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Rewriting the rules in the 9th Inning

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Mississippi Sues To Make Insurers Pay Flood Claims
NEW YORK (The Wall Street Journal)--Mississippi Attorney General Jim Hood filed suit against five big insurers in that state yesterday, unleashing protest throughout the industry as he seeks to force the companies to pay for flood damage from Hurricane Katrina despite flooding exclusions in standard homeowners' policies.
The suit, filed in state court in Jackson, seeks to override the exclusions. It comes as tens of thousands of Gulf Coast property owners struggle with the cost of rebuilding homes damaged by the wall of water that surged with the hurricane Aug. 29. Standard homeowners' policies typically cover wind and other storm damage, but not flood damage. Flood damage is covered by a government-backed flood-insurance program, but fewer than one in four Mississippi properties in areas most at risk of flooding are insured through the federal program.

"You can't provide free flood insurance by rewriting contracts," said Jane Boisseau, a New Orleans native and co-chair of the insurance practice for law firm LeBoeuf, Lamb, Greene & MacRae LLP in New York, which represents many insurers. A spokesman for State Farm Mutual Insurance Cos., the nation's largest home and auto insurer, said the attorney general's move "threatens the foundation of the economy of the state" by attempting to undercut legal contracts. The insurers maintain they never collected any premium money from customers to cover flood damage.

Still, fighting the suit could be a public-relations problem. The U.S. insurance industry is in robust financial health, with more than $400 billion in capital. Also, the industry is legendary for lobbying clout and has a track record defending its contracts, which are approved by state regulators.

The lawsuit throws into sharp relief concerns that have increased as the extent of Katrina's destruction -- estimated at as much as $125 billion, with up to $60 billion covered by insurance -- has become clearer. Homeowners without government flood insurance typically must rebuild on their own or with low-interest government loans and limited grants. Complaints that smaller insurers are delaying and denying payments have begun mounting.

Besides State Farm, Mr. Hood's lawsuit names as defendants units of Allstate Corp., Mississippi Farm Bureau Mutual Insurance Cos., United Services Automobile Association, and Nationwide Mutual Insurance Co. The companies together last year wrote about 70% of Mississippi homeowners' policies. Companies that could be reached for comment yesterday generally said they hadn't seen the lawsuit but expected to prevail.

The suit seeks to void flood exclusions, arguing they are "unconscionable," unreasonably favorable to insurers and a "violation of the public policy of Mississippi."

The suit argues that policyholders bought insurance to protect property against hurricanes with the "reasonable expectation" it would cover flood and other water damage. It accuses insurers of deceptive trade practices. The suit argues that Mississippi law and court precedent require insurers to pay according to the original cause of damage, and that flooding from Katrina was caused by the storm and its high winds.

The suit argues the policies deprive policyholders of "meaningful choice."

Language in policies excluding flood and water damage is typically broad. One Gulf Coast policy form excludes coverage for "water damage," defined as "flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind."

Allstate's general counsel, Michael J. McCabe, said the company expects Mr. Hood's challenge to fail, in part because state regulators approved the contracts, "but while it's being adjudicated, it will delay and complicate the process." He said Allstate is paying covered losses "fairly and as swiftly as humanly possibly." Of the insurers sued, only Allstate is publicly traded; the rest are owned by policyholders.

A spokesman for Mississippi Farm Bureau called the suit "amazing" and said it "will take a long time to settle." Nationwide said that it is "deeply disappointed" by the lawsuit, and that voiding flood exclusions would hurt policyholders nationally.

A spokesman for USAA said that, while sympathetic to Gulf Coast residents who didn't buy flood insurance, "we cannot compromise the interests of our members who have covered losses by being forced to pay for uncovered losses."

Mr. Hood's lawsuit seeks to prevent any insurer from requiring policyholders to sign documents acknowledging flood or water damage to receive claim payments. In its statement, Nationwide said any suggestion that it had done this was "unfounded."

So because most people did not buy flood insurance, insurance companies should pay for a risk they did not insure and did not collect premium dollars for? If the state wins, I fully expect most insurers to stop writing homeowners insurance in Mississippi.

Another nail in the coffin of personal responsibility. Might as well plug us all in to the Matrix now.

RESISTANCE IS FUTILE, YOU WILL BE ASSIMILATED...

Does this mean I can stop paying my car insurance?

I'm not the biggest fan of insurance companies but this make no sense at all.

Sure.

I mean, you should still be covered even if you don't pay for the coverage, right? Just write your Attorney General.

More like rewriting the rules once the game is over. Pathetic. Those who have paid flood premiums will feel like chumps.

I don't get it. I live halfway up a freakin' mountain and had to buy flood insurance because I live next to a stream. For that stream to back up enough to flood MY property the entire east coast will be well under water. I'm 1000 feet above sea level!!! How can someone who lives 8 feet BELOW sea level not have flood insurance?

The federal government decides where the "flood plains" are. Enough said?

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Originally posted by legion
The federal government decides where the "flood plains" are. Enough said?

Yes, I understand now.......:rolleyes:

Seriously, no process is perfect. I expect that those people whose job it is to determine flood plains for the whole country take some shortcuts.

"Stream near by, it might flood..."

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Originally posted by legion
Seriously, no process is perfect. I expect that those people whose job it is to determine flood plains for the whole country take some shortcuts.

"Stream near by, it might flood..."

Yes, I understand that and whined a little about it at the time but buckled under, but wouldn't you think that same bureaucrat would figure, "Hmmmm, Mississippi on the other side of the wall, it might flood"?

I live in Wayne, NJ. When the spring rains hit north NJ, Wayne is always on the news: there's a corner of the town that floods every year.

I live on a hill - like Dave E's case - if my house floods, where talking floods like Noah's time. :D Fortunately, I don't live next to a stream, so I am officially NOT on a flood plain.

However, I am certain that those folks who live in my town that are in the flood plain are required by law to purchase flood insurance. Maybe it's different in Mississippi and Louisiana - I dunno. But like it was said above - if you live at or near the sea and your house is at or below sea level, it should be a no brainer that you need flood insurance, especially if your area is known for its hurricanes.

My $0.42,
-Z.

PS: I guess it's Bush's fault these people didn't have any flood insurance... :rolleyes:

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How can someone who lives 8 feet BELOW sea level not have flood insurance?

a lot of the damage in Mississippi was due to storm surge etc well above sea level, in areas not demarcated as "flood plains" because, historically, it doesn't flood there

lots of people 8 feet BELOW sea level might not have flood insurance because it costs so much. some people are stretching to own a house, but I think that's a risk they are taking.

btw, lots more people in CA wouldn't have earthquake insurance if the state didn't make companies average risk to come up with acceptable premiums for the most risky places. maybe the same should be done for the wet stuff.

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Originally posted by Z-man

However, I am certain that those folks who live in my town that are in the flood plain are required by law to purchase flood insurance. Maybe it's different in Mississippi and Louisiana - I dunno. But like it was said above - if you live at or near the sea and your house is at or below sea level, it should be a no brainer that you need flood insurance, especially if your area is known for its hurricanes.

There is no law that I know of requiring flood insurance if you live in a flood plain (plane?). The issue is acquiring financing. If you live in a flood plain, no one will finance the property without flood insurance. Additionally, FHA, for example, won't insure any NEW construction built in a 100 yr. flood plain.

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Originally posted by Steeve
There is no law that I know of requiring flood insurance if you live in a flood plain (plane?). The issue is acquiring financing. If you live in a flood plain, no one will finance the property without flood insurance. Additionally, FHA, for example, won't insure any NEW construction built in a 100 yr. flood plain.

Yes, you're right. The issue arose for me when I refinanced my house. 10 years ago I wasn't in a flood plain apparently, although the stream was still there.

Quote:

Originally posted by billwagnon
btw, lots more people in CA wouldn't have earthquake insurance if the state didn't make companies average risk to come up with acceptable premiums for the most risky places. maybe the same should be done for the wet stuff.

So then, who here, on the West Coast, carries earthquake insurance? And, if you do, what kind of premiums are you paying?

Maybe time for yet another poll....

If the lawsuit goes through, I imagine insurance on the coasts will increase dramatically. The only relief I would support would be low-cost government backed loans for rebuilding. If the federal government is willing to subsidize loans for low-income folks, we should extend some assistance to those in need. However, government-backed loans should have provisions in which flood insurance is NOT an option, and I fully expect and encourage insurance companies to charge premiums that reflect the risks of living on the coast. With higher premiums and no freebies from the government, I think some would reconsider (re)building on risky masses of land.

Quote:

Originally posted by billwagnon

btw, lots more people in CA wouldn't have earthquake insurance if the state didn't make companies average risk to come up with acceptable premiums for the most risky places. maybe the same should be done for the wet stuff.

I am thinking people should not be living in the most risky places - wet or dry. But it is a free country, folks can live where they like. Just dont ask me to pay for it..

We get our share of flooding up here. It absolutely astounds me that folks are allowed to continually rebuild on flood plains. They are essentially doing it on the backs of the rest of us. Federal grants, insurance payouts; that all comes out of the rest of society's pocket.

I'll never forget one woman on TV several years ago that had lost her home. She was being interviewed with the Cowlitz, or Toutle, or whichever river had flooded, raging in the background. The reporter commented on how heartbreaking and utterly sad it must be to have lost your home and everything in it. This woman had the gall to answer "not really; we keep the mementos and such where we can grab them on the way out. The rest of the stuff is replacable, and we get all NEW stuff every few years" (emphasis added). Maybe these people deserve to be looted; they are certainly fleecing the rest of us.

Quote:

Originally posted by gaijindabe
I am thinking people should not be living in the most risky places - wet or dry. But it is a free country, folks can live where they like. Just dont ask me to pay for it..

I'm continually surprised at how I can so utterly disagree with with a person on this BBS on one thread, yet on another find complete and total agreement with the very same person. I'm beginning to have a lot of respect for the posters here. This BBS makes me a better person.

(BTW, I can't remember the specific thread I disagreed with you gaijindabe, and I don't think I posted a reply.:))

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Mississippi Governor Prefers Talks to Suit On Flood Insurance
JACKSON, Miss.(The Wall Street Journal)--Republican Gov. Haley Barbour said late last week that he preferred to negotiate with insurance companies to help homeowners who lacked flood insurance rebuild their property, saying a lawsuit could push the companies out of Mississippi.
Democratic Attorney General Jim Hood has sued major insurers on behalf of Mississippi residents whose homes were destroyed by water instead of wind. He said a standard homeowner's policy should cover hurricane damage, whether the loss came from wind or wind-driven water such as a storm surge.

Insurance companies contend homeowners should have bought additional flood protection. The governor said forcing the companies to pay for flood damage could bankrupt them or drive them elsewhere.

"It's crucial that people who enter into contracts keep their contracts," Mr. Barbour said. "And that's what an insurance policy is, it's a contract."

The governor said insurance companies "must be held to these contracts." But he also said many people, particularly those who did not live in a flood plain, didn't have flood coverage.

"For those people, we are working very hard that if they don't have insurance or if they don't have coverage, that we can come up with a way to help them financially, help to make them whole," Mr. Barbour said.

Insurance Commissioner George Dale, a Democrat, sided with the governor. He asked the Mississippi congressional delegation to seek a bailout for those lacking insurance coverage.

"The insurance industry can take care of so many. The flood insurance program can take care of so many," Mr. Dale said. "But there is still others out there that do not fit under either of those. We cannot let them just absolutely be made bankrupt. It would kill our economy.

So Mississipi's approach is to make corporations pay for reconstruction. Louisiana's approach is to make the federal government pay (and all of us). I haven't heard anyone float the idea of making the guy who built his house on the coast pay...

And now, the blood-sucking trial lawyers join the fray.

I'm sure we'll get many "I'm really just concerned about the victims here" quotes out of Scruggs. Let's see if his fee ever makes the papers...

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A Civil War Over Claims?
NEW YORK (Fortune)--To hear Mississippians tell it, Hurricane Katrina is creating a new North-South divide. The dustup pits Gulf Coast homeowners, trial lawyers, and elected officials against insurance companies. At issue is whether the bulk of Katrina's damage was caused by wind, which insurers cover as part of standard homeowners' policies, or floodwaters, which aren't covered. Leading the charge against the insurers are Mississippi attorney general Jim Hood and Richard Scruggs, the Mississippi attorney who famously hobbled the tobacco and asbestos industries. Scruggs announced plans to file a lawsuit on behalf of residents of Mississippi, Alabama, and Louisiana, alleging that insurers are "attempting to minimize their hurricane coverage by intentionally misclassifying the hurricane's destruction as mere flooding." The suit names the three largest insurers in the region: State Farm, Allstate, and Nationwide.

It's not exactly Johnny Reb against the Yankees, but the conflict is dredging up all the old feelings of Southern mistreatment at the hands of mostly Northern entities. And Scruggs's rhetoric isn't helping. "I'm sure the insurance companies will send all the Philadelphia lawyers they can muster," he said. "But frankly, this is the kind of battle I relish, because they tend to underestimate us down here."

A lot is at stake. Katrina is likely to set a record for insurance-industry payouts. The wind and rain that wrought havoc across Florida, Alabama, Mississippi, and Louisiana caused nearly three times the property damages of the Sept. 11 terrorist attacks, generating insured losses of up to $60 billion, according to analysis firm Risk Management Solutions. A day before Scruggs announced his planned lawsuit, Hood named the same companies in a similar suit that also charges insurance adjusters with attempting to dupe policyholders by asking them to sign forms that say they sustained flood damage in exchange for expediting checks for living expenses.

An Allstate spokesman says the company's flood exclusions have been in place for decades. State Farm denied Hood's charges and said he is retroactively challenging the validity of contracts. Nationwide said that the suit threatens to hurt all policyholders. It's unclear whether insurers are willing to see these cases through. Despite the industry's $400 billion in capital, Scruggs and Hood will have home-field advantage and a lot of bruised Southern pride in the jury pool.

Bold Italics added by me.

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Katrina Ravages Mississippi -- Contracts Badly Hit (opinion)
NEW YORK (The Wall Street Journal)--Sometimes it takes a good lawyer to get an insurance company to pay up on the promises it made. But if you want insurers to pay billions on promises they never made -- risks they were at pains to avoid underwriting, never collected premiums for, and never set aside reserves against -- then a pair of very special lawyers, Jim Hood and Dickie Scruggs, are at your service.

In case you're arriving late, insurance pros worldwide stood transfixed last week at the news that Mr. Hood, the elected attorney general of Mississippi, and his ally Mr. Scruggs, the Pascagoula wheeler-dealer known for his role in the $246 billion tobacco litigation, were suing to invalidate -- as "unconscionable" and contrary to public policy -- the standard flood exclusion in every Magnolia State homeowner's contract. Assuming ordinary readings of policy language, the early estimates have insurers on the hook for a record $40-$60 billion in Katrina payouts. Knock out the flood exclusions and that exposure will increase by many billions more -- scores of billions if the principle gets applied in Louisiana.

Wouldn't that bust some otherwise solvent insurers? Sure, but Mr. Scruggs -- a key donor to many politicians and judges in his state, as well as brother-in-law of former Sen. Majority Leader Trent Lott -- isn't worrying. "I'd rather see an insurance company go broke than the tens of thousands of my friends and neighbors in Mississippi, Alabama, and Louisiana go bankrupt," BestWeek has him saying.

There are some genuine, knotty issues that will arise in resolving Katrina coverage. Ambiguous policy language, unsettled issues of state law, situations in which a structure was damaged first by wind and then by floodwater -- all will fuel litigation by policyholders, some of it meritorious. But that's quite a different question from whether clear and long-standing contract language should be tossed in the wastebin.

The flood exclusions, Mr. Hood asserts, were hidden "in the fine print" of coastal residents' policies. If so, it was some of the most publicized fine print in history. "Homeowner's insurance doesn't cover flood damage" -- blares the warning on one of the federal government's own consumer-affairs Web sites. In fact, the well-known exclusion dates back decades and has been generally respected by courts.

"Unconscionable"? Contrary to "public policy"? The exclusion prevails in all 50 states, including those states -- Mississippi is one -- where regulators must okay the offering of new standard policies. Mississippi's insurance authorities, like their counterparts elsewhere, had green-lighted the flood exclusion, amid little controversy.

Then there's the federally sponsored flood insurance program, which exists in large part because storm surge perils in hurricane country are considered too severe to insure commercially at politically palatable rates. For years, insurance agents and the government have urged property owners to buy that added coverage. But why should they bother, if the Hood/Scruggs arguments are to be taken seriously? Can't their ordinary homeowners' policies just be redefined retroactively as covering the risk?

Criticized in the past for his close ties to the state's powerful trial lawyers, Mr. Hood has often been at odds with Republican Gov. Haley Barbour (with whom he is not obliged to coordinate his activities). In a way, Mr. Hood is simply taking to an extreme the failings of that familiar category of public official, the grandstanding state attorney general. Every element is there: the headline-chasing, the demonization of unpopular businesses, the cozy relationship with private attorneys suing those same businesses, the posturing about being on the "people's" side at the expense of any coherent or defensible legal principle.

It's hardly a coincidence that it was Mr. Hood's predecessor, Mike Moore, who, in league with Mr. Scruggs, dreamed up the disgraceful $246 billion state tobacco/Medicaid caper. Back then, some businesspeople seemed to imagine cigarette makers were going to be the first and last targets of the emerging AG/trial-lawyer axis. They weren't.

Insurance spokespeople ordinarily issue muted responses when politicians attack, but not this time. "You cannot have a capitalist economy where contracts are ignored," noted Robert Hartwig of the Insurance Information Institute, who said Mr. Hood's lawsuit is "an affront to the Constitution and sets a horrendous precedent." So, can't State Farm, Allstate and others cite Article I, Section 10 of the U.S. Constitution, which provides that "No state shall. . . pass any. . . law impairing the obligation of contracts"? Unfortunately, the Supreme Court in Blaisdell, a 1934 New Deal case, gave states free rein to nullify contracts so long as "the legislation is addressed to a legitimate end and the measures taken are reasonable and appropriate to that end." If you think that guts the originally intended protection, maybe you're part of that "Constitution in exile" movement we keep being warned about.

Should the Hood-Scruggs theory be taken seriously, the bankrupting of some insurers and the diversion of money from insureds in other states will only be the start. The wider problem would be that both reinsurers and primary insurers are likely to head for the hills rather than underwrite future conventional policies in Mississippi, or indeed any jurisdiction judged capable of electing a Hood to high office. At a minimum, they're likely to demand a steep premium to compensate for legal risk.

Alarmist? Mississippi insurance commissioner George Dale is already worried that as panicked insurers pull out of the state, first-time customers -- such as construction contractors moving into the area -- will be among the earliest casualties: "Contractors got to have insurance; they can't build without insurance."

We've had the natural disaster. Let's hope it's not followed by legal disaster.