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Proactive Tips for Businesses Facing Hail Damage Claims

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Last week, a severe thunderstorm unleashed massive hailstones in Alberta, Canada, damaging dozens of cars and unleashing potentially record-breaking hailstones the size of grapefruits. While the stones were notable, the storm was less of a rarity—indeed, hail is becoming increasingly common and increasingly costly as a natural catastrophe peril around the world. In 2020, Aon’s Global Catastrophe Recap identified hail damage in a severe thunderstorm as the driver of one of Canada’s costliest severe weather events on record. In 2021, insurers faced multiple billion-dollar loss events resulting from severe convective storms in the United States, with the greatest damage inflicted by hail that impacted the Plains, Midwest, Southeast and Northeast.

“Public perception often assumes that tornadoes drive the bulk of annual severe convective storm (SCS) damage costs,” said Steve Bowen, managing director and head of catastrophe insight on Aon’s Impact Forecasting team. “The reality is that large hail typically accounts for a majority of thunderstorm-related losses in North America during any given year.”

Further, North America is not alone in facing this peril, as hail also caused significant recent damage events in parts of Europe last year, struck Australia yesterday, and NOAA reports China, Russia, India and Northern Italy are all prone to damaging hailstorms.

As companies assess their natural disaster preparedness, there are some proactive measures that should be taken specifically for hail to leave organizations best positioned for any resulting insurance claims. Many commercial property policies contain provisions that any lawsuit against an insurer must be filed within one year following the “inception of loss,” otherwise it is barred. In other words, the “inception of loss” date starts the one-year clock ticking. The question then becomes, when exactly is that date? The Wisconsin Supreme Court hit this issue head-on in the case of Borgen v. Economy Preferred Ins. Co. In this 1993 opinion, the court determined that the phrase “inception of loss” in the context of hail damage essentially means “the date of the specific hail storm,” not “the date I discovered the hail damage.”

In 2018, the 5th Circuit Court of Appeals took things a step further in Certain Underwriters at Lloyd’s of London v. Lowen Valley View, L.L.C. In that case, a hotel filed a lawsuit against its insurer for refusing to cover hail-related roof damage under a commercial property insurance policy. The 5th Circuit agreed with the insurer’s argument that: 1) several hail storms had struck the vicinity of the hotel in the several years preceding the claim; 2) only one of those storms fell within the relevant coverage period; and 3) the record lacked reliable evidence permitting a jury to determine which of those storms, alone or in combination, damaged the hotel. The 5th Circuit further rejected the hotel’s engineering report, which asserted the subject storm was the “most likely” cause of the damage, deeming it insufficient.

Taken together, these decisions can blindside businesses that believe their insurance policies will automatically respond in the event of hail damage.

Let’s say you operate a business in Plano, Texas, and have a commercial property policy with a renewal date of January 1, 2022. You’ve noticed some recent leaks over the past week in your 8-year-old roof. Based on this discovery, you enlist a roofing contractor to investigate further. You learn that the roof needs to be replaced due to the existence of hail damage, so you submit a claim to your insurance carrier. Now, consider Plano has had at least 11 significant hail strikes since your roof was installed, according to StormerSite: 

Storm Date                 Min. Hail Size Range (Max)
11/10/2021                         1.00”
4/23/2021                          1.00” (up to 2.00”)
5/18/2019                          1.00”
3/24/2019                          1.25” (up to 1.75”)
6/6/2018                            1.00”
4/6/2018                            1.50” (up to 2.00”)
4/21/2017                          1.75”
4/11/2016                          1.50” (up to 2.50”)
3/23/2016                          1.25” (up to 2.00”)
4/27/2014                          1.25”
4/3/2014                            1.75”

Based on the Borgen case, the relevant “inception of loss” date would be the most recent hail storm on November 10, 2021, and each specific storm prior to that. This would mean any claims potentially implicating the events on May 18, 2019, and earlier could be time-barred, assuming your prior insurance policies contain the one-year filing limitation mentioned above. Given the number of equivalent hail strikes over the course of those eight years, you will likely have an uphill battle under Lowen Valley View in attributing the recent April 2021 and November 2021 storms to a loss under your current policy.

Even if it were somehow possible to assign each item of roof damage to a particular hailstorm—and further that statute of limitations issues would not limit recovery almost entirely—the number of storms creates another problem. With 11 storms occurring over the life of your roof, the insurer could argue that would mean 11 separate occurrences, which in turn would mean having to go through 11 separate deductibles before you ever saw a single dollar of insurance proceeds. Depending on the amount of your deductible, this means recovery could be impossible as a practical matter.

Read together, these rulings put the onus on business owners in areas at risk for hail damage to proactively conduct at least annual inspections to determine the existence of any roof damage potentially attributable to a particular insurance policy. It further puts the onus on business owners to understand the insurance claim process, including seeking tolling agreements to extend the deadline for filing a lawsuit.

2017 Atlantic Hurricane Season Outlook

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With the official opening of 2017 Atlantic hurricane season fast approaching, researchers appear cautiously optimistic the relatively quiet streak will continue.

Today, Colorado State University’s Tropical Meteorology Project released the extended range forecast of 2017 Atlantic seasonal hurricane activity, predicting slightly below-average activity in the Atlantic basin, with a forecast of 11 named storms, four hurricanes, and two major hurricanes.

Philip Klotzbach, CSU

The probability of at least one major (Category 3+) hurricane making landfall on the entire U.S. coastline is 42%, compared to an average of 52% over the past century. The probability of such a storm hitting the East Coast, including peninsula Florida is 24%, compared to an average of 31%. Thus, CSU noted, the estimated probability of a major hurricane making landfall in the U.S. this season is approximately 80% of the long-period average.

Hurricane activity may not be as critical a determinant for how insurers and property-owners will fare, however. Aon Benfield’s Global Catastrophe Recap reports have consistently noted the rising toll of economic and insured losses due to severe weather events including severe thunderstorms, hailstorms, and flash flooding. In Texas alone, for example, Aon Benfield reports the state incurred record thunderstorm-related losses for the year, with insurers citing costs exceeding $8.0 billion.

Other recent studies support this trend. In the Willis Re and Columbia University report Managing Severe Thunderstorm Risk, researchers found the risk to U.S. property from thunderstorms is just as high as from hurricanes. Their review of Verisk Analytics loss statistics for 2003 to 2015 found the average annual loss from severe convective storms including tornadoes and hailstorms was $11.23 billion, compared to $11.28 billion from hurricanes. Considering the past decade alone, severe convective storms posed the largest annual aggregated risk peril to the insurance industry.

willis re severe convective storms

Houston Faces ‘Largest Flooding Event Since Tropical Storm Allison’

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Historic flooding has left the Houston metropolitan area inundated once again this week, killing at least seven people, flooding 1,000 homes and causing more than $5 billion in estimated damages in Harris County alone. Gov. Greg Abbott declared a state of disaster for nine counties in and around the Houston area. The widespread nature of the disaster prompted the city of Houston to call this the largest flood event since Tropical Storm Allison, which devastated southeast Texas in 2001, causing $9 billion in damage and $1.1 billion in insured losses.

According to Harris County Judge Ed Emmett, about 240 billion gallons of rain fell on the Houston area this week. That’s the equivalent of 363,400 Olympic-size swimming pools, CNN reported. After 10 inches of rainfall fell in six hours Sunday night into Monday, powerful, slow-moving thunderstorms had paralyzed the region Monday, but storms continued through Wednesday.

Having some of the hardest rainfall overnight helped a bit to mitigate the dangers this week. While this made it difficult to predict, it allowed people to better make choices about going out, as opposed to last year’s floods around Memorial Day, Emmett told the Houston Chronicle. Nevertheless, emergency crews made more than 1,200 high-water rescues, many residents had to evacuate to shelters, and for those who were able to shelter in place, 123,000 homes had no power at the height of the flooding. Officials have also expressed concern about two local dams that have been rated “extremely high risk and are at about 80% capacity, but they are not in immediate danger of failing.

As I wrote in Risk Management last year, the city’s rapid urbanization and approach to land development have made it extremely vulnerable to flooding perils because there is little land surface that can absorb water in foul weather. Rivers, bayous and other receptacles for runoff are easily overwhelmed and take a considerable amount of time to return to normal levels, making the heavy, concentrated, sustained rainfall seen this week even more dangerous in such an urbanized setting. Last May, record rainfall and severe thunderstorms caused tremendous damage across Texas and Oklahoma, killing 32 people and flooding more than 5,000 homes in the metro regions of Houston, Austin and Dallas.

With this latest storm, Houston again offers a powerful reminder about the natural catastrophe perils compounded by urbanization and the need to prepare, both in the form of routine disaster preparation and urban planning. From the August issue of Risk Management:

The city has invested hundreds of millions of dollars to battle the effects of urbanization. On Buffalo Bayou alone, for example, flood control efforts totaling half a billion dollars in the past decade have included bridge replacements, the addition of detention ponds for runoff, and creation of green spaces that serve as parks in normal weather while offering more land surface that can absorb water in foul weather.

But the investments are not enough. “Houston may be doing things to try to improve…but there’s a long history of pre-existing stuff that is still there,” Walter Peacock, an urban planning professor at Texas A&M and director of the school’s Hazard Reduction and Recovery Center, told Time. “Think about every time you put in a road or a mall and you add concrete—you’ve lost the ability of rain to get into the soil and you’ve lost that permeability. It’s now impermeable, and therefore you get more runoff.”

Supertyphoon Haiyan Devastates Philippines

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Supertyphoon Haiyan strikes the Philippines

Supertyphoon Haiyan hit the Philippines on Friday, leaving at least 10,000 residents dead and hundreds of thousands without reliable food, shelter or water. One of the strongest storms ever recorded, Haiyan’s winds surpassed 140 miles per hour, bringing record storm surges. The full extent of the damage remains uncertain, with communication and transportation severely restricted.

The World Bank has called the Philippines one of the most hazard-prone countries in the world. Closed roads and airports restricted aid efforts after Supertyphoon Haiyan, and communication failures posed some of the greatest challenges to both assessing and recovering from damage.

“Under normal circumstances, even in a typhoon, you’d have some local infrastructure up and some businesses with which you can contract,” Praveen Agrawal, the World Food Program’s Philippines representative and country director, told the New York Times. “Being as strong as it was, it was very much like a tsunami. It wiped out everything. It’s like starting from scratch” in terms of delivering the aid, he said.

The United Nations has set aside over $300 million to help with the country’s recovery from Haiyan over the next six months, and three dozen individual nations and international organizations have pledged financial and humanitarian assistance. The United States recalled thousands of sailors from shore leave back to the USS George Washington, a massive aircraft carrier currently docked in Hong Kong, to use its 80 aircraft to help deliver supplies and evacuate victims in the Philippines’ hardest-hit islands.

Yet with the broad scope of damage to critical infrastructure, the process has been slow. In the major city of Tacloban, for example, the traffic control tower at one of the country’s biggest airports was destroyed, forcing all aircraft to land by sight, further slowing distribution of food and water. Officials opened smaller airstrips, focusing on safely reopening transportation routes as the hundreds of thousands of evacuees continue to face extreme water shortage. This shortage further compounds the dangers authorities face in recovery, as health officials grow more concerned about water-borne diseases. Most notably, the lack of clean drinking and bathing water in crowded evacuation centers brings risk of diarrhea, leptospirosis and dengue.

Officials are looking forward while managing the catastrophic fallout. According to the Wall Street Journal:

Finance Secretary Cesar Purisima acknowledged that the destruction wrought by the disaster on an area that contributes 12.5% to gross domestic product could shave off as much as a full percentage point to economic growth next year, when the government targets GDP expansion of at least 6.5%. He is hopeful that the adverse effect on growth will be cushioned, if not offset, by the reconstruction spending.

“From a fiscal standpoint, we do have fiscal space to spend for reconstruction. The estimates are preliminary, but we need to invest significantly on infrastructure,” Mr. Purisima said.

The New York Times reported:

HSBC Global Research said that the typhoon probably destroyed half the sugar cane production areas in Leyte Province, and that all told, 3.5 percent of the nation’s sugar cane output was probably lost. It also warned of inflationary shocks to the Philippine economy in the coming months, as supply chains are disrupted.

But given the general health of the Philippine economy and the fact that the typhoon affected geographic areas and sectors like agriculture that are not major drivers of the nation’s output, HSBC said, “The economic impact will be limited.”

Citi Research estimated that infrastructure damage will probably run into billions of pesos, exceeding $70 million.

In Warsaw on Monday, some delegates at United Nations talks on a global climate treaty suggested that global warming was responsible for making Haiyan such a devastating storm. Naderev Saño, the chief representative of the Philippines at the conference, told the New York Times, “What my country is going through as a result of this extreme climate event is madness; the climate crisis is madness.”

Scientists cannot be certain of the overall impact of climate change on severe weather like hurricanes and typhoons, but have noted that more powerful storms will continue as the climate changes. With winds of at least 140 miles an hour, Typhoon Haiyan is considered one of the strongest storms to make landfall. “As you warm the climate, you basically raise the speed limit on hurricanes,” said M.I.T. atmospheric scientist Kerry A. Emanuel.

The powerful storm surges recorded are also likely part of a new reality in major storms. “When you strip everything else away, we’re seeing a general rise in sea level,” James P. Kossin, atmospheric scientist at the National Climatic Data Center, told the Times. “There’s no question that storm surge is going to be compounded.”