Insurance companies so far pay over $3 billion in derecho claims to Iowans

DES MOINES — Last summer’s destructive derecho has been labeled the costliest thunderstorm in U.S. history, and the staggering price to repair and reconstruct damaged communities in the path of the rare inland hurricane is bearing that out.

Insurance companies have paid more than $3.125 billion to settle 223,410 damage claims from policyholders in Iowa, according to the state’s Insurance Division, and that number is expected to grow as state regulators urge insurance carriers to grant extensions to affected homeowners and businesses as the anniversary of the Aug. 10, 2020, event approaches.

Those property and casualty issues for Iowans are a subset of the derecho’s larger 770-mile path of destruction from South Dakota to Indiana over 14 hours that the National Oceanic and Atmospheric Administration estimates caused $11.5 billion in overall damage to communities, farms and crops — with 1 million acres of corn and 600,000 acres of soybeans in Iowa ripped from production.

“It was a very significant weather day in Iowa history,” said Iowa’s state climatologist Justin Glisan.

But it is the aftermath of the storm complex — blamed for four deaths, three of them in Iowa — that still is hitting home for Iowans who saw buildings flattened, trees uprooted and roofs torn from their rafters during the prolonged weather event that plunged more than one-fourth of Iowa’s homes into darkness as power lines went down.

“It was unprecedented,” said Tom O’Meara, executive director for the Independent Insurance Agents of Iowa, an association of about 600 member companies. “It was a hit, but, hopefully, they’re able to recover and get back to what normal was.”

Efforts to get back to that normal is a mixed bag, said Greg Usher, a Cedar Rapids lawyer who is helping consumers who have had to sort through insurance coverage issues along with wind-tossed property and personal effects — some finding a smooth path to recovery, but others facing delays and struggles to reach replacement settlements with insurance carriers that have been unwilling to pay amounts that had to be readjusted upward due to shortages and material cost spikes.

The fast-moving, violent windstorm hit the Cedar Rapids area particularly hard — cutting power to almost the entire city, damaging a wide array of businesses and homes and making it the epicenter for insurance claim activity. Carriers enlisted an army of out-of-state appraisers in a community cautiously reopening from the COVID-19 pandemic, O’Meara confirmed.

“It was post-apocalyptic around Cedar Rapids for a while,” Usher said.

Along with COVID-19 health issues related to in-person inspections beyond the visible outside damage, state regulators note delays also resulted from shortages in the availability of contractors to do repair work as well as materials that saw significant price spikes when they were available. They often combined to cause consumer disputes with insurers that had set an initial replacement reimbursement that in the end fell significantly below actual costs.

Usher said usually when he meets with clients battling an insurance company to settle their claim, “everyone is in tears” early on in the conversation because they want back in their homes but often face complications outside of their control.

“They feel like they’ve been victimized. They’ve paid insurance premiums that these companies have made money on and for what?” asked Usher, who is in the process of preparing 50 to 80 lawsuits needed to preserve policyholder rights to litigate, if need be, beyond the one-year benchmark.

“They don’t know what to do. They feel like they’re being taken advantage of and they’re powerless and they’re being crushed by the corporate system and they feel like nobody cares,” he added. “A lot have given up because they can’t put any more emotional bandwidth into this issue.”

Those concerns prompted Iowa Insurance Commissioner Doug Ommen to issue a reminder to consumers to check deadlines in their individual policies with the anniversary approaching. A July 26 bulletin pressed insurance companies to exercise forbearance in granting extensions in cases where insurance contracts include provisions requiring replacement or repairs to be completed within a specified time in order to receive the replacement cost settlement.

“The Iowa Insurance Division commends the significant efforts by carriers and consumers working together to rebuild our communities. However, there is much work left to be done. Many policyholders, through no fault of their own, but due to the scale of the damage from the derecho, are still waiting for work on their homes or other property to be completed,” Ommen noted.

“Given the varied circumstances leading to delays around the derecho recovery, invoking contractual provisions prohibiting payment of recoverable depreciation after a certain deadline may be viewed as a failure to act in good faith to effectuate fair and equitable settlement of a claim (under Iowa law),” he added. “The Iowa Insurance Division views situations where consumers with open derecho claims, who are holding up their end of the insurance contract by diligently working towards the completion of repairs as proper justification for granting an extension request.”

Usher said he would like to see Gov. Kim Reynolds take the division’s directive a step further and place a moratorium on insurance carriers enforcing a contract provision setting a one-year litigation deadline, even in cases where the policy allows two years for the parties to reach a replacement cost settlement.

“It’s a game they play — delay, deny, defend,” said Usher, who has encountered companies enlisting multiple adjusters on a single claim as a way to “strangle” policyholders with time delays. “They just want to drag it out and make you accept their super low settlement. They offer you pennies on the dollar.”

Chance McElhaney, the Insurance Division's communications director and legislative liaison, said the commissioner’s bulletin issued guidance to companies about granting extensions as necessary on a case-by-case basis that they are required to comply with, such as a notation that “the existence of or the interpretation of insurance contract provisions cannot be employed to frustrate an insurer’s duties of fair dealing.”

Jared Kirby, the division’s deputy commissioner, noted state regulators received 416 consumer complaints regarding derecho-related insurance issues, with 43 currently still open and 123 confirmed of the 373 that have been closed. That resulted in additional insurance proceeds paid to policyholders of $323,151.

For many carriers, the volume of claims generated by the derecho was the largest for any single event they had encountered, which brought on unique circumstances and challenges, noted Kirby, who said roughly 18,000 of the 225,000 claims are left to handle.

Taking the long view, O’Meara noted, the fact that state regulators received 416 complaints for a weather event that generated 223,410 claims indicated most insurers have been responsive in dealing with the derecho aftermath.

“Percentagewise, that’s not a huge number for such a widespread storm,” he said.

O’Meara said the Aug. 10, 2020, straight-line thunderstorm was tough for insurance agents who were overwhelmed with the volumes of consumer contacts at a time when they, too, were facing the same problems of damage to their homes and agencies, power outages and disrupted communications.

The Iowa Insurance Institute, a not-for-profit association comprised of property and casualty insurers, declined to answer a list of submitted questions regarding Iowa’s derecho experience. But board President Aaron Pearce issued a statement saying the insurance industry “has worked diligently” over the past year.

“Given the very unique nature of every person’s insurance policy, and their carrier’s operations, we encourage anyone who was impacted to continue to work with their insurance agent, broker, or carrier,” Pearce said. ”Last year had many challenges and the Iowa insurance industry supports all Iowans as they continue to recover from the unprecedented weather event.”

State regulators said the significance of the derecho has certainly had a meaningful impact on property and casualty carriers, but they employ a variety of risk management strategies to limit exposure in single events to amounts they are able to tolerate.

“This includes geographical diversification and, importantly, the use of reinsurance programs which enable individual carriers to spread risk to other insurers. This ensures that exposure to losses are within each individual insurer's risk tolerance policies,” McElhaney said in an email. “Because of these risk management strategies, we believe that companies are well positioned to respond to multiple catastrophes.”

Also, according to Insurance Division officials, property insurance rates are generally based on claims over a five-year period.

“Generally speaking, property rates have moderately increased since the derecho and we anticipate they will continue to do so,” according to state regulators.

“The division has received complaints from some consumers about being non-renewed,” they said. “However, generally the insurance market is competitive and healthy and provides a lot of ability for consumers to shop around for coverage.”

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