The Marketplace Report: Katrina Insurance Suits
ALEX CHADWICK, host:
Back now with DAY TO DAY. I'm Alex Chadwick.
In the wake of Hurricane Katrina, thousands of homeowners are discovering their property insurance does not cover flood damage. In Mississippi, the state attorney general has filed a lawsuit against insurance companies to force them to pay Katrina damage claims. John Dimsdale joins us from "Marketplace" in Washington.
John, why don't people who live so close to the Gulf have flood insurance?
JOHN DIMSDALE reporting:
Well, since the late '60s, flood damage hasn't been covered by private insurance companies. The only flood insurance available is from a special government-backed plan. But in Mississippi, like in many places, most people don't opt for that flood insurance. In fact, only one in four do in Mississippi. Either most think that they have flood insurance with their traditional homeowner's insurance, or they know they're not covered and they just opt to do without it.
So along come Mississippi's attorney general, Jim Hood, who says homeowners' policies that exclude water damage from a hurricane are a violation of the state's Consumer Protection Act. He says the flood damage exclusion is usually only in the very fine print, that insurance agents fail to explain the exclusion. So he's filing suit against the five biggest insurance companies in the state to force them to pay for all the property damages from the hurricane that are claimed by their policyholders.
CHADWICK: That's a pretty basic thing about insurance, this flood insurance. What's the reaction from the industry?
DIMSDALE: Well, they're planning to fight this lawsuit tooth and nail. They say that lack of flood insurance is not in the fine print. It's spelled out very clearly, and they worry that being forced to cover flood repairs will set a precedent for future storms. Carolyn Gorman is a vice president for the Insurance Information Institute. She says claims adjustors should be allowed to decide on a case-by-case basis what damage is covered by what insurance.
Ms. CAROLYN GORMAN (Vice President, Insurance Information Institute): Your regular property insurance would cover the damages from rain and wind, and your flood insurance would cover you for the damage to your structure. And that is the way it has been handled for decades, and it is the way insurance companies write their policies. And to change the rules in the middle of the game would put not only insurers in a bad financial position, but it would also cause premiums across the country to go up.
CHADWICK: John, I wonder, flood damage or no claims, is the insurance industry worried about their--its liabilities given the scale of property damage here?
DIMSDALE: There's a difference of opinion about the ability of the companies to reimburse customers. According to the attorney general, the industry is very healthy. It has by some accounts $400 billion in reserves. That would certainly cover the damage estimates of $120 billion. The industry disputes those numbers. But the attorney general's trying to frame this in a way that poses a public relations problem for the industry, saying `How can you deny policyholders who've lost so much in this storm?'
Coming up later on "Marketplace," we're going to look at how the president's proposed Gulf Opportunity Zones might affect the beleaguered regional economy left by Hurricane Katrina.
CHADWICK: Timely. Thank you. John Dimsdale of "Marketplace," from American Public Media.
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