Vol. 2, No. 2, Pg. 38. Property Insurance Issues in the Wake of Hurricane Hugo.

• Author: By Gerald M. Finkel and Gail E. Lovett

South Carolina Lawyer

1990.

Vol. 2, No. 2, Pg. 38.

Property Insurance Issues in the Wake of Hurricane Hugo

38Property Insurance Issues in the Wake of Hurricane HugoBy Gerald M. Finkel and Gail E. LovettThe devastation wrought y Hurricane Hugo in South Carolina caused damages which have now been estimated to exceed $6 billion. More than 5,000 dwellings were totally destroyed; approximately 12,000 more were rendered uninhabitable until repairs could be made.

Many insurance issues have arisen in the wake of Hugo, including carrier insolvencies, disputes over coverage, co-insurance considerations and the conduct of claims adjusters.

The insurance industry responded rapidly to the needs of policyholders and most carriers have done an outstanding job in settling first party claims which resulted from Hugo. Some unusual problems arose, however, from this mass disaster and there are still unsettled claims. The reserves of a number of carriers were severely taxed and two insurance companies-Grange Mutual Insurance Company of South Carolina and Hibernian Mutual Insurance Company-were forced into insolvency. Fortunately, the South Carolina Property and Casualty Insurance Guaranty Association (S.C. Code Ann. Section 38-31-10 et seq.) provides a mechanism for paying claims of policyholders of insolvent carriers.

The reserve funds of surviving insurance carriers were severely impacted by Hugo claims. As a result, carriers in some instanceshave pursued policy construction of the exclusions following the basic insuring clauses of property insurance policies. For instance, damages caused by windstorm are generally covered, whereas damages caused by rising waters or flood may be excluded in a particular policy. It is obviously to the insurer's advantage to categorize a loss from Hugo as occasioned by flood rather than by windstorm. Many beach residents have found that the damage to their roofs and siding was covered but the loss to their decking was not.

The problem of policy construction was compounded by an influx of adjusters from all over the country to handle the mass disaster. In many situations, adjusters opined as to the issue of coverage with little or no direction from a home office and in derogation of South Carolina law.

The rules controlling construction of insurance policies in South Carolina are well settled. Those rules are best summarized in Tobin v. Beneficial Standard Life Ins. Co., 675 F.2d 606 (4th Cir. 1982):

Insurance policies are subject to general rules of contract construction. Courts must enforce, not write, contracts of insurance and their language must be given its plain, ordinary and popular meaning. E.g., Sloan Construction Co. v. Central Nat. Ins. Co. of Omaha. 269 S.C. 183, 236 S.E.2d 818 (1977).

While an insurance contract is to be construed liberally in favor of the insured and strictly against the insurer, nevertheless, in the absence of ambiguity, the policy is to be interpreted according to the plain ordinary meaning of the words by which the parties choose to contract. Deese v. American Bankers Life Assurance Co. of Florida, 263 S.C. 160, 208 S.E.2d 736 (1974).

An insurance policy's terms must be construed most liberally in favor of the insured, and if the language is ambiguous, or capable of two reasonable interpretations, the construction most favorable to the insured must be adopted. Pitts v....