Insurance experts said today they are supportive of Gov. Chris Christie’s announcement Monday to allow policyholders to pursue mediation for outstanding homeowner and commercial insurance claims as a result of Hurricane Sandy.”It’s a great idea,” said attorney Donald Kiel, with K&L Gates, in Newark. He said he has several business clients with multimillion-dollar Sandy insurance claims who are negotiating with their insurers and have not yet filed suit.
Insurance companies will be required to participate in the program and pay the cost of mediation; participation is voluntary for policyholders.
“It certainly would have the effect of saving policyholders money,” Kiel said. “And it would take some of the negotiating power away from the insurance companies, who know that their policyholders have to pay lawyers to sue them, if it gets to that point.”
He said one advantage of mediation is that it is not binding, and does not preclude the policyholder from going to court if the process fails. While litigation is expensive and requires a business to devote time and energy to the case, under New Jersey law, the policyholder who successfully sues an insurer can recover their attorney’s fees from the insurance company.
Patrick Breslin, director of legislative affairs for New Jersey Manufacturers Insurance Co., said in 2010 the company created its own alternative dispute resolution program for disputed disaster claims. The disputed claim is reviewed by an internal appeals panel before going to ADR, where the policyholder can choose either mediation or arbitration; both parties have to agree to binding arbitration. The policyholder selects an independent mediator or arbitrator from an approved list. Breslin said 10 policyholders took advantage of ADR for Hurricane Irene, and to date four, policyholders have used ADR for Sandy claims.
Breslin said NJM ramped up its claims staff from 36 people to 400 to deal with Sandy, which generated 54,000 claims — three times the number of the previous record event, which was Hurricane Irene. The company has estimated it will pay out about $300 million in claims.
“This was the biggest event in our history, our reason for existence is to serve our policyholders, and we responded rapidly when the storm came,” he said.
The American Arbitration Association, which on Monday was chosen to administer New York’s mediation program to resolve disputed Sandy insurance claims, said it will apply to New Jersey’s program, also.
A nonprofit founded in 1926, AAA has its own panel of mediators and, depending on the need, will supplement them with additional professionals, said Michael Clark vice president for marketing and public relations at the New York-based AAA, which has New Jersey offices in Voorhees and the Somerset section of Franklin.
Clark said the Sandy mediators will have experience in insurance and real estate matters, and would get additional training. Asked how soon AAA would apply to the New Jersey program, Clark said, “I don’t have an exact date — we are working on it right now.” He said AAA mediated 20,000 insurance disputes in Louisiana and Mississippi after Hurricane Katrina.
Marshall McKnight, spokesman for the state Department of Banking and Insurance, said between 20,000 and 25,000 disputed Sandy insurance claims could go through mediation. Mediation won’t cover National Flood Insurance Program claims, but is an option in other homeowner, automobile and commercial property claims.
According to the state, 87 percent of Sandy claims overall, and 91 percent of homeowner’s claims, have been closed.
McKnight said the state is seeking proposals from mediators. “There are a number of companies out there that have done this before, and we will be looking at whether they have the experience and whether or not they are large enough to handle the size of the program.”
Attorney Adam Budesheim, of McCarter & English, in Newark, said the mediation program “will potentially hold a great deal of benefit for policyholders. Litigation can be expensive, and mediation might be a far more efficient way of resolving these claims.”
The only concern, Budesheim said, is the level of experience the mediators will have.
“Insurance can be fairly complex, particularly in commercial property claims and even homeowners claims, so the level of experience with the insurance industry that the mediators possess will have a significant impact on the effectiveness of these mediations,” he said.
Budesheim has been helping on a pro bono basis a number of homeowners with claims against insurance companies, “and from what I’ve seen so far, I think they would potentially benefit from such a program. Our firm represents corporate clients who have suffered damage from Sandy and they would likely benefit from mediation, as well.”
Meanwhile, insurers continue to resolve outstanding claims on their own. Sheila Breeding, a spokeswoman for Allstate Insurance Co., said the company has closed 93 percent of its 39,000 Sandy claims.
“We have been on the ground since before Sandy made landfall. Our mission has been to settle claims promptly and fairly, and we encourage people to reach out to us directly,” she said. “Mediation will be an additional tool to bring people together to resolve any difference and avoid unnecessary litigation costs.”