The View From My Office Window
In the first edition of Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses (John Wiley & Sons, Inc., second edition, paperback, August 2009), published in 2002, I wrote that you should consult with professional and trade associations and others in the small business community to learn of their experiences in selecting an insurance carrier. Certain companies have good reputations of service in the small business market, while others are best avoided. I also wrote that there were two insurance companies that were particularly difficult to deal with for Lower Manhattan small businesses to get their 9/11-related claims paid. So I was not altogether surprised to read in the news media that “AIG was playing hardball on paying claims” to the passengers of USAirways Flight 1549. Could it be argued that AIG’s tough stance on claims relates to its present financial difficulties?
Nope.
In the current edition of the book, I shared the experience of “Ariel Goodman, whose small business was based in the World Trade Center. Ariel also lived in an apartment building directly facing the World Trade Center. Following the terrorist attacks, the Department of Health condemned her apartment building. What was doubly unfortunate was that her business records were backed up at her home and her personal records were backed up at her office. Within the space of a few minutes, she lost both simultaneously…Ariel, by the way, founded From the Ground Up, a nonprofit association of Lower Manhattan small businesses affected by 9/11.” Ariel needed her commercial insurance policy to file her claims. Obtaining a copy from her accountant was not an option, as her accountant’s office was also located in the World Trade Center and he had not thought to back up his records offsite. Her insurance company denied her commercial claims and when she sought to protest their decision, repeatedly refused her requests over several months to furnish her with a copy of her policy. I advised her to send a copy of her written request to the New York State Insurance Commissioner, to make the regulators aware of her struggle with her insurance company. That did the trick.
You already guessed it: her insurance company was AIG.
That, in my opinion, is the problem for AIG. Aviation insurance is an anomaly in that insurers are typically not obligated to pay claims unless there is proof of negligence on the part of the airline. In this case, no finding of negligence has been made. At the same time, because of the sheer size of potential aviation liability claims, such coverage is typically syndicated among a group of insurers with one insurer acting as the lead underwriter. If the lead insurer pays claims that it is not obligated to pay, it faces problems of its own with the other insurers in the syndicate. An insurance company with a pristine reputation might be able to explain this phenomenon to angry passengers. They could show how paying claims that they are not obligated to pay raises the cost of coverage for everyone. It is just that if there are those who believe that the insurance company knowingly denies legitimate claims and then, on top of that, owes its continued existence to a massive taxpayer bailout of the reckless behavior of its senior executives, well, don’t expect much sympathy.
