The Check's in the Mail; Thousands of People Who Lost Their Homes to Katrina Are Battling to Get Paid by Insurers. the Issue: Wind vs. Water
Contreras, Joseph, Newsweek
Byline: Joseph Contreras
Nothing was left of John Hadden's $600,000 beachfront house when he returned to Bay St. Louis, Miss., three days after Hurricane Katrina hit. But Hadden didn't despair: the 45-year-old financial adviser had insured his home for nearly $700,000 with State Farm Insurance. "All is well. Thank God & State Farm," Hadden spray-painted on one of the concrete pilings that remained. But in January, Hadden received a letter from the insurer denying him any benefits whatsoever. Now the father of three teenagers is suing the insurer. And he's painted over the words "State Farm" on the piling.
Thousands of families who lost everything to Katrina's fury last August are now facing a second disaster: their insurers won't pay them a dime. The homeowners say they were led to believe they'd be covered when they signed up for their policies. The companies insist they're off the hook because of exclusionary clauses that distinguish between damage caused by wind (covered) and water (not covered). The courts will decide who's right: hundreds of homeowners have sued their insurers, among them U.S. Sen. Trent Lott, who lost a house in Pascagoula, Miss., and Congressman Gene Taylor, whose home in Bay St. Louis was destroyed.
While it's hardly unusual for homeowners and insurers to find themselves at loggerheads after a disaster, the wind vs. water debate has been especially rancorous. Earlier this month, 669 plaintiffs sued State Farm for allegedly denying their claims without properly investigating the cause of the damage to their homes. And last year, Mississippi Attorney General Jim Hood launched a suit against five big insurers--State Farm, Allstate, Nationwide, United Services Automobile Association and Mississippi Farm Bureau Insurance--for allegedly tricking Katrina victims into signing forms stating that their homes sustained flood damage, which isn't covered. "The robber barons of our time," Hood calls the insurers.
The companies say they've acted fairly, and that the lawsuits are unfounded, but they declined to comment on individual hurricane victims or specific suits. "The magnitude of the storm and the number of claims processed were unprecedented," says State Farm spokesman Phil Supple. "We know that unfortunately there will be disputes, and we in no way want to deprecate the concerns of people in these disputes."
If the Katrina homeowners prevail, it could mean big financial exposure for the insurance industry. Policyholders filed a total of $38.1 billion in claims after the hurricane, but insurers have doled out only $22 billion to policyholders in Louisiana and Mississippi, where the overwhelming amount of damage occurred. The discrepancy to some extent reflects the exclusionary clauses that allowed insurers to deny claims for damage that adjusters determined was caused, in part, by water. Commonly referred to as "anti-concurrent causation clauses," they exempt carriers from any responsibility for hurricane wind damage if the company believes other factors like storm surge were also responsible. Insurers say the clauses have been a standard feature of policies for many years, and are well-established under case law.
But homeowners think the clauses are so confusing as to be misleading, with dense jargon only a lawyer could love. State Farm's policy reads: "We do not insure any coverage for the loss which would not have occurred in the absence of one or more of the following excluded events. …