Scruggs Nation, Day 21: State Farm files motion to disqualify former Scruggs Katrina Group

State Farm has moved to disqualify the remaining law firms of the former Scruggs Katrina Group from a key Katrina case for alleged "numerous egregious ethical violations."  PACER reveals that the motion was filed yesterday in Glenda Shows v. State Farm, which is a RICO case the SKG filed against the insurer earlier this year.  After reading the motion and supporting memorandum, I suspect that we may see a similar motion getting filed in at least some other SKG-State Farm cases in coming days.

You may remember that State Farm, earlier this year, moved to disqualify Scruggs, his law firm and the entire SKG from certain Katrina litigation based on alleged ethical violations on grounds similar to the ones alleged in the new motion — paying material witnesses under the guise of making them "litigation consultants," working in concert with the state Attorney General to force civil settlements with the threat of criminal indictment, hiring insiders to illegally take documents, creating a phony storyline about the importance of these documents while allowing no one to see them to contest this storyline, abusing subpoena power, and the like.

The prior motion did not succeed, although courts did not rule on its merits.  Instead, Judge L.T. Senter Jr. said State Farm waited too long to bring the motion, that granting it would prejudice Scruggs’ clients, and that State Farm therefore had waived its right to bring a disqualification motion.  The Fifth Circuit, on November 19, denied State Farm’s petition for a writ of mandamus requiring Judge Senter to change his ruling.  The new motion, of course, does not seek to disqualify Scruggs himself or his law firm, because they withdrew from Katrina litigation following the indictment of Scruggs and two other key members of the firm.

The Shows case appears to have been chosen for this motion because the previous motion had been brought in McIntosh v. State Farm, a Katrina case that was well-developed at the time the motion was made, a large part of why Senter gave an adverse ruling.  In Shows, in contrast, the first case management conference is just being held.  

With that background, first I’ll list the most relevant pleadings, and then give a few observations.

The list of the reasons State Farm believes the SKG should be disqualified is given above.  You can read it for yourself in the memorandum — a scan of the table of contents will take you right to where you want to go.

But there are a few facts listed in the memo I would like to highlight.  After following Katrina litigation very closely for more than a year now, I keep thinking nothing more is going to surprise or shock me, and I am always wrong.  One thing that shocked me was one of the entries in the notes of Brian Ford, an engineer who had done a key engineering report on the property of Thomas McIntosh — remember that his report was rejected by State Farm because the report said the damage to the property was due to wind only, because I am coming back to this point.  The SKG and others say this is evidence of State Farm’s fraud — that it changed engineering reports to get the conclusion it wanted — uncovered flood damage — and also that it avoided its obligation to pay wind damage and instead pushed the damage onto federally backed flood insurance.  Again, please remember this, because I am coming back to it.

Now I have seen some of Brian Ford’s redacted notes before.  I wrote about them in this post earlier this month.  But Judge Robert Walker on December 12 required Ford to turn over the unredacted notes, and wow, there was a lot of stuff missing from the redacted version.  I know this because Exhibit 36 to the State Farm motion is a good chunk of his unredacted notes, and you can see them by clicking here.  

Look on the page with the Bates stamp Ford 0012 in the lower right corner.  At the top of that page, Ford’s notes recount an apparent conversation between Special Assistant Attorney General Courtney Schloemer and an SKG attorney: "they agreed that a criminal conviction could help civil cases." If you don’t believe me, you go read it for yourself, that’s what it says!  An assistant to Jim Hood discussing with a private litigant the potential indictment and conviction of the other party and how that might aid that litigant.  If the Ford notes accurately reflect what happened, that is outrageous. (NOTE: my guess would be this conversation contemplated an indictment of a State Farm official, not Dickie Scruggs).

Recall also that Schloemer is implicated in the dealings involving Hood and Scruggs, whereby Scruggs sent his copies of the Renfroe documents taken by the Rigsby sisters to Hood, in what Judge William Acker said was a deliberate violation of his order to turn them over to Renfroe’s lawyers. (Hood had his own copies and didn’t need Scruggs’).  After Hood and Scruggs had a conversation about this plan immediately after Acker issued his injunction on December 8, 2006, Schloemer on December 12, 2006 sent a letter to Scruggs saying she was "not comfortable that the protective measures put in place by the Court will be effective in keeping these documents out of the grasp of State Farm" and asked Scruggs to send the documents to Hood, which he did that same day. See Acker’s criminal contempt order, page 8. 

One could also point out the problems of hiring material witnesses like the Rigsby sisters as litigation consultants of the SKG at $150,000 per year with no set duties or hours, and of attempting to hire Brian Ford in a similar role while simultaneously offering him as a witness.  Incidentally, on the same page of the Ford notes, Ford 0012, just a few lines from the top, it says that Schloemer did not want Ford to become a paid consultant until after he testified before a grand jury. This is merely what Ford says in his notes, so it’s not absolutely sure to be true.  We’ll find out, Ford is being deposed again next month in the McIntosh case, probably to talk about what the previously redacted notes say. What if what he says in the notes is accurate? Then what? Do you see a problem with such conduct by a state official? I do. 

One final point.  Look on page 33 of the memorandum in support of the motion.  This makes a point I had not really thought of in this way before. Kerri Rigsby, one of the Katrina stars who has been discussing insurer fraud for the past 17 months, is the one who approved a federal flood payment for the McIntosh property.  I either did not know that, or forgot it.  So if McIntosh is supposed to be an example of fraudulently pushing flood payments so that the insurer didn’t have to pay wind damage, Kerri Rigsby herself was responsible.  Also, the original Brian Ford engineering report on that property, and I have read it so I know this is true, mentions wind only and no flood damage.  So now remember that the Brian Ford report and what happened to it is also held out as an example of insurer fraud, because its conclusions were later changed by a second engineer’s report that found both wind and flood damage. 

Do you see the problem here? If the Brian Ford report was correct and only wind damaged the structure, then why was Rigsby approving a flood payment to the McIntoshes?  If the flood payment was fraud, then why did Rigsby approve it? If Rigsby was correct, then why didn’t Ford’s report mention flood?  

If you are new to this, see my post of a few days ago re-evaluating the role and significance of the Rigsby sisters. 

Lastly, what does the Prisoner of High Street think of all this? No one knows, because he’s not talking.  Where in the World is Jim Hood? 

 

33 Comments

Filed under First Party Insurance

33 Responses to Scruggs Nation, Day 21: State Farm files motion to disqualify former Scruggs Katrina Group

  1. doug

    The Feds are probably sniffing around Hood. That is why he is not talking.

  2. Nearby

    I live very near the McIntosh home, and I must say I think it is very interesting that this home has become a focal point.

  3. smaki

    Why did K. Rigsby approve a flood payment regardless of whether the damage was wind? That’s what she was trained by State Farm to do. That way, the federal government would pay for the wind damage rather than State Farm. That also meant that much of the plaintiffs’ loss was uncovered, since the flood policy limits were much lower than the wind limits. State Farm wins; policyholder and government lose.

  4. Thick

    Ms. Rigsby admitted in a deposition (I think it was previously posted on David’s site) that she fraudently issued a flood payment on the McIntosh property. No doubt she was coached to admit such by the Scruggs group. As an aside, the NFIP has reviewed the payments issued on flood losses and found ZERO, count it, ZERO instances of fraud or improper payments.
    It appears General Hood (who is neck deep in this cesspool and guilty as sin)is letting the erstwhile Brian Martin do his talking for him. Whenever Mr. Martin posts on this site, all I hear is blah, blah, blah, blah, blah, blah. He is either an idiot or a stool pigeon for Hood.

  5. Brian Martin

    Note that State Farm does not disclose the date of the flood payment. I cannot find it listed anywhere. I suspect that she paid the policy limits on the flood policy before ordering the engineering report. That was the State Farm/Renfroe practice and the point of the Wind/Water protocol and of the NFIP’s Expedited Procedures Memorandum that was suggested and drafted by State Farm. They paid full flood limits on any property in the surge zone before they ordered the damage assessment. The NFIP Memo was dated 9/21/05 and State Farm/Renfro started handing out full flood checks on 9/22/05.
    Also, again, Ford’s report did note flooding, but State Farm had demanded that FAEC’s reports not apportion damage between wind and flooding, but instead state the predominant (“use that word”) cause of the damage. Everyone acknowledged that the roof and second floor damage was due to wind. The question was how much first-floor damage was caused by wind and wind-driven debris before the 4 or 5 feet of flooding. Neither report is accurate, because State Farm forbade the engineers from apportioning the damage. They were required to assign all the first floor damage to the “predominant” cause, when they should have been estimating the amount of wind damage before the flooding.

  6. belle

    After Katrina the NFIP, with SF’s assistance, adopted an amended streamlined procedure that allowed flood payments to be made based on nothing more than the fact that the house was a total loss and flooding occurred in the area. A causation conclusion, i.e., that the house was destroyed by flood, was NOT required. In fact, the procedure allowed the payment to be made for policy limits over the telephone without an inspections. So, payment of flood money means nothing. The streamlined procedure and SF’s involvement in it has all come out in some of the litigation.

  7. Brian Martin

    It is ridiculous that I have to correct uninformed anonymous blog commenters, but since people are looking here for information, it would be helpful to offer the facts.
    This is what the DHS Inspector General concluded in the interim report:
    http://www.dhs.gov/xoig/assets/testimony/OIGtm_MJ_061207.pdf
    In conclusion, we determined that FEMA needs to increase oversight over damage claims that involve both wind and water on the same structure. Our limited review of the flood claims indicated that payouts on flood claims were timely and complied to NFIP terms. However, there is little evidence in flood claim files to determine whether payouts were fair and equitable for damages caused by both wind and water affecting the same structure. In addition, FEMA did not maintain documentation indicating the total damage to a structure and how much was attributable to flood and wind, nor is it required by the NFIP. As a result, NFIP oversight focused primarily on whether the flood claim was correctly adjudicated with little or no consideration for wind damage as a contributing factor. Under the current process, it is difficult to determine whether the NFIP paid a higher percentage or the entire damage claim involving both perils.
    We recommend that the Administrator, Federal Emergency Management Agency:
    1. Require Write Your Own Insurance Companies to document and make available
    to the NFIP the rationale and methodology for calculating flood and wind damage when there is evidence that both perils contributed to the damage, and revise the NFIP Claims Adjuster Manual to reflect these new requirements;
    2. Expand the reinspection process to include a review of and determination that flood and wind damage on the same structure was settled in a fair and equitable manner to ensure that wind damage was not paid under the flood policy; and,
    3. Provide clear and concise guidance for adjusting total loss claims after
    catastrophic events when structures are completely destroyed by wind and water.
    As discussed above, we have issued administrative subpoenas for WYO insurance companies records providing both wind and flood coverage. We plan to corroborate the documentation and assertions made in our review to determine whether and to what extent damages were improperly attributed to flooding rather than wind. We also plan to determine whether unit pricing for like materials paid under flood and wind claims were consistent and reasonable. We will issue our final report upon our completion of our wind claim analysis.

  8. Silas

    It is ridculous that some don’t want to face the facts that this was PRIMARILY a water event for MOST of the people involved in the lawsuits. It is also ridiculous that Mr. Martin doesnt understand the interim report in todo instead of cherry-picking the parts that seem to buttress his stand and that of his master. For example, this section:
    “We interviewed 36 homeowners included in our sample of flood claims to
    determine whether they believed their insurance companies improperly
    attributed wind damage to flooding. Payments for wind damage were
    received by 32 of these homeowners. Four of the 36 did not have insurance
    that covered wind damage. The amounts received ranged from $630 to
    $500,000. In 29 cases, those receiving wind settlements told us they were
    satisfied with the amounts paid under their homeowner’s policy. There were
    7 homeowners who were not satisfied with the amount of settlement for wind.
    Some of the reasons for their lack of satisfaction include: (1) they did not feel
    they received payment for damages caused by rain leaking through damaged
    roofs; (2) payments did not reflect increased costs of labor and materials after
    the storm; and, (3) detached buildings were not covered.”
    The math doesnt make sense but it doesnt seem to show an “abuse” of the taxpayers. To wit: they review 36 files, 4 of them had no wind coverage so that takes the numbers in dispute to 32. Of that, it says 29 were satisfied with their wind settlement. That leaves 3 that werent. (the text says 7 but of course you wouldnt be happy about a wind settlement you didnt get because YOU DIDNT BUY THE COVERAGE,) Of the 3 that werent happy, the causes listed do not show any pattern to defraud, merely the same types of claims issues an insured faces on any claim whether catastrophe or not. And the third cause about not having coverage for outbuildings is an issue with the flood policy, not the wind policy. That “gotcha” along with the pitifully low limits available to the public are ALL WITHIN THE CONTROL of THE US CONGRESS. Why havent THOSE ISSUES been addressed yet by Mr. Martin’s Master instead of looking for hobgoblins elsewhere? It has been over two years now and Gene & Co. havent fixed the shortcomings of the NFIP YET!

  9. Brian Martin

    I did not cherry pick. You did. I copied and pasted the entire conclusion of the report and gave the link to the full report. The OIG had to subpoena the wind files of the insurance companies. Calm down. Wait for the full report.

  10. Disgusted

    I’ve read all of the linked information. As a member of the Mississippi Bar, I’m disgusted. These guys need to have disciplinary proceedings brought against them. Hey, Mississippi Bar, why aren’t you investigating and doing something about this?? It seems to me that there could well be grounds for disbarment here, just based on these documents. Who knows what else you might discover if you — meaning the Mississippi Bar — investigated? If we don’t do something to clean out this sleaze, including the criminal enterprise operating as the Miss. Attorney General’s office, the public is going to lose what little respect they may still have for our profession, not to mention the system of justice all of us lawyers are supposed to protect and serve.

  11. Fred

    Interesting that this motion was filed before Judge Barbour: one of the most conservative federal district judges in the state.

  12. Brian Martin

    The House passed flood insurance reform legislation. We are waiting for the Senate to vote. Here is a summary of the House bill:
    http://thomas.loc.gov/cgi-bin/bdquery/z?d110:HR03121:@@@D&summ2=m&
    Taylor’s provision (Sec. 7) would eliminate future wind/water disputes by giving property owners the option of buying both flood and wind coverage from NFIP. Multiple peril coverage limits would be $500K for structure / $150K for contents & additional living expenses for residential properties, and $1 million for structure / $750K for contents, business interruption, & loss of use for non-residential properties. All of the wind coverage and additional flood coverage would have to be at risk-based, actuarially-sound rates so that the program pays for itself with premiums. We would offer wind coverage only in communities that have adopted International Building Codes or the equivalent.
    Taylor also offered an amendment (Sec. 35) to prohibit insurers that contract with NFIP from using anti-concurrent causation language to exclude coverage for wind damage solely because flooding also contributed to damage to the insured property. The Taylor amendment also requires the insurer to affirm that it has a fiduciary duty to federal taxpayers and will act in the best interests of the national flood insurance program when adjusting flood claims.

  13. MORE COWBELL

    Tom & Pam McIntosh had $1,070,000 insurance from State Farm. Lecky King and Ms. Rigsby paid $36,000 wind damage. This is the infamous note “Put in wind file – do not pay bill — do not discuss” that started the fraud charges against the insurance industry. Testimony before the U.S. House of Representatives Feb. 28, 2007. I am outraged that Ms. Schlmo and Hood ended a criminal probe as part of a civil settlement to simply allow Scruggs to make more millions. I agree they should be investigated by the Mississippi Bar.

  14. MORE COWBELL

    Hodd on tv tonight. Several attorney generals considering suit v. Mattel for bringing in toys with 11 % lead in the paint composition. And with resignation of Lott yesterday, he’s preparing lawsuit against Gov Barbour to hold special election to fill seat within 100 days as opposed to next Nov. 4 in the Presidential Election. Barbour is holding firm. In my opinion, the only replacement for Lott is Barbour.

  15. observer

    I know that this is primarily a blog for people in the insurance industry. But, I would like to remind some here, that, as came out in testimony in recent trials on the Mississippi gulf coast, there really were some smarmy things done by State Farm and some other insurers.
    That, of course, is its own problem and issue, and completely separate from the problem and issues involving Scruggs and his not looking too good, and also smarmy, way of doing things, and the problem and issues of Jim Hood, pretty obviously using the criminal process to coerce one side in a civil dispute, which has its own smarm factor.
    The sad thing, is that it is starting to look like the mess that all of these parties have made out of the claims coming from Katrina, is never going to ever be truly sorted out for some time. And, to the detriment of only one party, the insured, who in many cases, have lost everything.

  16. seetherealdeal

    To Disgusted – the Mississippi Bar obviously knows what is going on but has anyone filed a formal complaint with it? Surely someone involved has some sort of grievance against some of the many players, including the missing Mr. Hood.

  17. Disgusted

    I don’t know if any bar complaints have been filed. Most lawyers are very reluctant to file a bar complaint against opposing counsel, for obvious reasons.

  18. MORE COWBELL

    I read on overlawyered/pointoflaw/folo that Wolfram’s writing are the basis of getting the SKG members disbarred? I want to know why Judge Senter and the 5th Circuit Ct of Appeals did not disbar SKG when Wolfram filed the exact same memo in support of the earlier efforts to DQ SKG. Only difference now is the Balducci factor. Hey, Chip Merlin is waiting in the wings for these cases.

  19. David did a post Sept. 13 on the earlier attempt to disqualify SKG:
    http://www.insurancecoverageblog.net/archives/first-party-insurance-judge-senter-rules-against-state-farm-motion-to-disqualify-dickie-scruggs-from-katrina-cases.html
    As David noted, the reason given by Judge Senter was that State Farm had waited too long to object, having known about the key facts for some time.

  20. doug

    Ok did anyone else laugh out loud at Mr. Martins comment about the proposed changes in the NFIP where they are going to charge actuarially-sound rates. Since when has the federal govt EVER charged actuarially sound rates?
    Yes the sad part is the only winners are the attorneys and the losers will be the policyholders.
    Thirdly, if I was in control of any insurance company in Mississippi or Florida, I’d be packing my bags and pulling out. Let the vacuum take care of the problems and we’ll see how everyone likes it when the market dries up. There is money to be made in other places without the hassel.

  21. James P. Reilly

    There has always been a question about the location of the rabbit hole in Lewis Carroll’s “Through The Looking Glass”. Many people thought that Mr. Carroll had partaken of hallucinogenics. Nay Nay! We now know that the whole Alice In Wonderland adventure took place in ……………………. Mississippi.

  22. Observer

    I don’t think people on the coast mind insurance companies who don’t want to do business in their state.
    I don’t think people on the coast mind insurance companies that are against a federal all perils policy.
    I think people on the coast would like to be left alone in a locked room for five minutes with insurance companies who don’t want to write in a state, but don’t want anyone else to either.
    That smacks of a position of, I don’t want to sell you hurricane insurance, but I don’t want the federal government to do it either, because I am afraid that might set a precedent where, at some future date, the federal governemt takes over some insurance I do want to sell you.

  23. Silas

    Observer, where do you get the inference that the companies are against the all perils bill? I thought I read in the paper that the major insurers were all for it and it was the smaller companies that were fighting it? As I recall, the big carriers actually make money off the flood program (like anyone else that gets a government contract I might add.) The smaller companies arent staffed up to take on big catastrophes and therefore dont profit from dealing with governmental insurance. The only people making money off of all of this are the attorneys and when you see news about attorneys paying 50 million dollars to individuals for newspaper clippings, doesnt ANY PART of you want to wonder who is the crook in this enterprise? Its really easy to point the finger at “big business” but it is simply laziness to swallow the talking points of their spinmasters and not look into the FACTS for yourself.

  24. observer

    Silas, I’m guessing you work for an insurance company. And, I know I am on an insurance company blog site, and a guest, so I will refrain from the reply that first comes to mind.
    Ask, (even rudely) and ye shall receive.
    Rep. Taylor’s bill is a Band-Aid at taxpayers’ expense
    JIMMY TAYLOR
    A SUN HERALD FORUM
    I have been a State Farm agent in this community for 32 years. Many of you know me and know that I am as saddened and frustrated as anyone else by the difficulty we have all experienced over the last two years. Like most of you, many of my family and friends experienced complete loss from Hurricane Katrina and have struggled to get back on their feet. Also, like most of you, I have spent countless hours trying to seek ways to ensure this disaster never is repeated in the future.
    Perhaps the most-discussed solution to our problems is U.S. Rep. Gene Taylor’s legislative proposal seeking to include wind coverage into the national flood policy. Most solutions arise from disaster and come from a significant desire to improve citizens’ well-being. I expect Rep. Taylor’s does, as well. However, as someone who has been around this issue most of my life, this proposal is not a solution to our problems, but assurance that we will all be disappointed and unprepared should such a monumental catastrophe occur again.
    The National Flood Insurance Program was created in the 1960s to provide flood coverage for the many Americans across the country whose property was subject to flooding. Prior to the 1960s, the only relief for flood was federal assistance. By and large, homeowners policies issued by private companies have never covered flood damage and after several significant storms (including Hurricane Betsy in New Orleans) the flood program was created.
    I began writing through the NFIP in 1975. At that time, it would take two to six weeks to get a policy issued and often that long to get an answer for even the simplest question. Good luck if you had a claim.
    The program was run so poorly and had so many complaints NFIP decided to outsource it to E.D.S., a company owned by Ross Perot serviced out of Washington. Things were not much different. When calling to get an answer you would never talk to the same person and might get five different answers. Claim service was no better.
    In the late ’80s or early ’90s, FEMA adopted the write-your-own program, under which individual insurance companies, using their own people and resources, would write, service and handle claims for NFIP. All underwriting and claim-handling guidelines were set by FEMA and were audited regularly. This continues today.
    At the request of many misplaced policy- holders, and the companies handling claims, the government suspended many of the onerous rules in the aftermath of Katrina, ensuring funds would flow as quickly as possible to displaced citizens.
    Has the write-your-own program and the suspension of rules after Katrina been good for FEMA and the consumer? For a number of reasons, the answer seems to be a clear yes.
    Better cost, service and claims
    Cost. Certainly for those who have taken it upon themselves to obtain this coverage, flood coverage has maintained a fair price over the years and continues to do so.
    Service. As an agent I can pick up the phone or e-mail and underwriter or adjuster and get an answer within minutes. This is a great comforting factor for policyholders. Call a government agency and see how long it takes to get an answer.
    Claims. Most insurance companies have full-time claims people who are highly trained and ready to go at a moment’s notice. For FEMA to set up a claims and underwriting department would cost the taxpayers billions.
    What’s wrong with Rep. Taylor’s solution?
    The coverage will be unaffordable, or will require unbeforeseen subsidization. NFIP has been subsidized for many years by the taxpayers. Last year it had a $25 billion deficit. This deficit is significant but nothing compared to what would happen under Taylor’s plan. The research firm Towers and Perrin recently estimated that by adding wind coverage to the flood policy it would run the NFIP’s deficit up to as high as $200 billion.
    Have we forgotten what the Mississippi wind pool’s rates did in January when required by law to be actuarially sound? Business 297 percent increase, residential 100 percent increase, while State Farm wind rates remain at pre-Katrina levels (in some areas one-fifth or less the rates of the wind pool).
    More importantly the U.S. Senate recently killed a bill which sought to benefit states (proposed by Florida legislators and supported by the Southern Governors Association) in situations where losses exceeded $100 billion to $200 billion, much less of a subsidy than Taylor’s proposal. The reason, expressed by non-coastal legislators and the Bush administration: “It’s not right to create such subsidies.”
    Right, or wrong, citizens across the country, and the people who represent them, are concerned about such large subsidies. Let’s create solutions that can succeed and have an impact quickly, rather than ones which cannot.
    It presumes companies don’t pay wind damage. Just State Farm has paid over $1.3 billion, mostly for wind damage in Mississippi, including many homes that had flood damage.
    The issue here is what happens when wind and water occur and nothing is left, something that occurred during Katrina to a level never even remotely experienced before.
    Insurance companies have paid wind damage in hurricanes for almost a century, including after Hurricane Georges in Mississippi and Ivan in Alabama. In Alabama and Louisiana, this wind/water issue is being resolved.
    Recent decisions at the 5th Circuit Court of Appeals have also sought to resolve the legalities. Unbeknownst to most of us, the NFIP has for years, and continues today, to train adjusters that these losses are covered under the flood policy.
    However, irresponsible actions on the part of our state attorney general, in conjunction with a prominent personal-injury lawyer, have so complicated this issue the average person has no idea what to fix.
    Rather than create a $200 billion scar on the federal budget, let’s try to find a solution to the problem, getting clarification on who pays for these events and ensuring that people are properly insured to cover them.
    What is right with Rep. Taylor’s solution?
    Setting an antiquated limit on how much flood insurance one can buy is wrong. Why? One of my insureds bought a house 20 years ago for $90,000. Today it would cost between $500,000 and $600,000 to rebuild due to inflation and building costs. Shouldn’t a person be able to insure a home for its replacement cost? Would you put your money in a bank if the FDIC insured it for only 15 percent of its face value?
    The bill addresses the most important question from Katrina, not having enough or having no flood insurance at all. I believe the bill raises coverage limits from $250,000 real property and $100,000 contents, to $500,000 and $350,000. This is a minimum, in my opinion. I ask all of you, if Rep. Taylor and others had adequate flood insurance, would we be where we are today?
    Other possible solutions:
    Allow homeowners to purchase flood insurance for the replacement cost of their homes and adjust for inflation annually.
    Make the rates actuarially sound and use higher deductibles to offset the increase in premiums needed.
    Require all persons with federally backed mortgages, or who live in areas most prone to flood, to carry flood insurance no matter what flood zone they are in. This would spread the risk, increase protection in events like Katrina, and ultimately lower the cost for those in areas most prone.
    Questions we should ask ourselves
    Are we addressing the issues that caused our problems and can provide immediate solutions, or are we seeking things that ultimately will leave us exposed should a similar storm occur?
    Do we really want to go back to the 1960s and ’70s and have NFIP provide our wind and flood insurance on their own? Remember, these are the same people that handled the FEMA trailers and our recovery.
    How come Rep. Taylor and other elected officials, after many years in Congress, did nothing to increase the flood insurance limits and ensure that their constituents purchased, and had available adequate coverage?
    If wind/water coverage under the Taylor proposal becomes significantly more expensive (something that will be inevitable if the plan is enacted), how many people will carry the coverage the next time? More or less than the 16 percent who did this time?
    Now, let’s start that review again, as to who is getting their FACTS from talking points.

  25. Amber

    Observer,
    Last time I looked this was a Insurance Coverage Law Blog; written by a lawyer, not a insurance company.
    Amber

  26. Silas

    Observer, here is the article I was referring to. Yes, you found an article written by one man with his opinion and yes, I think he makes good points, but my statement remains, several of the “big guys” support the plan. To be honest, if I were an insurer, or an agent, the higher the price, the more money I would make right? Why shouldnt all of the companies be for it?
    “The insurance industry is split on the bill. Nationwide Property Casualty Insurance Operations and Allstate Insurance Co. both support Taylor’s measure. Allstate, in a letter of support, said there is a need for the federal government to be involved in windstorm-damage coverage.”

  27. Thick

    Ever wonder why the flood policy through the NFIP has low policy limits; only provides actual cash value coverage for contents and does not provide additional living expenses in the event the home becomes uninhabitable due to flood? The federal government does NOT want to subsidize further coastal expansion.
    Agent Jimmy Taylor had it right. If the flood policy limits were sufficient to fully insure a residence, none of this mess would have taken place. But the system is already bankrupt and I find it hard to believe the limits will increase one iota.
    Further, I find it interesting that congressman Taylor and senator Lott are adamant their homes were destroyed by wind before the flood arrived, but didn’t mind one bit taking their policy limits under the flood policy. To add insult to injury, they then had their attorney (in concert with general Hood) insinuate the insurance companies did not fully investigate the flood loss before issuing payment for the policy limits. Hey, if you don’t think your home was damaged by flood, be a good governmental servant and give the money back.
    This entire mess has been a cluster since day one. Is anyone naive enough to believe that Hood, Scruggs, Lott, Taylor, Rigsby(s) did not know full well the homes destroyed along the coast were flooded off their foundations? Of course they knew. They also knew the only way to force the insurance companies to pay for losses they obviously did not owe was to lie, cheat, deceive and bribe. It is becoming clear that Scruggs was/is well-versed in these tactics.

  28. Brian Martin

    How is it that only the State Farm insureds had no wind damage? Every other insurer acknowledged that there was both wind and flood damage. Several of them still underpaid wind claims, but at least they admitted that the 4 or 5 hours of hurricane force winds before the surge caused substantial damage. Insurers paid for new roofs all over Mississippi; they paid 40,000 claims in Jackson, 150 miles inland and 145 miles from any flooding; they paid wind damage claims in Tennessee and Georgia, as far as 300 miles inland. Yet State Farm tried to claim that the winds on the Gulf Coast were not strong enough to cause structural damage. There was not one home in Mississippi that had flood damage without also sustaining wind damage.
    This should have been very simple. Wind damage covered; flood damage excluded or covered by NFIP; and the insurer has the burden to prove the exclusion. So all State Farm had to do was prove what damage was caused by flooding. They refused to do that or even try to do that. Instead, they worked to rig the system with a broad and unwarranted interpretation of anti-concurrent causation that violated their contract with NFIP (fiduciary responsibility to taxpayers & requirement to conduct a proper adjustment of combined wind/water losses), an off the record push to get the Bush Administration to waive the requirement for detailed flood adjustments, and then coersion/threats/bribes to ensure that engineers and adjusters refused to acknowledge all the evidence of wind damage.
    I think the NFIP overpaid on some claims, but where the taxpayers really got stuck was paying billions for rental assistance, FEMA trailers, home repair grants, casualty loss tax deductions, subsidized disaster loans, and other relief for many losses that should have been covered by insurance.
    The current system is indefensible. There is no competitive coastal market so there is no market pricing. We have the price gouging inherent in a market with inelastic demand for a product whose supply is manipulated. Insurance companies cherry pick who, what, when, and where they cover and dump the rest on state wind pools or taxpayers. If the 5th Circuit gives State Farm its anti-concurrent causation ruling, it will be impossible for a coastal property owner to insure property for hurricane damage and know it is covered. NFIP is not supposed to pay for wind damage, and if the wind insurer is not going to pay for wind damage where is also some flooding, then there is no coverage possible.
    A federal program to offer both wind and flood coverage in a single policy could not possibly be worse for taxpayers or homeowners than the current failed and manipulated market.

  29. Mark

    Brian Martin,
    How is it that you lie so easily? Is it not true that State Farm paid out approximately 1.2 BILLION dollars for claims filed in Mississippi? That would indicate to me that wind IS covered under the State Farm policies, and you, sir, are lying for political gain.
    In order to get votes from those desperate people, and support for “big government” programs, you must lie to them and say that they are being treated unfairly by the mean insurance companies; ride in to rescue them at all costs… validity of contracts be damned!
    Rep. Gene Taylor, AG Jim Hood, Richard Scruggs, former Sen. Trent Lott… all people with an agenda; all willing to deceive for their own gain.

  30. Brian Martin

    Nationwide and Allstate sent letters in support of the Taylor bill, but the industry’s lobbying and check-writing presence in DC – PCIA, AIA, NAMIC, and III – oppose it. The reinsurers are fully opposed since it threatens their practice of creating and exploiting market volatility after every disaster. The small insurers do not care – they stopped writing coastal wind policies long before Katrina.
    Nationwide and Allstate are honest enough to admit they have no intention of covering hurricane wind risk. The Allstate letter says that the private insurance model does not work well for “low-frequency, high severity” events, so a public-private partnership is needed to provide that coverage.
    The other industry leaders are too invested in the status quo. They do not want to jeopardize the sweet deal they have now. Every disaster gives them political and economic cover to raise rates and shed risk on a state by state basis.
    Katrina did not increase the risk that Long Island or Cape Cod or Myrtle Beach would be hit by a major hurricane, but State Farm used Katrina as an excuse for jacking up rates and dropping policies in each of those places and many more. They cited increases in reinsurance costs and capital requirements, but those are the costs of a failed market, not of local risk. (Also, State Farm buys its reinsurance from a Bermuda company that is 100% owned by State Farm.)
    According to Wharton data, coastal premiums are 5 to 10 times higher than the expected losses in the risk models. Gulf and Atlantic states have been forced to expand their wind pools or FAIR plans to take on much more wind risk. Those state plans concentrate the risk and are forced to overpay for reinsurance against a major storm. State by state high risk pools are the least efficient way to cover hurricane risk.
    The Taylor bill would allow many more companies to return to coastal communities to sell homeowners policies with fire, theft, and liability coverage, collect commissions and administrative subsidies for selling and handling the federal wind and flood policies, and also offer excess coverage above the federal policy limits, essentially a policy with a $500,000 deductible. All the agents should be for it, and the industry people who actually are interested in selling insurance should be for it. The lobbyists in DC are the only ones who obviously benefit more by opposing it than by supporting it.

  31. Rob

    If I was in charge of an insurance company, I’d probably pull out. It seems to me that the whole flood program is fundamentally screwed up (underfunded because, gasp, nobody wants to pay the appropriate premiums – either by charging market rates or via taxation to fund a subsidized program properly).
    When the music stops (the next Katrina-type event), the guy without a chair is going to be a large insurance company (or several) with deep pockets.
    That is not to say was State Farm is supposed to have done was right. I haven’t followed this stuff in detail, and I don’t work for SF.
    Luckily, I don’t deal with this stuff at all (homeowners claims). I get to deal with courts judicially rewriting insurance policies to cover pollution 🙂

  32. Brian Martin

    Mark,
    As I have said repeatedly, State Farm did pay for wind damage where they could not possibly blame flooding. Eventually, they offered settlements after losing badly in federal court.
    They paid wind claims inland where there was no flooding at all, all the way into Tennessee, and they paid for damage that obviously was caused by wind, such as roof damage above the water line of a standing structure.
    They paid nothing on hundreds of wind claims on coastal homes that had been totally destroyed by the combination of wind and flooding. Only after they were nailed in the Broussard case did they start settling claims, and then many settlements were reached only a day or two before trial was to begin.
    Hundreds of State Farm policyholders with wind and flood damage received full flood payments in September 2005, but did not receive any wind payments until sometime in 2007. State Farm rejected their wind claims for a year and half or longer without ever proving how much damage was caused by flooding.

  33. observer

    In the end, what people on the coast want is insurance that will pay off when they have a claim, without having to file lawsuits.
    One thing we on the coast have learned is that insurance would pay off a claim without a fight would be worth whatever it took to make it a sound proposition. Insurance that you have file a lawsuit to get paid, and wait several years, is a horrible thing, no matter how cheap.
    I haven’t met anyone on the coast who wouldn’t happily buy all perils coverage, at any price, that would actually pay off in the event of a peril. I have a hard time believing that taking the premium I pay for wind now, and the premium I pay for flood now, and combinging them into one premium for all peril insurance, wouldn’t be financially solvent.
    And, regardless of how fair it seems to the insurance companies, having an insurance commissioner that is elected primarily by campaign contributions paid by insurance companies, sounds more like the way Scruggs does business than being fair.
    There is an old African saing that when the elephants fight, only the ants get hurt. Watching Scuggs and the other attorneys, and the insurance companies duke it out, makes that saying make a lot of sense.
    By making so many of our offices elected, we in Mississippi have put our state up for sale. And, the whole insurance wind vs. water mess, and the whole Scruggs mess, and the whole Minor mess, and thw whole tobbacco mess, is the result that we are gong to see over and over again until we change it.