Miss. Attorney General Hood Accuses Carriers of Cheating
Five major insurance companies were recently sued by Mississippi Attorney General Jim Hood, who charged that insurance adjusters attempted to cheat Hurricane Katrina survivors out of millions of dollars in homeowner’s claims. After Hood made his accusations, several other officials, includ-ing Gov. Haley Barbour and Insurance Commissioner George Dale stepped up to defend the carriers.
Hood’s accusations specifically mentioned adjusters for Nationwide Mutual Insurance Co. and others he claimed asked policyholders to sign forms to acknowledge flood damage, which is not covered by homeowners insurance. In his suit, Hood named Nationwide Mutual Insurance Co., State Farm Fire and Casualty Co., Allstate Property and Casualty Co. and United Services Automobile Association.
Hood claimed adjusters cajoled victims to sign forms, saying they were necessary to receive an immediate check for living expenses. He said the companies could use the flood damage acknowledgement later against policyholders.
Nationwide responds
After Nationwide became the center of the controversy, it issued a statement saying it wanted to “set the record straight.”
“The allegations made by the Mississippi attorney general are unfounded,” a Nationwide spokesperson said. “Our company is absolutely not asking policyholders to acknowledge damage is flood related in order to receive a check for living expenses. No such form or activity is sanctioned by Nationwide, nor does Nationwide own any company called Nationwide Flood Insurance Company as noted in the legal action filed.
“We are deeply disappointed with the allegations by the Mississippi Attorney General against well-established flood exclusions contained in policyholder language.
“If these long recognized and relied upon exclusions were to be deemed null and void, it would have a significant negative impact on insurance policyholders across the country. There is a federal flood insurance program available to all individuals who desire to purchase this coverage.
“As we have consistently said, Nationwide will continue to investigate each claim presented to it on its own merits before making any coverage decision,” the statement concluded.
Governor prefers negotiation
Gov. Barbour told The Associated Press he prefers to negotiate with insurance companies to help homeowners without flood insurance rebuild their property, saying a lawsuit could push the companies out of Mississippi.
Insurance companies contend homeowners should have bought additional flood protection. The governor said forcing the companies to pay for flood damage could bankrupt them and drive them elsewhere.
“It’s crucial that people who enter into contracts keep their contracts,” Barbour said. “And that’s what an insurance policy is–it’s a contract.”
The governor said insurance companies “must be held to these contracts.” But he also said many people, particularly those who did not live in a flood plain, did not have flood coverage.
“For those people, we are working very hard so that if they don’t have insurance, or if they don’t have coverage, we can find a way to help them financially, help to make them whole,” Barbour said.
Dale agrees
Commissioner Dale sided with the governor. He asked the Mississippi congressional delegation to seek a bailout for those lacking insurance coverage.
“The insurance industry can take care of so many. The flood insurance program can take care of so many,” Dale said. “But there are still others out there that do not fit under either of those. We cannot let them just absolutely be made bankrupt. It would kill our economy.”
Prior to the announcement of the Hood’s suit, Dale issued a bulletin asking insurers and reinsurers to pay all valid claims from Hurricane Katrina. The bulletin warned carriers that if they deny a claim, they will be required to prove to both regulators and homeowners that damage was caused by water and not wind.
“In some situations, there is either very little or nothing left of the insured structure, and it will be a fact issue whether the loss was caused by wind or water,” Dale said. ” . . . I expect and believe that, where there is any doubt, that doubt will be resolved in favor of finding coverage on behalf of the insured.”
Dale also instructed carriers to fully inspect damaged property before a coverage decision is made.
The bulletin said MID has been working with Mississippi consumers and the insurance industry to ensure that Mississippians impacted by Hurricane Katrina are treated fairly and receive compensation in a timely manner.
“The situation is very bad but is improving, adjusters are issuing checks daily for additional living expenses and for payments of other claims.” Dale said.
Dale told lawmakers at a joint House and Senate Insurance Committee meeting that it was unfair to attempt to force insurance companies to cover flood damage if homeowners did not have flood insurance and urged them to be realistic in their assessments of how to proceed in the aftermath of Hurricane Katrina. Dale cautioned committee members that if they forced carriers to pay for flood damage they could decide to leave Mississippi.
“The industry will pay what they owe,” Dale told the Clarion Ledger. “They will not pay what the policy did not provide because (policyholders) didn’t pay a premium for it.”
Dale suggested to committee members that Mississippi’s building codes should be beefed up to make buildings more structurally sound.
House and Senate Insurance chairmen agreed that stronger building codes could be proposed but would make construction more expensive.
NAMIC objects
“It is outrageous for an attorney general from a state that requires regulators to approve insurance forms to retroactively seek changes in coverage already scrutinized by Department of Insurance staff,” Roger H. Schmelzer Sr., vice president of state and regulatory affairs for the National Association of Mutual Insurance Companies said.
Schmelzer spoke for the 89 NAMIC members that write business in Mississippi.
“The typical homeowner’s policy covers wind damage but not damage caused by floods,” Schmelzer explained. “The National Flood Insurance Program has been in existence since 1968. To rewrite the insurance contract now is a grossly unfair outcome for consumers who have paid premiums for flood insurance.
“Attorney General Hood’s efforts to secure a temporary restraining order against insurance companies trying to pay claims could have profound, unintended consequences for Mississippians and the insurance industry in that state,” Schmelzer continued. “If granted, the motion will effectively bring the entire claims paying process in Mississippi to a halt. Taking this action may have made a great headline, but its success will only leave people more confused than before.”
Schmelzer said the legal actions proposed by the Scruggs law firm are an annoyance with potentially serious consequences for storm victims.
“Mr. Scruggs’ ‘trial by media’ methods are well-known,” Schmelzer said. “What may not be understood, however, is that when a Mississippi policyholder chooses to work with him, the insurance company is obligated by law to deal directly with Scruggs instead of the policyholder. In the end, his strategy will only result in further delay.
“The process of recovery is under-way. Baseless legal action, by any party, will only serve to mire recovery in a judicial briar patch instead of getting claims settled and putting lives back together,” Schmelzer concluded.
AIA’s response
The American Insurance Association also felt compelled to respond to legal action taken by Hood, releasing a statement that said:
“Cecil Pearce, AIA southeast region vice president characterizes the lawsuit as ‘groundless.’ The attorney general must well know that, for more than 35 years, flood insurance principally has been the responsibility of the federal government under the National Flood Insurance Program.
“This program has been available to Mississippi homeowners and businesses in flood-prone areas. What the attorney general’s lawsuit attempts to do is retroactively rewrite private insurance contracts for those individuals and businesses that chose not to buy flood insurance from the federal government’s flood insurance program. This would inject tremendous uncertainty into the insurance system, which relies on predictability and certainty in order to function for the benefit of policyholders. ”
The long-standing, clear division of responsibility–with the federal government providing flood insurance–was emphasized earlier this week by Mississippi Insurance Commissioner George Dale, who said at a legislative hearing: “The industry will pay what they owe. They will not pay what the policy did not provide because (policyholders) didn’t pay a premium for it.”
The relationship between an insurer and its policyholder is determined by the policy language in each insurance contract. It is not appropriate to force any insurer to pay claims for losses beyond the scope of their contract, as the attorney general’s lawsuit seeks to do.
Pearce stated that, “Mississippi’s economic recovery in the aftermath of Hurricane Katrina will require a stable insurance mechanism. Insurers underwrite and make possible the many types of business investments which must be in place for effective recovery to occur. We have an historic commitment to the state of Mississippi and its consumers, and we intend to honor our contracts with our policyholders.”