Allstate to receive subpoena for Katrina documents

Something like 38 stories on this development showed up in my feedreader last night.  If you remember, the Department of Homeland Security is supposed to report to Congress regarding claims made by some politicians that insurers used the National Flood Insurance Program to benefit themselves at the expense of taxpayers.  As this theory goes, insurers pushed through flood payments to policyholders — using federal funds — so insurers would have less potential wind damage to cover. 

When you consider who has been pushing this line of thinking: Rep. Gene Taylor, Mississippi AG Hood, policyholder attorneys — it fits too neatly into their story line that insurers behaved as some sort of 21st Century barbarians, descending on the Gulf Coast like Genseric the Vandal sacking Rome.  Logically, the argument has never made any sense to me, because those pushing the argument ignore a corollary part of it: who applied for the flood insurance payments in the first place? That’s right, the policyholders.  You can’t say insurers are ripping off the taxpayers unless you say policyholders are ripping off the taxpayers. This argument also went through a strange permutation that tended to reveal its internal inconsistencies even more: some policyholder lawyers began to argue that you can actually have a double recovery from multiple indemnity sources to arrive at a total greater than the value of the insured property.  What’s wrong with this? Both arguments are result-oriented and focus on getting more money into policyholders’ hands, without making an effort to resolve weak or contradictory legs of the argument.  You can debate that result as a matter of public policy, but saying you want the result does not mean the argument makes sense.

13 Comments

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13 Responses to Allstate to receive subpoena for Katrina documents

  1. Brian

    Do you know anything about the Write Your Own Program? Have you looked at any of the facts or evidence on these cases? Go to http://www.house.gov/genetaylor/OIHearing.Docs.htm.
    On these wind/water cases, the homeowners do not figure out what was wind damage and what was water damage. They report their hurricane loss and the insurance adjuster performs the damage assessment and controls the process.
    What do you think the engineering firm emails were about? State Farm directed the engineers to rewrite reports to blame flooding instead of wind. Read the Times Picayune story on the Weiss-Allstate case. Allstate ADDED contents to the flood claim. You really should know more about the way the flood program works and about how the insurance companies operated after Katrina before you throw out easily refuted arguments.

  2. It’s strange to me how you believe that someone has no responsibility for making a flood claim and accepting flood payments. It’s also strange that you have access to a lot of information that would tend to show that it was FEMA, not insurers, who pushed for flood checks to be administered and distributed as quickly as possible, yet you adhere to a party line. Brian, it takes more than saying you’ve refuted what I’m saying to actually refute it. You really should know more about what you’re talking about before accusing me of not knowing what I’m talking about.

  3. Brian

    The insurers drove the process. NFIP let them. The companies handled the flood claims, not FEMA. The companies have a contract with NFIP to provide a proper adjustment and have a fiduciary responsibility to the federal taxpayers.
    People with flood coverage and windstorm coverage expected to be covered for hurricane damage from both causes. They did have flood damage so they did pursue flood claims, but they also had wind damage and pursued those claims as well. The insurers tried to turn it into an either/or proposition that was not supported by the evidence. The insurers are being subpoenaed for the same reason they lose all their court cases – they did not make a good faith effort to fairly adjust the claims. The insurers said it was all flooding and put the burden on homeowners to prove that damage was caused by wind. NFIP enabled them by looking the other way. The program is adminitered by a contractor, Computer Sciences Corporation, with almost no oversight by FEMA.

  4. I almost hate to point this out, because I’d rather argue your reasoning, but what you’re saying is all polemics. Fundamentally, all of what you’re saying collapses before its end result: if it is wrong to pay someone for flood damage that didn’t happen, it is also wrong to accept money for flood damage that didn’t happen. I know you want to change the subject. In your position, you have plenty of opportunity to set an agenda and dispense a party line, but that’s not what my blog is for. Someone is always wanting me to push their line and their agenda on my blog. To which I say, rather than tell me what to put on my blog, start your own blog, I can show you how to get started in less than 20 minutes.

  5. jimmy

    A little defensive are we David when faced with someone talking specifics. Seems you want to hide behind the theory of blame the policy owner for accepting federal money and not the insurance company for trying to ensure the max federal money was used instead of the company’s money.

  6. Brian

    Please. You have never acknowledged the most indisputable fact there is – insurance companies have a conflict of interest when allowed by NFIP to adjust claims with both wind and water damage, and they took advantage of it.
    Also, please stop misrepresenting my statements. I have never said there was no flood damage to any property in the surge area. You and State Farm and Allstate and Bob Hartwig and the Wall St. Journal keep pushing the line that hurricane damage is EITHER wind OR flooding. That is absurd. The worst damage was caused by the COMBINATION of wind AND surge flooding. The highest winds and the longest wind exposure preceded the storm surge along the coastline. State Farm and Allstate easily could have gotten away with dividing damage 50-50 between wind and flood, but they tried to cheat the system to make every claim 100% flooding. Where they did so without proving that flooding caused all the damage, they cheated the federal taxpayers and the policyholders. Most policyholders did not have enough flood coverage for the full value of their homes – it is capped at $250K for structure, $100K for contents, with no additional living expenses or business interruption coverage. Now your insurance friends are being subpoenaed and still are forced to settle claims for more than was paid by the MS wind pool and others who handled claims fairly right after the hurricane.

  7. Hi Jimmy, welcome back, I haven’t seen comments from you since early March. Actually, it is not defensive, but a paraphrase of something Glenn Reynolds of Instapundit says. And in reality, there are no specifics, just the same polemics that I’ve heard again and again without particular facts to back them up. Also, I do not blame policyholders for submitting flood claims and accepting flood payments. I do, however, point out that it is inconsistent to say insurers who made flood claim payments did so pursuant to insurance contracts that specified the covered peril and pursuant to loss claims by policyholders. If the insurers wrongly paid out, the payment could not be wrongful unless the acceptance was also wrongful. This is not like a circumstance where someone wrongly transfers stolen property to a bona fide purchaser for value. Why the simple observation I am making sets certain people off so, I can’t quite explain. I’m not saying policyholders should not have made flood claims, and I am not saying that if they additional value in their home above the flood payment that they can’t also make a wind loss claim. All I am saying that the argument that insurers ripped off the taxpayer makes no sense unless you also say that, if they did, so did the policyholders. Now as you can see, I have yet to have been presented with persuasive evidence of the former, and so I don’t buy the latter either. But it seems to me if the first is true, the second would be true also.

  8. Brian, you should at least acknowledge who you work for, shouldn’t you? Are you not an aide to Rep. Gene Taylor? Correct me if I am wrong about this, but your IP address is at the U.S. House of Representatives and Rep. Taylor had an aide with the same first and last name as you.

  9. Brian

    I am happy to acknowledge that. I’m not a lawyer or a lobbyist, so I am foolish enough to believe that justice will prevail.
    I have spent the past 20 months trying to help thousands of people who lost everything to an unprecedented disaster only to be kicked and cheated by their insurers, and then called fools, crooks, and liars by the industry’s hired guns.

  10. Brian, regarding one of your earlier comments, I don’t find this conflict of interest you are talking of to be particularly earth-shattering, since the insurance business is chock full of conflicts of interest, such as insurers evaluating the duty to defend and indemnify insureds, when insurers benefit by denying both. The NFIP has been around for a long time, yet I’ve not seen this conflict of interest cited by prior Congresses when dealing with adjustments and fixes to the NFIP. You may know best about that, and if you can show me this has been a concern somewhere before in the 40 plus years of NFIP, then I will believe that. As it is, it sounds like item #3 on a talking points list. A potential conflict of interest exists in every single insurance claim that is filed in this country: you’re not saying anything new by making that statement.
    I also don’t view the conflict you speak of as worse than the conflict that would exist if you have a government insurance program run by the government. Although the NFIP and Florida’s Citizens Property aren’t exact analogies, you can see a conflict of tremendous proportions in the making in Florida, where the Legislature won’t allow the state run insurer to raise rates commensurate with actuarial risk. The conflict there becomes one between policyholders and potential policyholders and all other taxpayers. Policyholders want rates as low as possible, even if they deny actuarial reality, because they count on a de facto subsidy.

  11. Brian

    Look up the definition of fiduciary.
    They violated their contract with NFIP by placing their own interests ahead of the interests of the taxpayers when adjusting wind and/or water claims.

  12. Layne

    From Brian:
    “State Farm and Allstate easily could have gotten away with dividing damage 50-50 between wind and flood, but they tried to cheat the system to make every claim 100% flooding.”
    Could they have “gotten away” with 50-50?
    There have been several instances already where plaintiffs are trying to cash in on both policies. I guess this is where the 50-50 comes in. If both sides pay 100% then they have paid 50-50 right?

  13. Brian, I believe I know the definition of fiduciary without looking it up. Also, generally speaking, an insurance company does not have a fiduciary duty to its insured in a first party insurance matter. In third party matters where the insurer is defending the insured from a third party claim, a fiduciary duty generally does exist. So a fiduciary obligation is not to be confused with the obligation to proceed in good faith, which is important but quite different.
    Also, I wonder if Rep. Taylor and others would have preferred that the insurance companies not pay the flood money out so soon or at all. Apparently so. What would be the implications if policyholders had made flood claims, as they did, and insurance companies delayed payment, saying it wasn’t clear the damage was from a flood? It doesn’t require a lot of imagination to see a scenario where everyone was carping about how they failed to pay the flood proceeds.