From certain political figures representing Mississippi, there has been a great deal of talk about how insurance companies allegedly ducked their responsibilities to pay Katrina wind damage under homeowners policies. According to these people, the way insurers did this was by sneaking through flood insurance payments under the auspices of the National Flood Insurance Program.
True, insurers since 1983 have been involved in the Write Your Own program, where the insurance companies actually write the flood policies, and premiums go into the NFIP, where FEMA and the federal government disburse them to pay out claims. In the minds of some, this presents a conflict of interest that insurers took advantage of by pushing through flood payments, counting on these payments to satisfy losses, thus reducing or eliminating their obligations to pay for covered wind damage. To which I say: if paying out these claims was wrong, then accepting a claims check was wrong. That is the logical trail of the argument — either there was flood damage that should have been paid under the flood policy, or not, and no insurance claim is paid unless the policyholder submits loss statements claiming a right to collect. So as a starting point, let’s all acknowledge that policyholders who got flood insurance payments submitted applications for flood payments and asked for the money. Mind, I am not accusing policyholders of wrongdoing. I merely point out that the argument against insurers comes full circle in a conclusion that gob-smacks policyholders.
Next, let’s turn to the contention that insurers plotted to reduce their wind payment obligations by use of the flood program. Consider this excerpt from an April 1 story in the New Orleans Times-Picayune by Rebecca Mowbray:
The Federal Emergency Management Agency, which houses the flood program, said in a Sept. 21 memo to the private insurance companies that administer the flood policies that it expedited its adjustment procedures after Katrina.
FEMA waived requirements for proof of loss, and by using water depth data, aerial imagery and basic underwriting data from files about the size of homes and their elevation, it cut checks if it was likely that the damage was significant. It sent an adjuster only where the flooding was minor; if the house was missing or inundated with water, instructions were to pay the policy limits.
"We had 240,000 losses, and we needed to go and get the money to the insureds as quickly as possible," said Tim Johnson, acting director of claims at FEMA. "You were looking for the total loss: that you could see that the water was up the second floor or the roof."
Butch Kinerney, a spokesman for FEMA, said the satellite photos were expensive and the agency ran into national security headaches trying to use images for adjusting claims, but it was worth it to get money into disaster victims’ hands quickly.
When FEMA went back and audited its claims handling, it found that 97 percent of its claims would have been resolved the same way under the old procedures, but the expedited claims handling sped up the process by six weeks to two months.
What does that sound like to you? Does it sound like insurer conspiracy, or does it sound like FEMA was the driving force behind an expedited claims process that paid flood money out to people who asked for it?
Now, many have treated the Katrina coverage cases as political theater — I certainly have to some extent — but beyond political psychology, public relations, mass showmanship and P.T. Barnumism are certain principles of insurance coverage law that eventually must be dealt with. One of these is that you don’t collect indemnity twice for the same loss. A second is that when you claim a loss and ask for indemnity, your words mean something and you can’t later demand a mulligan.
So let’s look at some recent Katrina court rulings and see how courts have treated the issue of flood payments.
In Esposito v. Allstate, Judge Jay Zainey of the U.S. District Court for the Eastern District of Louisiana granted summary judgment for Allstate in an April 13, 2007 opinion. The plaintiff had received $211,000 in flood policy proceeds for Katrina damage, then made a claim under his homeowners policy for wind damage to his home and the contents on the second floor of the two-story house.
Here is what Judge Zainey said:
Esposito is entitled to recover in this lawsuit any previously uncompensated losses that are covered by his homeowner’s policy and which when combined with his flood proceeds do not exceed the value of his property. Esposito is not entitled to obtain a windfall double recovery by now recharacterizing as wind damage those losses for which he has already been compensated by previously attributing them to flood waters. The NFIP program did not erroneously make payments to Plaintiff for flood losses to his home. Plaintiff sought these payments and he obtained them by convincing FEMA that his losses were caused by flood and covered by his flood policy. Plaintiff has now been compensated for those losses based on the statements and information that he provided to FEMA. For purposes of the instant suit this Court will not allow Plaintiff to cavalierly repudiate those prior statements while nevertheless retaining the funds that he received based on those same statements. (Italics were in original).
Let’s also look at Judge Martin Feldman’s decision denying Allstate’s motion for summary judgment in Wellmeyer v. Allstate, also in the Eastern District of Louisiana. Judge Feldman adopted Judge Zainey’s reasoning, and failed to grant summary judgment because of factual issues, not because plaintiffs can collect on a flood policy and then a homeowners policy for the exact same damage, which they can’t. The factual issues existed because the Wellmeyer home was valued at more than the amount of the flood insurance proceeds, theoretically allowing for the existence of uncompensated wind damage above the total of the flood payment, up to the total value of the home. (Judge Feldman pointed to evidence of a $4,352.35 difference between the flood payment and the home’s value).
If you check out a ruling last year by Judge L.T. Senter Jr. in Mississippi federal court, in Glover v. Nationwide, you will see additional confirmation of this reasoning.
So maybe some of the propaganda can be set aside when we realize that this is how federal judges are viewing the issue. Mind, I am not condemning policyholders, I am simply saying, as I have always said, that the argument that insurers conspired to rip off taxpayers through the flood insurance program makes no sense to me because, if true, it implicates policyholders as well.