107D
AMERICAN BAR ASSOCIATION
ADOPTED BY THE HOUSE OF DELEGATES
FEBRUARY 16, 2009
RECOMMENDATION
RESOLVED, That the American Bar Association urges the federal government to address the
liquidity needs of individuals and businesses in the aftermath of future natural catastrophes,
including but not limited to:
(a) the distribution of emergency liquidity, to the maximum extent possible, through
accountable and traceable means, including debit cards;
(b) forbearance by regulators, lenders and government sponsored enterprises (GSE's)
(such as Fannie Mae (FNMA) and Freddie Mac (FHLMC)); on mortgage loans that is
commensurate with the severity of damage in given areas;
(c) modification of current distribution channels for federal disaster assistance;
(i) the Small Business Administration should permit authorized financial
institutions to directly offer SBA-guaranteed loans.
(ii) The SBA should define "duplicate benefits" to include only compensation
beyond that necessary for repairs; relevant government agencies (SBA, FEMA
and HUD) should coordinate their valuation and appraisals of damaged
properties;
(iii) the SBA should review its underwriting standards to support lower-income
borrowers and reduce delays in the loan origination and closing process after
disasters; and
(iv) Congress should modify requirements under the National Environmental
Policy Act that may impede recovery from disasters; and
(d) fulfillment of its lender-of-last-resort functions (acting through financial institutions)
to meet liquidity needs of the economy, or parts thereof, in mega-catastrophes by the
Federal Reserve.
FURTHER RESOLVED, for catastrophic natural disasters that are certified by the Treasury
Secretary as posing a grave financial risk to state insurance guaranty funds, the Congress should
107D
give the Treasury Department the authority to lend to those state funds to assure prompt payment
of claims when there has been a demonstration of need to avoid guaranty fund insolvency.
FURTHER RESOLVED, That the federal government should provide incentives to encourage
catastrophe risk-taking by private insurers:
the federal government and the Financial Accounting Standards Board ("FASB") could
recognize and allow for multi-year tax-deferred catastrophe reserves to be established by
insurers and other parties at risk for natural catastrophes and allow annual net additions to
such reserves. Such incentives or reserves should be restricted to paying claims for future
mega-catastrophes. Congress could also provide incentives to homeowners and
businesses that invest in catastrophe mitigation measures in high-risk areas.
107D
REPORT
As a result of Hurricanes Katrina and Rita, there had been widespread criticism of
the insurance system as it relates to the kinds of disasters precipitated by hurricanes and
storms. In response, in the spring of 2007, Peter Neeson, Chair of the ABA Tort Trial &
Insurance Practice Section (TIPS), appointed the Task Force on Disaster Insurance
Coverage. The Task Force was reappointed the following year by the next Chair of TIPS,
Peter Bennett.
Task Force Mission
The specific mission of the Task Force was "to examine insurance coverage
difficulties arising from the hurricanes, including (1) why so much litigation has surfaced
in surrounding states over the wind/water issue, and (2) why insurers are departing from
hurricane-prone areas in Florida and along the entire east coast. The scope of the Task
Force's research has included the full range of issues arising out of insurance coverage,
availability, and affordability for hurricanes and storms and the executive, administrative,
legislative, and judicial framework for addressing such issues.
The Task Force extends its gratitude to its ex officio members representing
various stakeholders for their outstanding contributions to the difficult work of the Task
Force. However, it is important to stress that the positions expressed in this Report and
Recommendations, while resulting in an overall general consensus, does not necessarily
represent the opinions of the entire ex officio membership or their respective policies.
Meetings, Hearings, and Deliberations of the Task Force
The Task Force met on May 18, 2007 in Newport Beach, CA; August 12, 2007 in
San Francisco, CA; October 6, 2007 in Palm Beach, FL; February 9 2008 in Los Angeles.
CA; April 15, 2008 in Washington, D.C.; August 9, 2008 in New York City, N.Y.;
September 22, 2008 in Chicago, IL; and October 4, 2008 in Hilton Head, SC. It heard
presentations from a wide variety of officials from the insurance industry, state and
federal governments, and consumer and other non-governmental organizations.
Concerns with the Present Insurance System
Following Hurricanes Katrina and Rita some national insurers moved to terminate
existing policies, or to cease writing new policies entirely, in coastal areas ranging from
Florida to New England. A few states moved to establish state mechanisms for the
hurricane insurance business, while others looked to Washington for a solution. Various
hearings and investigations were initiated by Congressional and state legislators, state
insurance regulators, and certain attorneys general, and the Task Force has reviewed the
testimony and proposals that have resulted from this process.
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107D
From the presentations and effort conducted by the Task Force, it was noted that,
among other things, some raised “concerns” about adequacy of coverage provided under
insurance policies and the National Flood Insurance Program (NFIP) in regard to wind
and water damage, the varying interpretations of "anticoncurrent cause" provisions in
insurance policies and questions of enforcement, promptness and/or consistency
surrounding claims determinations during times of catastrophe.
The Task Force while having considered the referenced “concerns” recognized
that it was not a fact-finding body and did not express any view on the accuracy or
validity of such matters revealed or discussed in the course of its efforts. In furtherance
of its mission, the Task Force proposals intend to address both possible causes and
solutions to challenges inherent in the present insurance system, including the NFIP, and
those arising from mega catastrophes in seven separate but highly integrated
Recommendations.
Recommendation “107D”
This Recommendation “107D” concerns the steps that primarily the federal
government could take in order to speed recovery after a natural disaster and thereby
reduce some of the losses incurred by the residents affected by the catastrophes.
It recommends three approaches that would assist in meeting the liquidity needs
of individuals and businesses. First, the federal government should distribute emergency
liquidity, to the maximum extent possible, through accountable and traceable means
including debit cards. Second, regulators, lenders and housing government sponsored
enterprises (GSE's) should forbear, or support the offering of forbearance, on mortgage
loans, as is consistent with the severity of damage in given areas. Third, Congress and
various federal agencies should modify current distribution channels for federal disaster
assistance.
The Small Business Administration would have a key role in this third approach.
Authorized financial institutions should be permitted to directly offer SBA-guaranteed
loans. The SBA should define "duplicate benefits" to include compensation beyond that
necessary for repairs. Such relevant government agencies as SBA, FEMA and HUD
should coordinate their valuation and appraisals of damaged properties. And finally, the
SBA should review its underwriting standards to support lower-income borrowers and
reduce delays in the loan origination and closing process after disasters. Congress, in
turn, should modify requirements under the National Environmental Policy Act that could
impede recovery from disasters. The Federal Reserve should also be ready to serve as a
lender-of-last-resort function by acting through financial institutions to meet liquidity
needs of the economy.
The Treasury Department should be given additional authority. If the Treasury
Secretary certifies a natural disaster as posing a grave financial risk to state insurance
guaranty funds, Congress should give the Treasury Department authority to make loans
107D
to those state funds in order to assure prompt payment of claims to avoid guaranty fund
insolvency.
This Recommendation also calls for incentives to encourage catastrophe risktaking by private insurers. One option for the federal government and the Financial
Accounting Standards Board ("FASB”) would be to allow for multi-year tax-deferred
catastrophe reserves to be established by insurers and other parties at risk for natural
catastrophes and permit annual net additions to such reserves. These reserves should be
restricted to paying claims for future mega-catastrophes. Congress could also provide
incentives to homeowners and businesses that invest in catastrophe mitigation measures
in high-risk areas.
Respectfully submitted,
Timothy Bouch, Chair
Tort Trial and Insurance Practice Section
February 2009
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107D
GENERAL INFORMATION FORM
Submitting Entity: Tort Trial and Insurance Practice Section
Submitted By: Timothy W. Bouch, Chair
1.
Summary of Recommendation(s).
As one of seven integrated and highly interdependent set of Recommendations to reduce the
nature and extent of post hurricane (catastrophe) litigation, this Recommendation
addresses the steps that primarily the federal government and others could take in order to
speed recovery after a natural disaster and thereby reduce some of the losses incurred by
the residents affected by the catastrophes. Federal action: distribute emergency liquidity,
cause or support the offering of temporary forbearance on mortgage loans and modify
current distribution channels for federal disaster assistance (SBA loans, FEMA and HUD
co-ordination, Federal Reserve service as lender of last resort, Treasury assistance as
backstop to state guaranty funds). Tax code incentives are urged to encourage catastrophe
risk-taking by private insurers and investment credits for investments in catastrophe
mitigation measures in high-risk areas by homeowners and businesses. Finally, the
Federal Government and the Financial Accounting Standards Board ("FASB”) are urged
to allow for multi-year tax-deferred catastrophe reserves to be established by insurers and
other parties at risk for natural catastrophes to be used solely for natural catastrophes, and
permit annual net additions to such reserves.
2.
Approval by Submitting Entity.
Approved by the Council of the Tort Trial and Insurance Practice Section on October 5,
2008
3.
Has this or a similar recommendation been submitted to the House or Board previously?
No.
4.
What existing Association policies are relevant to this recommendation and how would
they be affected by its adoption? Not applicable
5.
What urgency exists which requires action at this meeting of the House?
Reducing the burden of class-action lawsuits on state and federal courts following
hurricanes and other storms is projected to be a complex 10 year project involving
multiple levels of governments, regulatory agencies, private insurers and related entities.
The next hurricane season begins June 1. (See Status of Legislation)
6.
Status of Legislation. (If applicable.) Not applicable. [Although there were hundreds of
bills referencing “flood” and “hurricane” in the 110th Congress, including the main set of
bills (HR 920, HR 1682, HR 3121 and S 2284), the House passed HR 3121 “Flood
Insurance Reform & Modernization Act of 2007” was amended by the Senate by
107D
substituting S 2284 and was languishing in Conference when Congress adjourned. New
legislation is expected to be filed after the 111th Congress convenes.]
7.
Cost to the Association. (Both direct and indirect costs.) Not applicable
8.
Disclosure of Interest. (If applicable.) Not applicable
9.
Referrals.
This Report and Recommendation is referred to the Chairs and Staff Directors of all ABA
Sections and Divisions.
10.
Contact Persons. (Prior to the meeting.)
a) Hervey P. Levin
Law Offices of Hervey P. Levin
6918 Blue Mesa Drive
Dallas, Texas 75252
972-733-3242-O 972-896-4312-Cell
hervey@airmail.net
b) James F. Carr
1525 Sherman St. Fl 5
Denver, Colorado 80203-1714
303-866-5283-O 303-513-0026-Cell
c) Janice Mulligan
Mulligan & Banham
2442 4th Avenue, Suite 100
San Diego, CA 92101-1609
619/238-8700/cell phone 619-977-4444
jfmulligan@yahoo.com
11.
Contact Person. (Who will present the report to the House.)
Hervey P. Levin
Law Offices of Hervey P. Levin
6918 Blue Mesa Drive
Dallas, Texas 75252
972-733-3242-O 972-896-4312-Cell
hervey@airmail.net
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107D
EXECUTIVE SUMMARY
1.
Summary of the Recommendation
This Recommendation addresses the steps that primarily the federal government and others
could take in order to speed recovery after a natural disaster and thereby reduce some of the
losses incurred by the residents affected by the catastrophes.
2.
Summary of the Issue that the Resolution Addresses
As a result of Hurricanes Katrina and Rita, there had been widespread criticism of the insurance
system as it relates to the kinds of disasters precipitated by hurricanes and storms. In response,
TIPS established the Task Force on Disaster Insurance Coverage.
The specific mission of the Task Force was "to examine insurance coverage difficulties arising
from hurricanes, including (1) why so much litigation has surfaced over the wind/water issue, and
(2) why insurers are departing from hurricane-prone areas in Florida and along the entire east
coast.' The scope of the investigation included the full range of issues arising out of insurance
coverage, availability, and affordability for hurricanes and storms and the executive,
administrative, legislative, and judicial framework for addressing such issues.
The seven Recommendations are an integrated and highly interdependent set of proposals
that begin with a major goal of reducing the nature and extent of post hurricane
(catastrophe) litigation. This is accomplished first by suggesting that the coverage of the
basic homeowners policy be changed to include damages caused by wind driven storm
surge and then lessening the nature and extent of the risk of losses as much as possible
over a 10 year period to increase access to “available” and “affordable” insurance.
Resolution of ambiguity regarding causation is also shifted to the insurers and the
National Flood Insurance Program; two parties better able to resolve the boundaries of
their respective coverages, in ways that do not burden state and federal courts with
excessive litigation.
3.
Please Explain How the Proposed Policy Position will Address the Issue
Federal action: distribute emergency liquidity, cause or support the offering of
temporary forbearance on mortgage loans and modify current distribution
channels for federal disaster assistance (SBA loans, FEMA and HUD coordination, Federal Reserve service as lender of last resort, Treasury assistance as
backstop to state guaranty funds). Tax code incentives are urged to encourage
catastrophe risk-taking by private insurers and investment credits for investments
in catastrophe mitigation measures in high-risk areas by homeowners and
businesses. Finally, the Federal Government and the Financial Accounting
Standards Board ("FASB”) are urged to allow for multi-year tax-deferred
catastrophe reserves to be established by insurers and other parties at risk for
natural catastrophes to be used solely for natural catastrophes, and permit annual net
additions to such reserves.
107D
4.
Summary of Minority Views or opposition which have been identified:
TIPS extends its gratitude to the ex officio members of the Task Force representing
various stakeholders for their outstanding contributions to the difficult work of the Task
Force. However, it is important to stress that the positions expressed in this Report and
Recommendations, while resulting in an overall general consensus, does not necessarily
represent the opinions of the entire ex officio membership or their respective policies.
9