the Foreign Assistance Act of 1961. Others are designated as supporters and associates of terrorists pursuant to Executive Order 13244, based on their material support and sponsorship of, or affiliation with, defendant al Qaida and/or affiliated FTOs, associations, organizations or persons. The range of defendants includes: Islamic Republic of Iran, Republic of Iraq, Syrian Arab Republic, The Republic of the Sudan, Saudi Arabia, Al Qaida leaders and individual supporters including Osama Bin Laden, Muhammad Atif (aka Subhi Sitta; aka Abu Hafs Al-Masri), etc., Foreign Terrorist Organizations, charitable organizations, banking and financial institutions, and other commercial entities and individuals that have provided material and financial support to Al Qaida.
SUPREME COURT'S DECISION COULD IMPACT QUALITY OF NURSING HOME PATIENT CARE
A United States Supreme Court decision on whether a petitioner's net worth could be a consideration in awarding punitive damages could reportedly have a serious impact on the nursing home profession at a time when there is growing need for health care services. The National Association of Independent Insurers (NAII), along with the American Health Care Association and the American Association of Homes and Services for the Aging, filed an amicus brief supporting the Petition for a Writ of Certiorari to the Supreme Court of Arkansas in the case, Advocat Inc. and Diversicare Leasing, et al v. Sauer. The $21 million dollars in punitive damages awarded in the case were five-time the net worth of one of the petitioners. Diversicare is worth $4.2 million. The Arkansas Supreme Court relied on business size and took comfort in the fact that the defendants oversee a major business enterprise by operating 86 facilities in the southeastern United States and Canada. "The United States Supreme Court has not yet spoken on 'net worth' as a necessary consideration in drawing the line between fair and reasoned punishment versus economic forfeiture," Laura Kotelman, NAII counsel, said. "This case presents a compelling Fourteenth Amendment question not addressed in other cases such as BMW of North American v. Gore or State Farm v. Campbell. The Writ presents the U.S. Supreme Court with the opportunity to complete the task it undertook in those cases. The case graphically illustrates the court's need to consider net worth evidence in determining whether a punitive damages award is excessive and in violation of the Due Process Clause of the Fourteenth Amendment. The brief addresses punitive damages awards that have no relation to and actually exceed a defendant's net worth. The impact on the nursing home profession could be devastating. The brief strongly argues that excessive punitive damage awards are crippling nursing homes and diverting scarce dollars away from patient care. There has been a dramatic increase in nursing home litigation, including excessive punitive damages awards. Spiraling litigation costs and excessive verdicts have substantially contributed to the current cost and availability crisis in liability insurance for all nursing homes."
S&P REPORTS MARINE HULL RATES SET TO PEAK IN 2005
Standard & Poor's reported that rates across the global marine hull insurance market look set to peak in 2005, a year later than previously expected. It noted, however, that although this promised a "respite to a beleaguered market, it remains uncertain whether just two more years of rate increases will be sufficient to return the market to profitability." S&P credit analyst Rowena Potter stated, "Profits in the marine market have been constrained by lower-than-expected rate increases in marine hull business at the 2003 renewal, despite the cost to the industry of a number of major losses in the fourth quarter of 2002. Stronger increases are expected at the 2004 renewal and, although uncertain, there is still a chance that by 2005 the market could be operating at a sustainable level." The problem, according to the rating agency, is the "continuing competition for prestigious fleets and newer ships," which has kept rates at an uneconomic level. Around a 35 percent hike would have assured a return to pricing equilibrium, but during the recent renewal season 25 percent hikes were more the norm. "Some insurers' ability to undercut the competition—in some instances by as much as 30 percent—has hindered the recovery of the market, but the 2004 renewal promises further material increases, as well as further improvements in terms and conditions," Potter noted. Help could come from the withdrawal of some reinsurance capacity from the sector—"particularly proportional treaties, which have historically been used as a source of contingent capital by many market participants," S&P said. "The diminution of this source of financial flexibility, when coupled with the fierce competition for capital across the non-life sector as a whole, may extend the duration of the hard phase of the current cycle beyond historical norms." There have also been some rather significant hull losses that will tend to strengthen efforts to increase premiums. Potter indicated that, "Loss events tend to be less predictable in the marine market, making pricing more challenging. Furthermore, there is some lack of transparency in the market, as reliable loss ratios are not always available, making technical underwriting hard to control. Nevertheless, the loss of the Diamond Princess, Hanjin Pennsylvania, Hual Europe, and Tricolor (among others) in 2002 will be reflected at the next renewal, with underwriters taking a much harder line." Rates have actually been rising since the Feb. 2001 renewals in the protection and indemnity (P&I) market. "Ship owners have recognized the need for very significant increases, but they have been unable to absorb them at once, resulting in a three- to four-year time horizon for pricing levels to reach an economic level," Potter observed. "The outlook for the P&I market is now somewhat brighter, given the rolling premium increases, with rates having been on an upward trend for two-and-a-half years. There has been little sign of an increase in claims frequency, although claims costs are on the rise. It is expected that, by the end of the current policy year, most if not all P&I players will have returned to profit," S&P's report concluded.
Homeowners Insurance Expects 8 Percent Jump in 2004
Rapidly rising construction costs prices, home remodeling and increasingly expensive natural disasters are expected to push the cost of homeowners insurance up by eight percent in 2004, according to a report by the Insurance Information Institute (I.I.I.) The projected increase represents a modest change from the estimated seven percent increase in 2003, noted the I.I.I. The average cost for home insurance nationwide for 2004 is projected to be $615—an increase of $46 for the average homeowner over this year. "Part of the increase reflects choices more homeowners are making," Robert Hartwig, senior vice president and economist for the I.I.I., said. "People are taking advantage of record low interest rates and are moving into new homes or making additions to their existing homes in near record numbers. These upgrades and additions are pushing up insurance costs. People expect their premium rates to stay the same, but they don't realize they have more house to insure." Rapidly rising home prices are a prime factor in rising homeowners insurance costs. Since 1995, the median price of an existing home has risen by nearly $60,000. New home prices are rising at a significant pace. The boom in mortgage refinancing is also contributing to higher insurance costs as homeowners use their savings to tap into home equity lines of credit to build additions, remodel and update their homes, adding to their value. According to a research report issued in February by Harvard's Joint Center for Housing Studies, http://www.nari.org/inner-space.cfm, home improvement "has become the great national pastime." In 2001, the most recent year for which annual figures were available, an estimated $214 billion was spent on home improvements, maintenance and repairs (including by owners of rental properties). According to the I.I.I., between 1990 and 2002, home insurers paid out, on average, $1.167 in losses and expenses for every $1 they earned in premiums. In 2002 alone, home insurers paid out $4.7 billion more in losses and expenses than they received in premiums. In 2001, home insurers lost $7.43 billion, the second worst year on record (the highest is 1992, which included Hurricane Andrew, produced losses of $11.5 billion). Losses in the homeowners insurance line over the past four years (2000 through 2003) are estimated at $187 billion, approaching the level of insured property losses from the Sept. 11 terrorist attack. Also during the 1990s, the severity of catastrophes began to increase dramatically. Since 1990, insurers have reportedly paid out more than $100 billion in catastrophe-related losses—or about $700 million per month. "Homeowners insurance rates in many parts of the country continue to rise because of the extraordinary costs associated with paying these claims," Hartwig said. "In fact, virtually every part of the country is either at risk of or has experienced a billion dollar disasters." Another issue, mold in homes, is not new. However, increased public anxiety stemming from publicity surrounding high profile lawsuits in Texas and California has increased the risk associated with water damage across the country. "There is no new 'killer mold' out there," Hartwig continued. "But the sharp rise in mold claims is definitely a 21st century phenomenon. Unfortunately, so are multi-million dollar jury awards associated with mold," he said. "No one wants to see the virtual collapse of the insurance market in Texas happen anywhere else, so steps are being taken to limit coverage and contain mold costs. But we are still in a situation where any water damage claim anywhere in the country can produce a million dollar lawsuit. Insurers have to factor that into the cost of insurance."
NACE 2003 CONFERENCE OFFERS 45+ EDUCATIONAL SESSIONS
The Inter-national Autobody Congress & Exposition (NACE) 2003 Conference will include 45+ educational sessions covering shop management, general interest, small shop, vehicle repair, lifestyle, jobber and insurance topics when it takes place in December. Sixteen of the sessions will be new to NACE and several will be "back by popular demand" with updated content. The Conference will also include a new three-hour workshop on estimating practices, and three-hour sessions on shop financials, wage and hour, management techniques and philosophies, and benchmarking. The international panel discussion, "International Issues and Trends," has been expanded to a three-hour session. The panel will consist of experts from different countries and will cover R-CAR training, research and development, new technology, OE training and repair standards, Jaguar and other aluminum car training, legislation and its impact, and global trends—trends that will be faced by U.S. repairers within the next few years. An Insurance Track has been added for claims professionals featuring CE accredited courses and a CPCU Society executive-level session on Successful Negotiations. In addition, the National Association of Independent Insurers (NAII) will give a session on insurance and auto repair issues for 2004, and there will be a new Automated Claims Processing Town Hall event. There will be advanced information system user training, two sessions in Spanish (Frames & Measurements and Welding) and seven technical sessions given by the Inter-Industry Conference on Auto Collision Repair (I-CAR). Many of the classes in the NACE Management Track will earn credit toward the Automotive Management Institute's Accredited Automotive Manager (AAM) designation. Conference education will extend to the exhibit floor with the addition of a Claims Process Pavilion and the popular Action Demo Arena. To register for NACE and make housing and air travel arrangements, visit the NACE Web site at www.NACEexpo.com. NACE 2003 will be held Dec. 4-7, at the Orange County Convention Center, Orlando, Fla., and is expected to draw an attendance of 30,000+ from around the globe. It will feature more than 45 educational sessions and an Exposition with approximately 500 exhibiting companies. Bill O'Reilly, host of "The O'Reilly Factor," will be the NACE 2003 Keynote Speaker and Wynonna will be the Saturday evening entertainment.
