Southeast’s Top Stories: Disasters That Happened and 1 That Didn’t

The top insurance stories in the Southeast in 2010 included several disasters that caused considerable death and destruction in the region and one that didn’t do as much harm as feared.

The April 20 blowout of BP’s Macondo well while it was being drilled in the Gulf of Mexico killed 11 rig workers and spewed more than 4 million barrels of oil, closing fisheries and stunting tourism from Louisiana to Florida. The Gulf oil disaster may not have been a major financial event as far as property/casualty insurers and reinsurers are concerned, since BP was self insured for clean up costs through its captive insurer Jupiter Insurance Ltd. However, the oil disaster has cost states, property owners, businesses and fishermen — and BP— billions of dollars. It has led to insurance pricing and risk management changes in the energy sector. It has led to a discussion of new liability limits for offshore drilling. The tragedy also put the media spotlight on oil rig safety, claims management and disaster recovery.

West Virginians had to deal with yet another mining tragedy in 2010, the worst mining disaster in 40 years. Massey Energy promised to provide financial packages providing health care and other benefits for the families of the 29 miners killed in the April blast at its Upper Big Branch mine. Massey said it had insurance to cover it against suits that might be brought against it as a result of the blast, but it had no business interruption coverage. The blast fueled criticism of the safety practices of Massey and other mining operators.

In early May, residents of Tennessee suffered some of the worst flooding to ever hit the state as heavy rains caused the Cumberland River to overflow and flood downtown Nashville and surrounding neighborhoods. Twenty-one lives were lost statewide. Estimates of the damage exceeded $2 billion. The landmark Gaylord Opryland was damaged by the waters but has been restored; other small businesses and musicians without insurance are still struggling to survive.

Another big Southeast insurance story in 2010 was the big disaster that did not happen: there were no major hurricanes. Forecasters warned of a busy 2010 hurricane season and they were right— it was extremely busy. But fortunately most of the activity occurred out to sea and away from the United States.

Hurricane Earl came the closest — about 100 miles off the coast — but it faded before causing too much insured damage. Not long after Earl, Tropical Storm Nicole brought heavy rains and flooding to Florida, North Carolina and as far north as Delaware. Nicole took a number of lives and caused her heaviest damage in the town of Windsor. But overall, the Atlantic hurricane season was not as bad as many feared it would be in the U.S.

Florida Property

While all states were fortunate to have been spared Mother Nature’s wrath, perhaps none breathed a bigger sigh of relief than Florida, where the state-subsidized “perilous” property insurance market continued to make headlines, the most important from an industry viewpoint being those concerning the veto by outgoing Gov. Charlie Crist of an omnibus property insurance reform bill designed to address some of the factors driving up insurance costs in the state. That Crist veto upset the industry and even his own commissioner, Kevin McCarty. But supporters are ready to try again this coming year amid signs new Gov. Rick Scott is supportive.

One of those cost drivers is sinkholes. A new state report confirmed that sinkhole claims in Florida are costing insurers millions of dollars in payouts and expenses, cropping up in counties where they have not been a problem in the past, and showing no signs of abating. For the years 2006 through 2010, sinkhole claims have cost Florida property insurers $1.4 billion— and that figure could top $2 billion by the end of this year, according to a report from the Office of Insurance Regulation (OIR).

There was a bit of good news for the Florida industry: private insurers and state-backed Citizens had some rate hikes approved.

State Elections

While the weather may have been mostly calm in the region, the political climate was just the opposite. The November elections could have a lasting effect on the industry’s regulatory and legislative climate.

South Carolina, Alabama, Florida and Tennessee elected new governors. While incoming Alabama Gov. Robert Bentley has decided to keep Arthur Ridling as that state’s insurance commissioner, there has not been news on who will fill the posts in the other states.

In Georgia, voters chose state Sen. Ralph Hudgens as their new insurance regulator. Hudgens will succeed fellow Republican John Oxendine as insurance commissioner. Oxendine, who has served as commissioner since 2004, decided to leave the post to run for governor but lost in the primary.

Big changes in state Legislatures in southern states could have as much impact as a change in commissioner. The North Carolina Senate is now in Republican control for the first time since 1870. The Alabama legislature is under Republican control for the first time since Reconstruction

Courts

Courts in several states made insurance headlines.

The Georgia Supreme Court struck down a cap on medical malpractice awards imposed in 2005 as part of a package of legislative tort reforms. The state’s high court said the law limiting non-economic damages in medical malpractice cases violates the constitutional right to a trial by jury.

The South Carolina Supreme Court affirmed a $10 million jury award against a bar and its owners personally for selling alcohol to an intoxicated man who later crashed and injured a man and his father. The court said that South Carolina liquor stores, bars and their owners may be liable for injuries caused by a patron they “knew or should have known” was intoxicated even if the customer does not appear drunk. The court said that the state’s law does not require that the intoxicated person be visibly intoxicated, only that a person “knowingly” sells beer or wine to an intoxicated person. The court upheld the lower court’s decision to allow the crash victims to pierce the corporate shield of the bar, thereby exposing the individual owners to liability for the injuries.

In Florida a couple who fled their home because of foul-smelling, ruinous Chinese drywall was awarded $2.4 million in damages in America’s first jury trial over the defective wallboard that could have legal ramifications for thousands of similar cases.

The West Virginia Supreme Court ruled in June that citizens can bring bad faith lawsuits against insurers under the state’s human rights act. The court found that the West Virginia Human Rights Act “prohibits unlawful discrimination by a tortfeasor’s insurer in the settlement of a property damage claim when the discrimination is based upon race, religion, color, national origin, ancestry, sex, age, blindness, disability or familial status.” The insurance industry said it may ask the Legislature to override the ruling.

In June, Kentucky’s high court found that a Christians-only health care plan provided a “contract for insurance” and doesn’t qualify for exemption from state regulations as a religious publication, a decision that potentially opens the plan to stricter regulations by the state. A split high court found that that the Medi-Share program “fits comfortably within the statutory definition of an insurance contract” because it shifts the risk of payments for medical expenses from the individual to a pool of people paying into the program.

In June, Georgia Gov. Sonny Perdue signed into law a bill allowing employers whose previous workers ‘compensation carrier goes out of business to pay into the insolvency pool to cover injured workers’ claims. The law was prompted by the bankruptcy of Southeastern US Insurance Co. (SEUS), which was exempt from participating in the state’s insolvency pool because it was a captive. Its failure left thousands of businesses and nonprofits without coverage and stranded more than 80 injured workers. Private insurers balked at the buy-in bill.

Family Tragedy

And Tennessee made headlines in the fall after a family’s home burned while firefighters watched from their truck. The fire chief of the nearby city of South Fulton refused to put out the fire that took the home of Gene and Paulette Cranick because they were not on the list of property owners who had paid the $75 annual subscription fee for fire protection services. Property owners like the Cranicks outside the South Fulton city limits must pay a fee if they want the service; the county does not offer fire service. The Cranicks had paid the fee in prior years but said they were away and forgot to pay it this year.

Topics Florida Carriers Legislation Workers' Compensation Georgia Energy Oil Gas Property Alabama Hurricane Tennessee South Carolina