Katrina's Insurance Catastrophes
    By Thomas D. Williams
    t r u t h o u t | Report

    Tuesday 06 February 2007

    Insurance consumer advocates, scores of consumers, and a number of Congressmen believe insurers failed miserably in compensating and protecting thousands of victims who lost their Gulf Coast homes and businesses in the wake of Hurricane Katrina in late August 2005. Then Hurricane Rita blew in a month later and swept waves of even more destruction along that susceptible coast.

    Yet, almost a year and a half after one of the most costly and deadly national 0adisasters in the nation's history, there has been little or no evidence in 0apress accounts or on the public record that any state or federal agencies have 0aeven investigated alleged criminal activity by anyone in the insurance 0aindustry. Although investigations are mostly conducted in secret, in high 0aprofile situations such as disasters, they sometimes surface in court filings 0aor in the press. Meanwhile, the US Department of Homeland Security's inspector 0ageneral says there are 785 Katrina-related cases of reported criminal 0aactivity, including procurement fraud and abuse, that are currently under 0ainvestigation. And although there have been scores of arrests, charges and 0aindictments of Gulf Coast residents and entrepreneurs who either defrauded 0ainsurance companies, the federal flood insurance program or the federal 0arecovery efforts, few if any insurance companies or executives have met 0asimilar fates.

    "Hurricanes Wilma, Rita and Katrina were the largest and most devastating storms of the 2005 hurricane season," says Consumer Justice Attorneys of Pensacola, Florida. "Even before the storms were finished pounding the gulf region, insurance companies were already scrambling to disseminate their response to any hurricane insurance claims, publicly stating that the majority of the damages were viewed to be the result of flood damage, an excluded peril for homeowners policies. The insurance companies viewed themselves to be removed from damage liabilities, opting to disapprove most hurricane insurance claims."

    Flood damage is covered separately through a special federalized insurance program. Arguments over whether Katrina caused flood or wind damage have become a huge dilemma for consumers, as well as federal and state insurance regulators and investigators.

    Americans for Insurance Reform was concerned enough about widespread consumer obstacles that it created a special report. It said: "In a disaster as devastating as Katrina, the availability of insurance can literally become a matter of life or death, especially regarding the promise of temporary living expenses under 'loss of use' clauses in homeowners policies, which scores of residents in Louisiana and Mississippi had. Many homeowners policyholders who were hungry, exhausted, traumatized and homeless immediately looked to their insurance carriers to come to their aid with living expenses as they struggled to survive. However, what thousands of these residents found was not help, but rather resistance by their insurance carriers to pay them anything at all."

    Approximately 128,000 households, or about 384,000 people, are still living in trailers, mobile homes or rental units funded by the Federal Emergency Management Agency, says the National Low Income Housing Coalition. Katrina alone killed over 1,300 people. Looking closely at the videos of mass destruction of homes and businesses and listening to the residents of New Orleans, Biloxi, and elsewhere after the devastation of Hurricane Katrina delivers only an inkling of the trauma suffered by millions of human beings - as well as wild and domestic animals and birds. Countless human neighborhoods and natural habitats became tangled piles of all varieties of garbage. Hazardous oils, chemicals and smelly sewers flowed down streets and rivers with the occasional dead body in the centers of cities like New Orleans. Drop in at http://www.stormvideo.com/ for the scary, startling, heart-breaking scenes.

    Tommy Yaris, 66, a homeless displaced resident of New Orleans' Seventh Ward, eventually was bused to Tucson, Arizona, to recover. His relaxed yet engaging account, delivered with a deep southern accent, can be seen in an Internet video at the Arizona Daily Star. It brings life and sympathy to immense tragedy. Just freed from the flood, Yaris speaks from his temporary home, a Tucson hall crammed with scores of beds and piled with the meager remaining personal belongings of the newly homeless.

    "The hurricane must have hit about what - four to three-something in the morning, maybe, maybe been earlier ... But, umm, after a while it stopped ... the wind ceased down, then the water started going down little by little. And this went on down for miles, went all the way down. It was just something that you ain't used to seeing, and scary.... It's scary, scary to see after. [It] was almost more scary after than [before] ... [I thought] 'Wow, now what can I do? The Lord ... took care of me during the storm and he gonna show me the way out, or whatever."

    "And then," Mr. Yaris continued, "common sense tell you this thing is getting worse. The water's going down. The mosquitoes going to eat you up. They going to shoot chemicals in here to try to kill some of this stuff down.... They're trying to get the looters out of the way. You know, so they don't want no one in the way. We could have survived, but it was going to be so dangerous with whatever all that debris stuff that's dying around you. They're dead people all in the water and you wouldn't be able to handle that. Once it gets in your skin and you're inhaling all this stuff you're going to get sick sooner or later. So you use common sense. Man, let's get out of here. It's time to go now."

    Mr. Yaris was one of an estimated 5.8 million people who lived in the hurricane-ravaged area in Louisiana, Mississippi and Alabama, a turf with some of the poorest of economic classes. They represent from the second to the ninth lowest household income in the United States, approximately $31,642 to $36,709 annually, according to the Center on Budget and Policy Priorities.

    During that same period, some insurance companies were battling and denying consumers millions of dollars in compensation for their hurricane-demolished homes, while they and auto insurers were making a record $44.8-billion profit, according to an April 2006 Los Angeles Times story on state insurance regulators' figures. And then, to top that off, in November, the Insurance Journal reported: "A 268 percent hike in commercial insurance rates from the state's high-risk insurance pool is one of the hurdles slowing recovery for small businesses on the Mississippi Gulf Coast."

    Consumers and one state attorney general have brought civil lawsuits against insurance firms with allegations that they failed to meet their legal responsibilities to pay obligations to homeowners and businesses. The most successful of these efforts occurred in Mississippi. Late last month, State Farm Fire & Casualty Co. of Bloomington, Illinois, agreed to settle hundreds of lawsuits by policyholders and reopen and pay thousands of other disputed claims - a settlement potentially worth hundreds of millions of dollars for homeowners wiped out by Katrina.

    One part of the settlement occurred in US District Court as a result of residents' complaints. Another portion consisted of a state court agreement mandated through a lawsuit brought against State Farm by Mississippi attorney general Jim Hood. The agreement requires that policyholders get full disclosure of all relevant documents in the company's files, new independent evaluations of damage claims, and company payment for costs of damage arbitrators selected by both sides.

    In defense of his company, State Farm spokesman Fraser Engerman said: "To help our policyholders, we brought in over 4,000 employees ... We've paid over 3.9 billion to State Farm policyholders to reimburse them for covered damage caused by Katrina, with more than 1.2 billion of that to our policyholders in Mississippi. Our adjustment of flood claims is consistent with National Flood Insurance Program guidelines and is subject to regular audits ..."

    Hood still has suits pending against Mutual Insurance Co., Allstate Property and Casualty Co., the United Services Automobile Association, and Mississippi Farm Bureau Insurance. He is seeking a court ruling that provisions in their insurance contracts avoiding liability for property damage of the type inflicted by Hurricane Katrina are "null and void."

    At the same time as the State Farm civil settlement, Hood, without explanation, dropped a criminal probe he had originally initiated against the company. He was apparently the sole attorney general in the three states devastated by Katrina to even begin such a publicized inquiry. State police and attorneys general in Mississippi, Louisiana and Alabama confirmed there have been no charges, arrests or indictments of insurance companies or their officials. They are prevented by law from discussing investigations. The FBI, the US Department of Justice, and the US Task Force on Katrina all verified that they too were not prosecuting the firms or their executives, but said they cannot disclose whether or not they were or are investigating.

    In the meantime, the apparent lack of criminal or regulatory agency investigations or prosecutions of executives inside the insurance industry has finally alarmed a Congress now controlled by the Democratic Party majority.

    Several committees, including House Homeland Security, Finance Services and Management, Investigations and Oversight, have expressed interest in Congressional hearings, but no firm commitments have yet been made. "Congress will not sit idly by while insurance companies - who are making record profits - continue to shift the costs of this national disaster to the American taxpayer," said Congressman Bennie G. Thompson (D-Miss.), chairman of the Committee on Homeland Security. "Working with other committees of jurisdiction, I will be investigating the assertions that insurance companies are wrongfully passing the costs of Katrina onto an already-burdened federal flood insurance program."

    Congress is being assisted by its watchdog agency, the US General Accountability Office. The agency has already written several critical reports on failings of the federal flood insurance program. It found that the federal program "paid an unprecedented dollar amount for a record number of claims from Hurricanes Katrina and Rita ... [And the federal government] will not be able to repay debt on annual premium revenues of about $2 billion. As of May 2006, NFIP had paid approximately 162,000 flood damage claims from Hurricane Katrina and another 9,000 claims from Hurricane Rita. Most paid claims were for primary residences where flood insurance was generally required."

    "The Federal Emergency Management Agency and its private sector partners faced several challenges in processing a record number of flood claims from Hurricanes Katrina and Rita. Among them were: (1) reaching insured properties in a timely way because of blocked roadways and flood water contamination and (2) identifying badly damaged homes to be inspected in locations where street signs had washed away."

    Now the GAO is looking into potential confusion or conflicts between that coverage and wind insurance claims covered by insurance companies. Its latest inquiry will scrutinize state insurance regulatory oversight over licensing and performance of insurance loss adjusters, how that oversight quality varies, and insurance coverage conflicts arising from multiple insurance policies that apply to a single disastrous event.

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    Thomas "Dennie" Williams is a former state and federal court reporter, specializing in investigations for the Hartford Courant. Since the 1970s, he has written extensively about irregularities in the Connecticut Superior Court and Probate Court systems for disciplining both judges and lawyers for misconduct, and about failures of the Pentagon and the VA to assist sick veterans returning from war.