Monday, October 10, 2005

Hanging the survivors out to dry

As the survivors begin to hang out their few posessions out to dry, their property insurers are doing the same, arguing that all Katrina damage is flood-related and that the insurance companies should not be liable for any damages.

A class-action lawsuit against insurance giant AIG, underwriters of the Louisiana Citizens Fair Plan (FAIR), which provides homeowners’ policies of last resort to those who cannot get insurance elsewhere, including many poor people in New Orleans and the surrounding area, was filed Oct. 7 by NOLA Attorney Toni Swain Orrill

This suit joins other filed by property owners in Katrina's path, and Mississippi's attorney's general, are responding to endurance companies attempts to avoid Katrina payouts with lawsuits that have wide ranging implications for the entire country.

Mississippi, Attorney General Jim Hood has taken the lead in trying to force insurance companies to honor their obligations under hurricane insurance sold in the state.

And in Louisiana, a private plaintiff's law firm has filed a suit against a laundry list of insurance companies and the state's insurance comissioner.

At the core of many of these suits are efforts by insurance companies to avoid any liability from Katrina, by arguing all damage resulted from a flood, and is therefore excluded under homeowners policies, including those that explicity include "hurricane coverage".

The insurance industry argues that homeowners should only be covered by the federal flood insurance program, established in 1968 in response to Hurricane Betsy's disasterous flood on NOLA. However, fewer than half of New Orleans' homeowners had flood insurance, but that's still one of the highest rates in the nation. Only three in 10 in parts of Mississippi and Alabama struck by Katrina had the coverage, the Federal Emergency Management Agency says.

Matters are complicated, reports one consumer web site, as many of the insured don't have copies of their policies any longer, which were lost with their other possesions in the storm.

According to a report by AM Best, an insurance-rating and information agency, the US property-casualty industry recorded a $45 billion profit last year and carried a $425 billion surplus over to 2005.

What precisely is the purpose of having a $425 billion surplus if it is not to pay the valid claims of Katrina survivors who suffered damage from the storm?

"To get out of paying claims by arguing that flooding caused the loss and not the hurricane is the moral equivalent of letting a murderer off the hook because it was actually the bullet that killed the victim," Foundation for Taxpayer and Consumer Rights Executive Director Douglas Heller said in a press statement.

"While the rest of the country is emptying its pockets to help these victims, the insurance industry is discussing how to pocket more money as victims face financial ruin," said Doroshow of the Center for Justice and Democracy. "This is unacceptable."

In the aftermath of 9-11, the federal government stepped in with a compensation fund to avoid just these sort of lawsuits from victim's families and survivors. It's time for the government to look at doing something similar for Katrina's victims and survivors, in the insurance companies will not honor their obligations.

The alternative is for the survivors of Katrina to seek justice through the courts, and get their due from a jury. This will have a profound and possibly negative impact on an industry which appears to have based it's business model on taking the money from people whom it never intended to pay. Like most pyramid schemes, the outcome--once exposed--is a collapse.

One legal observer thinks many of the insurance will largely prevail.

"[Courts]will honor the "reasonable expectations" of a policyholder even where a "painstaking" reading of the contract would reveal the absence of coverage. This reflects the fact that insurers know a great deal about what people (perhaps subliminally) expect from their insurance contracts; it would be wrong to permit insurers to reap the benefit of those expectations (in the form of premiums), while subtly eliminating the very coverage the policyholder thinks he is buying."

Many will dismiss the Hood and the attorney's as money-hungry lawyers out to rip off the system. If they were that, I suspect they would be working as corporate staff attorneys for the insurance industry instead of fighting for the people of Katrina.

Our current political leadership has tried to convince us that tort law--the centuries old concept that if one is wronged, they are entitled to compensation--is someone at the cause of all of the ills of society.

Perhaps if our society had not lost its civic cohesiveness, substituting a naked "screw your neighbor" greed, we would not be forced to turn to the courts so often.

I say the people of Katrina should get their just compensation one way or another. If it happens to force a shakeout of a morally bankrupt insurance industry or one of the government in Washington or Baton Rouge or on Loyola Avenue, let it happen.

All we want is for the people of Katrina to be given the opportunity to rebuild their lives, in the place they call home.

Footnote -- Here is an interesting list of advice from a set of attorneys specializing in insurance loss and recovery.

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"And when we speak we are afraid our words will not be heard nor welcome, but when we are silent we are still afraid. So it is better to speak remembering we were never meant to survive." -- Audie Lorde

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