Fine Print Leaves Many Uninsured for Flood Damage
RENEE MONTAGNE, host:
On Fridays, our business segment focuses on your money. Today, the fine print in insurance policies.
Mississippi Attorney General Jim Hood has sued five insurance companies to compel them to pay claims stemming from Hurricane Katrina. He asked the court to invalidate portions of insurance policies that attempt to exclude losses caused by floods. Wendy Kaufman reports.
WENDY KAUFMAN reporting:
When it comes to insurance policies, it often boils down to the fine print, what's included and what's not. While damage from wind is typically covered under homeowners' policies, water damage from floods is not. Mississippi Attorney General Jim Hood contends that many residents thought they were buying hurricane insurance as part of their homeowner's policy and assumed that if a hurricane unleashed a torrent of water, they would be covered. The ads said a flood and a hurricane-induced storm surge are not the same thing.
Attorney General JIM HOOD (Mississippi): I'm not going to allow insurance companies to bankrupt half of the Mississippi Gulf coast, the families, the businesses, the banks, the cities and the counties even, you know, by pointing to the fine print and saying that they should have known that our hurricane policy didn't cover storm surge.
KAUFMAN: But the insurance companies say the policies are clear. Water damage, from floods or waves or the overflow of a body of water, whether or not it was driven by wind, is not covered. And they note that for decades, flood insurance has been offered by the federal government, and homeowners have to buy a separate policy. Most don't. Insurance companies suggest that while it's unfortunate that most homeowners didn't have flood insurance, you can't change the rules in the middle of the game and force insurers to cover losses that were not part of the policy. Gordon Stewart is president of the Insurance Information Institute, a not-for-profit research and information organization.
Mr. GORDON STEWART (President, Insurance Information Institute): If you change the whole basis and you then require tens of billions of dollars of coverage for which insurers never collected a premium, never built up reserves, that money can only come from one place: policy holders everywhere else.
KAUFMAN: Another insurance industry expert, Justin Roth with the National Association of Mutual Insurance Companies, an industry trade group, suggests that the attorney general's concerns are premature.
Mr. JUSTIN ROTH (National Association of Mutual Insurance Companies): I don't know if it's justified necessarily because I think it's probably too early to tell what insurance companies are going to do because in a lot of cases I think that adjustors are not even in those areas yet, and with every single home, it's a case-by-case type of problem.
KAUFMAN: In addition to challenging insurance policy language, the attorney general alleges that one company, Nationwide Mutual, and possibly others are demanding that property owners who receive emergency funds sign documents saying their losses were due to flooding. The attorney general fears that the insurers will then use those documents to deny future claims. Attorney General Hood is seeking a temporary restraining order to stop the alleged practice. Nationwide Mutual flatly denies the attorney general's allegation, calling it unfounded. A hearing on the insurance issues in Mississippi is likely to be held next week. Wendy Kaufman, NPR News.