Of course, responding by "waiving" the second deductible reflects the aspiration of insurers genuinely to help their assureds in their time of need. It also enhances goodwill and helps cement their relationship with their policyholders (the source of their premiums). I know from personal experience with my auto insurer that when our two cars kissed each other one day damaging both our insurance policy waives deductibles completely -- we didn't even pay one, let alone two (i.e., a deductible each for each damaged car). I can't quite say that because of that alone we're still premium-payers ten years later, but it certainly helps ensure the continuation of the income flow from my family to that insurance company.

One key difference between my experience and that of the Katrina/Rita policyholders is that my insurance policy had a provision on point saying that no deductibles are owed in the circumstances. Here, the insurers ostensibly are waiving deductibles at the point of claim or retroactively (whereas in my case the insurer waived what would otherwise be the right to two deductibles in advance, that is, in the policy).

In addition to fostering customer loyalty, waiving the second deductible reduces the transaction costs of adjusting the claim (since the adjuster need not unscramble the omelet to see which particular damage was caused by one hurricane or the other). This practical point then goes to the legal question of who bears the burden of proof against the unscrambling problem: if the insurance company bears the burden of differentiating the damage before the second deductible applies, in the absence of adequate evidence the insurer not only would lose that case but potentially risks bad faith (if it did not have a reasonable basis to believe that part of the particular loss was attributable to the second storm). Issues of causation arise, too, for if my roof would need to be replaced from the first storm, that it was further damaged from the second storm is irrelevant (other than that the policyholder cannot collect twice for the roof). Against the potential complexities of these legal questions of burden of proof and causation as well as the increased costs of ascertaining the information needed to refine the determination of what was caused by one storm or the other, those insurers that have "waived" the second deductible may be taking a practical problem and turning it into a PR victory (at no additional cost to them).

In life, it sometimes seems that no good deed goes unpunished, so here's the consequences to these "enlightened" insurance companies.

First, if the experience of the Florida hurricanes holds true, the reinsurers will not similarly allow the insurance companies to aggregate the two storm-related losses together. Last year, reinsurers said publicly that, while waiving the second (or third or fourth) deductible may be sound public relations, they would require in effect the insurers to offset their reinsurance claims by the amount of deductible that was not collected. The ground for this position is that the insurer's expenditure of money within the amount of the additional deductible is a gratuitous (ex gratia) payment, so the reinsurer does not have an obligation to reimburse. Whether this is a winning point for the reinsurers largely depends on the language of the reinsurance policy and on whether the reinsurance contact is governed by English or US law, for English law is much more rigid (and uncommercial) on the issue than is the law in US jurisdictions. When one considers the number of deductibles a major carrier like Fireman's Fund may be giving up, the amount of money at stake could be considerable.

The rejoinder to the ex gratia point is the same as indicated above regarding the legal and practical difficulties regarding the second deductible, which is not a "reinsurance" point as such but rather a question whether under the insurance policy that was issued would the insurer even have had the right to the second deductible. Even if the insurer might have been able to collect the second deductible, the reinsurance policy may contain various follow-the-settlements, follow-the-fortunes, and loss-adjustment clauses that may vest in the insurance company (cedant) the power to make this decision, so long as it does so in good faith and acts as if it is playing with its own money (i.e., as a prudent unreinsured).

Second, the same structure of argument, or criticism, might well be leveled by shareholders of the insurers who elect not to pursue the second deductible. The argument here is that by not pursuing the second deductible (especially without reinsurance recovery) the company has engaged in corporate waste. The burden of demonstrating waste is a high one. In Re Walt Disney Co. Derivative Litigation (Del. Ch. Aug. 9, 2005), slip op. at 111 ("[W]aste is a rare, 'unconscionable case() where directors irrationally squander or give away corporate assets.'") (citation omitted). One also wonders how Wall Street will react to insurers' election not to collect the second deductible and whether the trading value of those stocks actually will go up in recognition of the future return (in terms of customer loyalty -- and future premium streams) on the investment of not pursuing the second deductible. Depending on how Wall Street reacts, there may be no damages suffered by shareholders. (Insurers might consider adopting internal corporate resolutions, however, recognizing that there may be circumstances where the company will waive deductibles, which would help insulate the board from challenges by future shareholders re future disasters.)

At all events, "waiving" or not pressing the question of the second deductible is the right thing to do. There is a sound business and legal case for doing so, so one expects that corporate directors and officers (and their insurers) should be insulated from liability from making this business judgment. And one further hopes that the reinsurers likewise recognize that the legal case for contending that performance is owed without regard to the second deductible is substantial, so that the insurers obtain reinsurance recovery without need to resort to arbitration or litigation on the question.