I suggest we kill insurance agents next:
Mississippi Attorney General Jim Hood sued insurers in his state Thursday for taking advantage of Hurricane Katrina victims and not covering damage to homes caused by flooding in the aftermath of the storm.
Mississippi Farm Bureau Insurance, State Farm Fire and Casualty Co., Allstate Property and Casualty Co., United Services Automobile Association and Nationwide Mutual Insurance Co. were listed as defendants in the suit.
Hood’s office is investigating charges that claims adjusters from these companies offered homeowners affected by the storm $3,000 in personal expense money in return for signing waivers agreeing their home’s damage was from a flood and not from wind.
Apparently, the position of the insurance companies is that even though these folks thought they were buying hurricane insurance, the companies only will pay for wind damage (which is not surprising, because rarely do insurers in flood plains offer flood insurance*- you have to go through FEMA for that). The problem is, how do you prove your house was damaged by wind, and not the water? And what about the fact that the storm surge is caused by the wind?
Essentially, this is like having medical insurance that covers gunshot wounds, but doesn’t cover wounds by small pieces of metal that act as a projectile. It makes no sense, and, based on the information I have right now, it is an act of bad faith and is unconscionable.
And I am not impressed with claims this will ruin insurance companies. Years and years of record profits would suggest they have a way to rebound. Or they should find another way of making a living, something a touch more honorable. Like beating old women over the head on their way to church and stealing their purses.
*Post edited.
Krista
That IS phenomenally scummy. I used to work for an insurance company (med/dent/disability), and I was always frustrated at how cynical the entire industry has become. Unfortunately, insurance fraud is more and more common. I think most of us know someone who has exaggerated their injuries from a minor fender-bender, in order to get more money. And I doubt that this makes up a large percentage of insurance claims, it still makes up enough of an amount that adjustors have become total cynics, and the prevailing frame of mind is, guilty until proven innocent. I even found myself starting to think that way after only a year. More often than not, in order to receive a claim (especially if it’s hefty), the claim and supporting information have to be absolutely airtight. It creates a lot of stress for people who have already lost everything.
Don Surber
You fell for political grandstanding. Mississippi regulates insurance. If the political hacks at the insurance commission do not understand the difference between hurricane coverage and flood insurance, then they should be cashiered. When our government fails to do its job, it looks for scapegoats. Heaven forfend that Jim Hood take after someone’s nephew at the insurance commission.
But hey, why think? Post Hood’s press release (rewritten by AP and then CNN) and demonize insurance companies.
John S.
My heart aches for those poor insurance companies…they are so misunderstood by the general public.
Is there a number I can call to donate money to their cause?
Gadzooks
John
I am in the Financial Services industry (non-insurance) but I can sell insurance wehen necessary.
I find it to be a very slimy way to make a lot of money and I refrain from doing it.
I just wish Spitzer would go after the insurance people as hard or harder than he went after the very bad seeds in my industry.
Another Jeff
Well, if they’re essentially offering people what amounts to a $3,000 bribe to say how their home was damaged, that’s illegal and they should be prosecuted.
However, i saw this mess coming from a mile away because the fact of the matter is, flood ISN’T covered by a standard HO policy and it’s the job of the adjustor to determine where the damage came from, whether it be flood, or whether it be other factors that are covered by a standard HO policy. And while determining that does seem like an impossible task, that’s why a lot of companies hire adjustors with experience in those relevant areas.
For instance and in the interest of full-disclosure, I’m in the insurance industry now and i got my start because i was with the Philadelphia Police Dept for six years, the last two in AID (Accident Investigation Division) and after determining that insurance companies pay better, have better hours, better benefits and, well, I didn’t have to get shot at, i started out as an adjustor on auto claims. Similarly, a lot of adjustors on HO claims are ex-firemen, or builders, carpenters, electricians and what not who have experience dealing with this stuff (and unfortunately some other adjusters are just clueless twits who have no relavent experience and just do what the company trained them to. they tend to be the problem ones, who just say “denied, denied, denied”).
If the federal gov’t (which administers the flood insurance program) disagrees with the conclusion of the private insurers adjustor, then there’s arbitration. Believe me, before this is over it’s gonna be a big mess between private insurers and the feds.
My guess is that some type of agreement will be worked out between the two to settle the claims related strictly to Katrina, with both sides paying on some things they don’t think they obligated to, and then after that, legislation will be passed to cover private insurers asses, as they give a helluva lot of money to public officials.
One thing i will say in a SLIGHT defense of insurers (and I’m not defending them too much, because i’m now a partner in an independant insurance agency and believe me, nobody hates insurance companies and dealing with them more than i do, since i have to every day), but post 9-11, there were companies (Chubb and CNA being the two most prominent) who paid on claims that they legally didn’t have to, since terrorism was excluded from most polices.
Now, whether they did so out the goodness of their hearts or because they were scared to death of the public backlash is another issue, but they did pay.
cfw
The closer cases are in NO, where houses survived storm with little damage, then had flood damage 2-3 days later. Rounding up the AG to help out the plaintiffs lawyers is a trick learned from the cigarette cases. If LA can get its act together, we should see the LA AG enter the fray.
That said, I think the Mississippi cases are much less close. Storm surge is not flooding (as opposed to storm damage). If policies are ambiguous on that point, ambiguity is construed in favor of the policy holder. I would be surprised if USAA (my carrier for 28 years) was doing what the AG claims in its press release. Like all plaintiffs attorneys, the AG needs to be taken with a grain of salt.
docG
Let’s say an anonymous university professor is contractually obligated to teach three classes per semester. A horrible event happens at his campus and many colleagues are wiped out. The university now demands that said professor immediately start teaching 15 classes. After all, professors are overpaid and underworked anyway, right? So what if your contract only requires three classes.
Oh, sure the prof will try to say that he doesn’t have enough time to teach that many classes, that he doesn’t have the training or ability to teach outside of his chosen area, that he has other obligations to students and the university. How can the prof be so selfish?? Those poor students need him, his university needs him. He will be sued and forced to do what obviously needs to be done, despite his contract or his ability to do what is demanded. Outrage kind of depends on whose ox is being gored, doesn’t it?
(BTW, Armageddon has offically arrived! Now we have Republicans angry with big business AND throwing money at poor people to ease their pain.)
Dantheman
“(which is not surprising, because no insurers do flood insurance- you have to go through FEMA for that).”
Not true. Private insurers sell flood insurance, especially for areas not within flood plains. My flood insurance payment (required as a condition of getting my house rebuilt with a loan from FEMA) comes from the same insurer as my homeowner’s insurance.
BoDiddly
What’s particularly troubling to us Mississippians is that we have an elected Insurance Commissioner (George Dale) that has perfected the ability to sit on both thumbs at the same time, while insurance companies are given free license to do anything they want.
A few years ago, State Farm quit writing homeowners policies down here, and started escalating premiums on existing policies. I wouldn’t be surprised if this brings about several other companies doing the same.
As it is, we deal with claims that increase far faster than any index on replacement, policies that have enough loopholes to double as berber carpet, and an uphill fight to get any claim honored, despite the high deductibles necessary to make the price only painful (rather than debilitating).
Also, consider that in other hurricanes (and various other disasters), the insurance companies immediately start talking about how they may actually go bankrupt because of the huge payouts they’ll have to make. FEMA (and other government agencies) step up and foot most of the bill, then the insurers go about their merry way, and start putting into play steep increases to cover their losses and maintain their profit margin. It’s the ugly side of capitalism–but it’s particularly ugly because this industry is supposed to be at least somewhat regulated.
Another Jeff
Dantheman,
Are you sure about that? I only write in PA and NJ, but any flood policy is through the federal government.
Now, you can get the flood policy through your agent, as in, you can walk into an Allstate agency and get a flood policy through them, but it’s still gonna be written through the National Flood Insurance Program.
BoDiddly
docG: No, it’s more like a professor signing a contract to teach 3 classes per semester, then he sends a dvd for the class to view instead of actually showing up because of an obscure loophole that doesn’t require him to be physically present for the lectures. Or for him to tell the university at the end of the semester that his contract doesn’t cover grading papers and submitting grades to administration–they’ll have to pay someone else to do that. All these people are asking is for the insurance companies to do what their policy was intended to do.
John Cole
http://www.fema.gov/nfip/whonfip.shtm
I think I edited my post prematurely.
Halffasthero
The act of bribing the Insured to sign off on a waiver that forces an admission their damage was from flood is os unethical it is beyond measure. If any insurance company is doing that, they deserve whatever happens to them. That is the issue here – bad faith.
That said, there is a very large difference between flood and wind damage. Water surges are flooding. Bottom line. The insurance companies do extensive actuarials to determine the cost of the risks with a clear understanding as to what is covered and what is not covered. They do not make this up as they go along. They submit the risks they intend to cover along with financial records to how they will support/bankroll this to the Commerce Dept’s of the states they intend to write in. The state reviews these and either accepts or rejects them according to the laws of their states prior to the insurance company ever being allowed to sell their policy. The definition of what is flood vs. wind damage is very clearly outlined. This means the states and the insurance companies have already established an understanding of what is and is not covered prior to the hurricane ever hitting.
For any house along the coast, they need flood insurance. Surges are a part of the hurricane and are considered flooding. That has already been established several hundred hurricanes ago. Were these houses damages by the flooding or the wind? The only gray area here would be if the house suffered external wind damage that allowed water to get in and cause further damage. When a house is surrounded on all sides by water, it is a hard sell to say that the wind caused their damage.
Before everyone starts bashing insurance companies, understand there are two sides to this argument. A lot of these people knew they would not be covered for flooding through their HO policy and decided to try and save a buck by not getting flood insurance. Others knew that the 250K cap existed even if they got the insurance and decided to plant a mansion right on the coast/flood plain anyway. It is hard to watch people suffer, but in many cases, they took their own chances.
There is my two cents.
Stormy70
I am waiting one week before believing this story, since that is how long it takes for any story having to do with Katrina to get straightened out. If your policy does not specifically cover hurricane or flooding damage, then why should an insurance company pay? Their policy will spell out what is and isn’t covered and the policyholder that signed the contract should not complain if a company will not pay for an event not covered.
Last night, the Governor of Mississippi said some people did not have flood insurance because they didn’t think they needed it so far inland, and therefore did not purchase it. I’m sorry, but if you do not purchase insurance, then why should private companies pay for it? This is another the scenario the AG was looking into, so right now this looks like a political ploy by the AG against the mean old insurance companies.
Trent
John,
Out of curiosity: You bitch about a lot of things that Democrats bitch about. So i’m curious, what exactly keeps you beholden to the Republican Party? Is it just the hollowness of the Democrats or is it other core beliefs?
This is a sincere question, btw.
Dantheman
Another Jeff,
You are right that the policy my insurer offers is underwritten by FEMA. However, it is offered by the insurer, which is different than what John said.
Don Surber
Bo Diddly:
Read what you post:
“… while insurance companies are given free license to do anything they want. A few years ago, State Farm quit writing homeowners policies down here …”
If insurance companies truly had free rein why would they stop taking on new customers? If the insurance companies were making all kinds of money, they would expand.
But Mississippi courts are as assinine as West Virginia courts and seek to punish companies. If Mississippi is as bad as West Virginia, your courts run insurance companies out of your state by helping 1 or 2 undeserving people. Lawyers get 40 percent of course (which is the real point)
There is the infamous bacon grease case. But hey, keep blaming the insurance companies for the selling out of jurisprudence in this nation to the ATLA billionaires boys club
John Cole
I would also argue it is bad faith to sell policies protecting against wind damage, and then refuse to pay them because a strom surge has removed the evidence ofthe wind damage. It appears to me the policy, written in that manner, insures only that premiums will be payed that will be near impossible to collect.
Halffasthero
The HO policy covers more than just wind damage. Personal property theft, fire, injuries to guest from slip and falls, etc. When you buy that policy, you are also being protected for those. Wind is not the only risk you pay for. It also covers hail, for example. Texas people get new roofs regularly because of that.
Can a flood destroy evidence? Sure it can, but if the roof was blown off only to be drowned out by the ocean pouring in, it would not have mattered. The roof could have remained and the house would still float away.
goonie bird
The vultures are circling over NEW ORLEANS just you wait there will be more of this
John Cole
Well, sure. Are you saying it is legit to collect premiums for damage that, if followed by other damage that is worse, should not be paid out? Seems to me to be a sure money maker, and an act of bad faith.
Mr Furious
Look, I live in the middle of Michigan, and this is the first house I have owned. So my flood-related experience is naught. When I bought my home, there was some attachment in all the paperwork designating my house as being outside (or far above) any flood plain (the Huron River being the nearest body of water?). My house (and my lender) would not require flood insurance. There was a flood bad enough to drown several blocks of downtown Ann Arbor fifty or sixty years ago, but I am way uphill from there.
In other words, just as my mortgage lender requires me to carry a homeowner’s policy, if the flood plain designation puts your home at risk, the lender (or someone) should require Federal flood insurance. If you opt out, you are left holding the bag, or you live/build elsewhere.
In theory, I would agree that storm surge is caused by wind and should be covered—the water is the implement of destruction just like a blown tree, but the wind is the cause. But that’s just my opinion, what halffasthero says sounds logical however: These parameters are pre-established between the state and the insurers and written into the policies. The state approved this (lack of) coverage, and the policyholders signed the papers. If that’s true, the AG is just posturing, and the homeowners are likely (and unfortunately) screwed.
Leslie
A homeowner’s policy with a Rider for Hurricane Coverage (wind damage) should only be sold in conjunction with a flood insurance policy obtained from FEMA. If the home is located within a designated flood zone and the community does not participate in FEMA, carriers should not offer hurricane coverage. (Don’t build there unless you are willing to self-insure.) If the home does not lie within Special Flood Zone Hazard Area (SFHA), the homeowner should be able to purchase flood insurance coverage outside of FEMA. If carriers will not offer flood insurance for home outside of a SFHA, the Hurricane Coverage Rider should offer affirmative coverage for water damages from storm surges sustained in a hurricane.
Likewise, for those living on the West Coast with Earthquake Rider, policies should offer affirmative coverage for water damages sustained from tsunamis..
Also, I believe the WSJ did a profile on a carrier which will insure homes over the $250,000 FEMA cap.
Don
Insurers after Hurricane Andrew in Florida were in full dugeon as well, on and on about how it would ruin them. Very little mention of the non-ruinous previous twenty years where they collected our premiums and had no significant events. Unlike a lot of people, particularly when it comes to health INSURANCE, I understand and accept insurance for what it is: a careful gamble involving a purchase of something that in the best possible world you never need. The insurers themselves do little to forward this fact, tho, when they cry a river over having to uphold the less pleasant side of the bargain.
Anderson
Commenting from down here in MS, this suit isn’t going to fly. Our state supreme court has gotten a lot more conservative lately, and if the policy doesn’t cover flood damage, then it doesn’t cover flood damage.
That said, I think the “sign this waiver for $$$” stunts have a better chance of being overturned as unconscionable.
Also, look for people to insist that, whatever the policy said, the agent who sold the policy assured them that it covered any & all hurricane damage. Our caselaw’s not 100% straight on the result in those cases, IIRC.
Bottom line: if insurance companies are told that ANY policy they write is going to be held to cover flood damage, whatever the exclusions, then there aren’t going to be any more policies written on the Gulf Coast. Be careful what you wish for.
ThomasD
There are no innocents here, and everyone is something of a villain. The fact is we are all on the ship when it sinks. Sure the insurance companies make alot of money in good years, and yes they theoretically assume risks, but realistically how else could this play out?
If insurors are exposed to the full measure of their assumed risk they may survive, but will likely get out of the business in those areas entirely. Without some sort of indemnity how many people could really afford to live in the hurricane zone(s)? Sure alot of people would be foolish enough to risk everything but how many banks would even provide financing?
We (the Federal government) will eventually bail everyone out, and as usual, some will get a sore deal, some a better deal. Those that have, gets – as the saying goes.
Any failure to prop up this house of cards may lead to a rippling economic collapse of the southeast/gulf coast, and no government, no matter what their purported principles may be, is going to allow that to happen.
Doug
Seems to me that a policy of insurance is intended to put the insured in as good of position as he would have been but for the covered event. So, I’d say the insurer ought to be obligated to pay the insured the value of an intact roof for the period beginning when the wind blew it off and ending when the water washed the house away.
Don Surber
Anderson: BINGO!
BTW, flood insurance covers up to $250,000. Apparently, a quarter-million ain’t ebnough for some.
Anderson
Richard “Dickie” Scruggs, late of the (in)famous tobacco litigation, is jumping in:
Lovely. Should pay a lot of lawyers’ salaries for the next few years.
FYI, the Miss. AG’s website includes a link to the complaint he’s filed.
Halffasthero
It is not a sure money maker. My point is that they make premium decisions based on the amount of risk the policy is taking on. If the Insurance company is covering flood on top of all other damages, you would be paying FAR more premium, assuming that they would even be willing to assume that risk. There is no free lunch here. As stated earlier, the commerce depts all signed off on the risks involved. The amount of damages the insurance companies will be paying is still going to be staggering. Reinsurance will be kicking in because it will be so high. A lot of houses and whole towns were flattened by the wind alone (Hattiesburg, for instance). So there is no “bad faith” here. If you want the flood insurance, you need to pay for it. Pure and simple. People are warned by Insurance and Gov’t officials until they are blue in the face about this and many still choose to ignore it. No one who lives in those areas or along any river can claim ignorance. It just doesn’t fly. When they are sold the house they are forewarned by the seller by law that they are in a flood zone. If you live on a beach, the question should not even need to be asked as far as I am concerned.
stickler
Before everyone cries for the insurance companies, remember that they have (or should have, if they’re competently managed) re-insurance coverage in the case of a catastrophic event.
Cry for Munich Re, instead. They carry the re-insurance policies.
Steve
My wife, a trainer for Nationwide, was ‘drafted’ back into claims adjusting and call center duty for the past couple of weeks. She was ‘deployed’ to Mississippi along with a team of 20 odd folks from the call center in Florida, and is in Mississippi for 3 long weeks (2 more to go!). Silly, I know, but can we not kill anyone associated with the insurance industry in that region until my wife gets home?
That being said, it is up to the regulators of ecah state to determine best practices for insurance companies. Some states are a little more lax than others, and I admit that some companies take advantage of that.
Not Nationwide though. Really. Honest.
PaulG
As an insurance agent, I would like to echo some of these thoughts. Flood is excluded from a regular homeowners policy for 2 reasons.
It is available through your regular agent, although they are “pass through” policies, basicly we fill out the applications, but you are buying it from the federal
government, the insurance company makes just a minor, minor paperwork fee.
Plus there is a concept called adverse selection. Generally only people with property in an area prone to flooding would buy it. If you lived on top of the hill and
your lender did not require it, would you buy it?
Have you added earthquake insurance to your homeowners
policy if you are not in an earthquake prone area? Why not?
Because you don’t think it will happen to you.
Insurance agents are like people in any other business, there are good ones and some not so good.
There are many jokes told about the insurance person that will not leave…. We try to help people look into
the future and manage their risks. Many times after visiting about health, life insurance or about starting an IRA, or mutual funds, clients will say no. The next question may be, “can you finance my new car, or how much is the insurance on my new boat or motorcycle?”.
If you did not buy flood insurance, you did not buy it. It is what it is.
No disrespect to the many unfortunate people who died.
Terrible losses. If they did not buy life insurance they did not buy it. How can we go back and say the insurance companies should pay life insurance claims now?
There is no flood exclusion on your auto policy,
but if you did not pay the premium for comprehensive
coverage on your car, you do not have the coverage.
If the insurance companies have not collected the premium for comprehensive how can they be expected to pay for it?
How can we even contemplate trying to change the meaning of the policies after the disaster? If it was an issue, why didn’t the insurance regulators do it before hand? This is not the first flood!
Companies can design a policy to do whatever the policyholders need but you have to PAY for it.
The waivers in exchange for $3000 sound very unethical. I have written a check for a thousand dollars in my area after a home fire, no reciept, no explination, no signing anything by the policyholder. They just needed cash to get through the day. We paid the total amount on their structure within 6 days.
Insurance companies should pay what they owe. Not one penny more, BUT not one penny less either.
Com Con
This seems like a pretty clear case of where we need tort reform, to handle these kind of lawyerly tricks.
goonie bird
Dont forget the way they go after lawyers in the movie THE INCREDIBLES i mean lawyers have become rather unscruplous
BoDiddly
Don:
I realize I’ve let a couple days lapse without responding, but I’ve been pretty busy.
I read what I posted–as a matter of fact, I wrote it.
I know as well as anyone in this forum how screwed up our courts are here. Still, it’s a hard fact to establish that a litigious climate caused State Farm to stop writing homeowners’ insurance, while they still write auto, life, and now in some cases, medical. Any of those are more prone to legal abuses than are homeowners policies, yet they write new policies daily in those areas.
If anything is to blame for the pullout, it is the fact that we have a pretty festive tornado season (your chances of actually being in a tornado–the number of twisters per square mile and population–are greater here than in the Midwest), and most of our population is rural, such that fire departments are community volunteers. Between those two factors, homes get destroyed. State Farm saw a market where they had more payouts than they liked, so they withdrew. Hard to say a scorched slab or a house trailer scattered over three acres isn’t a total loss, and those specific losses are covered. It wasn’t lawsuit abuse–it was simply profit maximization.
Now, consider how many people bought insurance for their Gulf-front homes that inquired specifically about hurricane coverage, to be told by their agents that they were covered on hurricane damage, but not on flooding. Well, living on an elevated lot, flash flooding isn’t a problem, so many residents didn’t take the coverage. Why should they have asked whether storm surge damage was covered? Could there be a hurricane strong enough to cause any major damage without a significant storm surge? When the factor being denied coverage is an intrinsic facet of a covered factor, there exists (absent any specific exclusive language in the policy) a reasonable expectation that the claim would be honored. That would be like an insurance company covering fire damage, but not smoke damage or the damage caused by the tools and water the fire department used in putting out the blaze.