Companies Estimate the Potential Cost

Unable to inspect disaster areas that are now crime scenes, insurance companies worldwide struggled Wednesday to evaluate the potential impact of claims, lawsuits and liability disputes in what is expected to be one of the most costly disasters ever.

Experts said the losses probably will lead to higher insurance rates and more difficulty finding coverage that includes terrorist acts.

The National Assn. of Insurance Commissioners, which represents state regulators, said early estimates of insured losses were “in the $10-billion range”; some analysts speculated that costs would reach tens of billions of dollars.

But Lloyd’s of London, an insurance consortium expected to be hit hard by the World Trade Center collapse, lashed out at such guesswork, saying it was “highly speculative,” “unwise” and premature.

“Any calculation of the total losses so soon after the event can only be deeply flawed,” Lloyd’s Chairman Saxon Riley said.

Nevertheless, a number of other major insurers, including Swiss Re and Munich Re, said preliminary estimates of their losses had reached $2.8 billion. The companies said they were strong enough to absorb the expected costs.

An index of European insurance stocks, which fell 13% after the attacks, rose 4% in Europe on Wednesday as investors took a more optimistic view of insurers’ ability to absorb the losses.

Economic losses are expected to be much higher than insured losses because many businesses and individuals carry inadequate coverage, insurance experts said. In the 1994 Northridge earthquake, for example, insured losses have totaled $15.3 billion so far, but economic losses were estimated at $40 billion.

Damage to government-owned structures, such as the Pentagon, also aren’t covered by insurance.

Insurers have assembled teams of adjusters to assess the damage in New York but might be forced to wait on the outskirts of the disaster site for days or weeks while law enforcement authorities complete their investigations, said John Eager, director of claims services for the National Assn. of Independent Insurers, a trade group.

Insurers’ woes could be exacerbated by lawsuits and fights about liability, legal experts said.

Airlines, and their insurers, probably will face lawsuits not just from those killed on the four airplanes that crashed but also from the families of the thousands of people who are believed to have died in the World Trade Center and the Pentagon, said Peter Keane, dean of Golden Gate University School of Law in San Francisco.

And insurers are likely to sue one another, as companies with overlapping coverage fight about which should pay, said J. Clark Kelso, professor at McGeorge School of Law in Sacramento.

Meanwhile, analysts predicted that rates for many types of insurance, which already were on the rise this year, would continue to climb. Martin D. Weiss, chairman of Weiss Ratings, an independent insurance rating agency, predicted that insurers also would write stricter policies to exclude or limit coverage of possible terrorist targets.

Some insurance experts have speculated that coverage of World Trade Center businesses could have been limited if the buildings’ policies specifically excluded damage from terrorism--a possibility because the center was the target of a 1993 bombing, said Robert Hartwig, chief economist for the Insurance Information Institute, a trade group.

At least one business involved in the disaster, however, said its insurance policy covered Tuesday’s attacks. Westfield America Trust, the Australian company that owned the 472,000-square-foot mall at the base of the World Trade Center towers, said the destruction of the property would not affect earnings dramatically because it was covered by an insurance policy that included coverage for acts of terrorism. The company declined to be more specific.

Loss estimates Wednesday from Munich Re, Swiss Re, Allianz, Zurich Financial and other major insurers also indicated that their policies might have covered terrorism, analysts said.

Property damage alone in lower Manhattan is likely to be $3 billion to $5 billion, said Joe Annotti, an NAII spokesman. But other types of insurance coverage, including workers’ compensation and business interruption policies, may be far more expensive for insurers, he said.

“Property coverage has finite limits, but workers’ compensation in particular is a little more open ended,” Annotti said.

Most businesses have some type of interruption insurance, which pays if they’re unable to open their doors or if their suppliers or clients are shuttered, said David Steuber, a business insurance expert and partner with Howrey Simon Arnold & White in Los Angeles.

How much coverage each business carries depends on how policies are written, Steuber said. Some provide payments immediately, whereas others require waiting periods or deductibles that limit coverage.

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Times staff writers Maura Dolan and Melinda Fulmer contributed to this report.

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Most Costly Disasters

Hurricane Andrew was the most expensive disaster in U.S. history in terms of insured losses. All loss figures are in current dollars.

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Natural catastrophe Year Insured losses Hurricane Andrew 1992 $18.6 billion Northridge earthquake 1994 15.3 billion Hurricane Hugo 1989 5.5 billion * Man-made disaster Los Angeles riots 1992 $945 million World Trade Center bombing 1993 616 million Oklahoma City bombing 1995 140 million

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Note: Ranking includes only U.S. disasters

Source: National Assn. of Independent Insurers