Hurricanes contain Wind and carry Water (or the other way around, depending on how you say it). Determining Hurricane Losses attributable to Wind as distinct from Hurricane Losses caused by Water can be a difficult task.
Computer Models are now advertised to solve the problem for Insurance Companies. (Yet again.) According to testimony on a bill to extend and change the National Flood Insurance Program, Computer Models not only can be used to, well, "model a storm" but "[i]n addition, statistical models can be used to predict the loss." Lydia Mulvaney of McClatchy Newspapers, "Models Can Determine Wind and Water Damage, Panel Told" posted in political blog on MiamiHerald.com on Thursday, June 23, 2011.
There is at least one major drawback to that: Exposure to Bad Faith, extracontractual Damages without limit.
Although the Courts have held that it is not Bad Faith in and of itself to use a Computer Model as a tool in evaluating Covered Loss, see, e.g., Henry v. Allstate Insurance Co., 2011 WL 2287817 (E.D. La. Case No. 07-1738 August 8, 2007)(PACER NOT AVAILABLE; authorized password required to access Westlaw), the Courts have also held that it is Bad Faith to turn the responsibility for evaluating a Covered Loss over to a Computer Model. See also Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" ยง11:22, "Computer Models and Catastrophe Claim Coverage" (Third Edition West Publishing Co. 2011).
I was not aware there is such a problem in the process of actually evaluating Hurricane Losses. There does not seem to be one -- at least before legislation was introduced and Computer Models are being advertised as replacing Insurance Industry Experience in evaluating Covered Losses.
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