As reported by several sources, including the local Knight-Ridder paper "
The Sun Herald," Sen Trent Lott has opened a lawsuit against State Farms Insurance Company for refusal to cover Hurricane Katrina damage.
Sen Lott's home was located in Pascagoula, Mississippi, on the beach front facing the Mississippi Sound, within sight of Northrop-Grumman's (Formerly Ingalls) Shipyard. It was essentially leveled by hurricane Katrina, as was every other house along the beachfront (as was every building several blocks inland).
From the
Sun Herald.com:
[...snip...]The Lotts paid insurance premiums for 40 years, according to the lawsuit. Their policy included a "hurricane deductible," further obligating State Farm to pay for hurricane damage from wind or storm surge.
Katrina left a slab where the Lotts' waterfront home once stood. Because he was in a flood zone, Lott had flood insurance, but $250,000 is the maximum coverage available under those policies....[snip]...
The lawsuit was filed yesterday, Dec 15, by nationally know trail lawyer (and prominent local Democrat) Richard "Dickie" Scruggs, also Lott's brother-in-Law, against State Farm Fire & Casualty Co. The Sun Herald reports that State Farms holds more than 30 percent of the homeowner's insurance policies in Mississippi. Dickie Scruggs also lost his home during hurricane Katrina, and was one of the most prominent Mississippi lawyers involved in suing tobacco companies during the 1990's.
The issue of Wind-driven water Damage vs Flood water damage has been heating up since the day following Katrina. Flood insurance is federally-backed and federally managed, so insurance companies don't earn much money writing policies. Perhaps as a result, insurance companies have not pushed flood insurance the way they push their other products. In fact, the agencies down here typically discourage people from taking out flood insurance if the person is not living in a designated flood zone.
If a property owner is in a designated flood zone, a mortgage company will require flood insurance when writing the loan. These policies may cost as much as, or more than, the standard homeowner's policy. For people not living in a designated flood zone (such as myself), flood insurance is slightly cheaper than a homeowners policy, but not much.
I took out non-flood zone flood insurance after hurricane George blew through in September 1998, when a bayou rose within two feet of my house. Even knowing of my close call in being flooded, the insurance agent who wrote the policy (Nationwide) still tried to discourage me and put up several obstacles to make it much more difficult to obtain my flood coverage, as compared to my homeowners policy.
Flood insurance will cover rising water damage, but hurricane-related wind damage is covered under the hurricane clause of a homeowners policy. Starting in 1998, just a few months before hurricane George, insurance companies in Mississippi slipped a 2% hurricane deductable clause through the state insurance commissioner. This clause sets the deductable to 2% of the assessed property value vice whatever the homeowners policy's deductable is for other damages. The insurance rates did not come down as a result of this change, and the first many people know of it was when they filed hurricane George claims.
After hurricane Katrina, all insurance companies with policyholders in Mississippi have loudly announced that they will not cover any claims for wind-driven water damage, stating this is only covered under a flood policy. Insurance companies have essentially called any damages from water that did not obviously come through the building's roof "flood damage" and are refusing to pay claims under the hurricane policy. This is a issue with literally billions of dollars involved, and could potentially bankrupt insurance companies, or at least reduce their earnings below the 20% annual profit margin most insurance companies experience.
Dickie Scruggs had already opened a class-action lawsuit against several insurance companies in the begining of October concerning wind-driven water damage vice flood damage, and the Mississippi AG (a democrat) has also opened a lawsuit. But the case could conceivable drag on for years, probably what the insurance companies are hoping for.
From the Sun Herald.com:
"I take this action reluctantly after months of good-faith efforts to resolve this matter," said Lott, whose wife, Tricia, also is a plaintiff. "There is no credible argument that there was no wind damage to my home in Pascagoula."
Lott also said in the written news release: "My hope is that this litigation will set a precedent for the thousands of other Mississippi homeowners holding policies for coverage against hurricane wind damage that are not being honored by their insurance companies for Katrina."
In a prepared statement from State Farm, spokesman Phil Supple said: "We can't comment on this litigation. We handle each claim on its own merits and we pay what we owe based on our contract with the policyholder."
Homeowner's insurance policies in Mississippi and other states cover wind damage but typically have provisions excluding damage from "wind-driven water."
The lawsuit argues Katrina's storm surge was part of the hurricane and can't be considered flooding. It also points out that, under established law in Mississippi, when wind is considered to be the "proximate" cause of damage, a claim should be paid even if other factors contributed.
Lott's suit accuses the insurance company of fraud for denying coverage and asks that the court order the claim paid. It further asks that the insurance company be prohibited from using the flood exemption to deny coverage.
From The Statesman, we learn:
[...snip...]Republican Gov. Haley Barbour has said he prefers to negotiate with insurance companies, saying lawsuits could force the companies out of Mississippi.
However, Attorney General Jim Hood, who filed a lawsuit on behalf of Mississippians with standard homeowner's policies, says the companies should cover hurricane damage no matter if the loss is from wind damage or a storm surge. Hood says damages could cost billions.[...snip...]
I do believe this marks the first major salvo in the coming "Insurance Wars" here in Mississippi. People were seriously pissed over the 2% deductable the companies slipped through back in 1998 (which was allowed to happen, sadly enough, by a democratic State Insurance Commissioner no longer in office) and the Insurance companies have never been allowed to forget this. This current issue of wind-driven water vs flood water has further inflamed local opinion on insurance claims.
A major factor in play is that here in Mississippi most of the people most affected by the hurricane were the more wealthy, better politically connected people (unlike New Orleans). Beachfront property is expensive even in Mississippi and typically the choice of home locations for the rich-and-famous, and it was these homes receiving the brunt of the storm damages. So the insurance companies will have serious problems defending themselves in the coming months and years.
And I love the irony that a democratic trail lawyer is defending a republican senator in a lawsuit against an insurance company, over the objections of the state's Republican Govenor. Isn't is amazing how a republican can so quickly change their tune when an issue personally affects them?