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December 27, 2012 The Wall Street Journal By LESLIE SCISM And ERIK HOLM
When a 5-foot surge from superstorm Sandy washed over 200 acres of low-lying parking lots at New Jersey’s Port Newark, a fleet of vehicles belonging to International Motor Freight Inc. was damaged. Now, the company is in a legal fight with its insurer over compensation for the damage. The case is among the first of what are likely to be thousands of Sandy-related insurance disputes that will wind up in court.
Sandy caused damage to buildings and businesses in major commercial centers. Above, New York’s South Street Seaport after the storm. Natural disasters often leave in their wake a jumble of court cases debating insurers’ obligations to pay for losses. And Sandy’s path through a region that includes New York City and other centers of commerce means more of those claims—and lawsuits—will come from businesses.
Risk Management Solutions Inc., a disaster-modeling firm, predicts that nearly two-thirds, or $16 billion, of the up to $25 billion in estimated private-sector insurance payouts for Sandy damage will go to businesses. The costs are likely to push many insurers to fourth-quarter losses, but the industry has ample capital to pay claims.
Based on previous disasters, “it would not be surprising to see thousands” of lawsuits, said Kirk Pasich, a lawyer with Dickstein Shapiro LLP. Still, it could take months or years before the scope of Sandy-related insurance disputes is known. Litigation often waits until after claims are submitted, evaluated and adjusted, said Lon Berk, partner at Hunton & Williams.