As businesses and property owners assess damage from Superstorm Sandy, lawyers who have been fielding calls from insurers and policyholders say they are seeing areas of potential conflict and while most disputes could be settled out of court, they predict some lengthy and substantial litigation.
"The amount of loss is so significant that I think both sides will be ready to fight for their positions," said Jared Zola, a Dickstein Shapiro partner who represents policyholders.
Lawyers said the most common questions raised by policyholders are whether flood damage is covered by a specific policy, whether non-flood damage is covered, and whether business interruption insurance is available.
On the insurer side, attorneys said their clients have asked for help in evaluating policy language to determine the extent of coverage. Common issues faced by insurers are assessing flood versus wind damage and whether exclusions apply, especially in cases where damage was caused by a combination of factors.
Cause of Loss
Standard homeowners and commercial insurance policies typically don't cover flood damage, said Michael Troisi, a partner in Rivkin Radler's insurance coverage and litigation practice, which represents insurers.
About 70 percent of New Yorkers in flood zones do not have flood insurance in place, according to the Consumer Federation of America.
"A lot of insureds didn't realize their policies have exclusions for flood, so they're kind of shocked to know carriers" are questioning whether the policyholder is covered and if so, the extent of that coverage, said Seth Schafler, a partner in Proskauer Rose's insurance recovery and counseling group.
Some insurers have already rejected damage claims, Schafler said.
"There's going to be a lot of litigation over the type of damage, what caused the damage: was it wind, was it the flood, which came first," said Gregory Katz, managing partner of Lewis Brisbois Bisgaard & Smith's New York office, which represents insurance carriers.
Policyholders who do have flood exclusions may have other options.
Kenneth Frenchman, a partner at Kasowitz, Benson, Torres & Friedman, said, "You really have to look at the damage, even in the particular area. There are some areas that had heavy flooding, but other areas where the loss doesn't relate to flooding."