LESSONS TO BE LEARNED
ONE YEAR AFTER HURRICANE ANDREW

One year ago on August 24, 1992 in the early hours of the morning, a Category 4 Hurricane named "Andrew", accompanied by many spawned tornadoes, hit the southeastern shore of Florida leaving a devastation that will take years for the area to rebuild and recover from. As "Andrew" cut his way across Florida, the insurance industry was moving into the area with advanced catastrophe teams to establish "Cat Centers" wherever they could find power, water and a dry roof over their heads.

Amidst the chaos that emerged in the aftermath of Hurricane Andrew, the insurance industry scrambled and made every effort to help their insured with emergency funds to find temporary quarters until their claims could be investigated and settled. With the tremendous number of claims being filed, coupled with deadlines being set by the Florida Insurance Commissioner to have those claims inspected within a certain time frame, and, the pressure from the insured to have their claims settled as soon as possible, very hard choices and tough decisions had to be made. Someone had to decide what was fit to stay and what had to go. Someone had to make the call.

The need for engineering and expert services to verify and assess damage became one of the most important steps of the mutual claim inspection and would play a big factor in the settlement process later. The majority of claims stemming from "Andrew" required competent and unbiased professional engineers and experts. Indisputable determinations and damage assessment opinions would be the key to adjuster and the insured to arrive at a fair claim settlement.

To speed up the claim investigation process and to buy time until an adjuster could inspect the claim, many insurance companies allowed the insured to find their own engineer or expert, to inspect their damage, the cost of which would be reimbursed by the insurance company. In many instances the insured, on their own, would hire their own engineer, expert, architect or general contractor to assess the extent of damage and project the cost of repair and/or replacement. Unfortunately this immediate need for engineers and experts opened up "Pandora's Box".

Engineers came out of the woodwork. Anyone who knew anything about construction became an expert in his field. The migration to southeast Florida to cash in on the storm damage inspection bonanza had begun. To make matters worse, many insurance companies tried to hold down inspection costs by capping the amount an engineer or expert could charge for damage assessment inspections and follow up reports.

This atmosphere set the stage for the $250 to $750 damage assessment inspection report. The goal of the majority of the engineers and experts working within the cost guidelines was not the quality of the inspection and follow up report, but how many reports they could do in a day at $250 to $750 a pop. And why not - with their interpretation of the codes, they could take the easy way out and condemn property in lieu of determining and documenting what portion of the damage could be saved and/or rebuilt.

The Dade County construction industry prior to the hurricane was under the jurisdiction of the South Florida Building Code, which in Section 202.2 said:  

"If the cost of alteration, repair and/or replacement of an unsafe building or structure or part thereof exceeds 50% of its value, such building shall be demolished and removed from the premises."  

it also stated:  

"If the cost of structural repair or structural replacement of an unsafe building or structure or part thereof exceeds 33% of the structural value, such structure or part thereof shall be demolished and removed from the premises." 

Armed with the 50% and 33% code jargon, an inspection check off list and camera, the engineers and experts proceeded with their windfall inspection assignments. They inspected for both the insurance industry and the insured. Many of the reports came back recommending the structures be demolished because the amount of damage exceeded the code percentages or recommending total replacements in lieu of patch and repair. But wait - under the same section of the code quoted above, the code provides exceptions such as:

a) "The owner of property has the ways and means to complete the work."
b) "All imminent danger has been removed from the site."
c) "Any remaining portion of the structure to be used in rebuilding is certified as safe by an engineer or architect."  

A competent and professional engineer or expert attuned to the insurance industry would take the time necessary to thoroughly assess the damage; determine what was safe and what was not; determine what could stay and what had to be replaced; and, document his findings in a detailed report that answered all of the questions.

On August 26, 1992 two days after the storm, FORCON International Corporation moved into the area with engineering and expert catastrophe teams to help the insurance industry assess and determine the extent of hurricane claimed damage. During the first 3 months, except for a few large commercial claims that needed quality engineering assessment and professional attention, FORCON's efforts to get involved in the voluminous initial claim inspection pipeline of the large residential carriers was a bitter defeat. The inspection cost restraints in place at the time to control the cost of engineering/expert reports was the biggest stumbling block for FORCON. It seemed many were relying initially on controlled mass engineering inspections rather than quality damage assessment opinions and replacement costs.

By December, the 4th month after the hurricane, almost all of the damage related claims had been inspected and many had been settled based on initial engineering or expert reports. However, the number of unsettled and disputed claims were growing and those carriers confronted with this dilemma needed to know exactly where they stood on each claim - they had to be right. The insureds were armed with replacement proposals and their own engineering, expert and/or architectural reports to back up their demands.

FORCON was called in by one of the largest exposed insurance carriers to look at four unsettled and disputed claims to determine exactly where they stood on the claim and who was right and who was wrong. One of the first cases looked at by FORCON was a $400,000 claim backed up by an engineering report and a written proposal by a general contractor supported by a registered architect who wanted $33,000 for redesign and inspection services. No one could dispute the claim until an adjuster was assigned and had the opportunity to inspect the claim. After the adjusters inspection, the estimate to repair or replace the damage was in the $180,000 range. FORCON's associate who investigated the claim was a registered architect and general contractor who specialized in damage assessment and replacement costs.

The FORCON investigation revealed that the claim was worth approximately $219,000. In a line by line comparison of the insured's general contractor's estimate, the adjuster's estimate and FORCON's estimate, a report was submitted to all parties concerned. The initial $400,000 claim dropped down to within $46,000 of the FORCON estimate of $219,000. The general contractor was asked to justify and resubmit a detailed breakout of the $46,000 to FORCON for approval. The claim was settled in the neighborhood of $245,000. The architect who supported the general contractor's original estimate reduced his fee by $26,000 which was incorporated in the insured's original $400,000 estimate.

One of the main reasons for the big differences between the carrier and the insured's damage assessments and reconstruction estimates can be attributed to an inconclusive engineering or expert report early in the claim investigation. A big lesson to be learned for future catastrophes. Damage assessments have to be conclusive, concise, indisputable and unbiased. In order to achieve these standards, the engineer or expert must be able to perform his investigation to the extent necessary without unrealistic cost constraints. The insurance industry saves in the long run.

Based on the above results, FORCON was retained by the carrier's mediation unit to provide them with conclusive, concise and unbiased engineering and expert services to help mediate and settle their outstanding disputed claims from Hurricane Andrew.

Robert A. Dwyre