Cyrus Dugger

Katrina Litigation Reality Check

(Crossposted from TortDeform.com) I recently read Walter Olson's (Senior Fellow at the Manhattan Institute) op-ed in The Times of London. There's a lot in there that I'd like to spend time discussing, but I'll just focus on this one misleading representation.

In his overview of the state of civil litigation in America, Olson describes the Katrina homeowners insurance lawsuits in the following manner:

In nearby Mississippi, meanwhile, insurers besieged by the state's politico-legal tag teams are offering billions to settle Katrina flood damage claims, notwithstanding clear flood exclusions in their policies. (link)

Tort "reformers," repeatedly, misleadingly, and unfairly keep using and spreading this talking point. However, in Mississippi, the argument that the water damage was not actually a flood as defined in the insurance contracts, but a "surge" that is not specifically excluded was rejected (perhaps unfairly) by the presiding federal judge many months ago. The idea is to make the Katrina lawsuits sound silly, frivolous, and unfair to "hard-hit" insurance companies. Why would you file a claim with your insurance company for flood damage when you don't have flood insurance? The narrative goes that people are trying to game the system and get rich quick through "jackpot justice."

This characterization of these homeowners insurance lawsuits is incredibly disingenuous.

1) The currently standing claims in Mississippi are not about flood damage, but wind damage that was in some cases also complimented by flood damage.

2) There is now a well documented pattern and practice of bad faith denials of valid wind related homeowners insurance claims.

3) Tort "reformers" like Walter Olson are in reality attempting to defend an arcane construction of these homeowners' insurance policies that argues that even if the home is damaged by wind, if the already damaged/destroyed home is later further damaged by flooding, even hours or perhaps days later, the insurance company no longer has to pay... anything. Judge Senter, the judge responsible for adjudicating these claims in Mississippi, had this to say about the validity of this manner of interpretation of these contracts:

When the policy is read as a whole, I find that this exclusionary provision is ambiguous-the policy as a whole providing explicitly for windstorm coverage in one section and purportedly excluding the same coverage on the grounds that a windstorm, a "weather condition," and an excluded peril, a flood, occurred at approximately the same time - If this second provision were read to exclude wind damage that occurs at or near the time that any excluded water damage occurs, the result would be contrary to well-established Mississippi law.

The position currently defended by tort "reformers" has been found to be contrary to well-established Mississippi law, and was clearly written this way by insurance companies with the knowledge that it would be (and the hope that it might come before a conservative judge who would still uphold it - notwithstanding "well-established Mississippi law"). Regardless, Nationwide Insurance (and many other home insurers) attempted to game homeowners through deceptively and ambiguously writing their insurance contracts to basically immunize themselves from having to pay valid wind damages.

That sounds a lot different than the oversimplified:

In nearby Mississippi, meanwhile, insurers besieged by the state's politico-legal tag teams are offering billions to settle Katrina flood damage claims, notwithstanding clear flood exclusions in their policies.

To underscore this post and this point, here's the final installment of the CNN series on the abuses of the homeowners insurance companies.

CNN's The Town That Fought Back Vol. 6

Cyrus Dugger: Author Bio | Other Posts
Posted at 10:32 AM, Mar 16, 2007 in Hurricane Katrina | Insurance Industry
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