Homeowners Sue Insurers for Denied Katrina Claims Residents along the Gulf Coast whose property sustained damage in Hurricane Katrina are suing insurance companies for denying their claims. Insurers are citing the language of the policies, but attorneys for homeowners argue many of these claims were improperly denied.
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Homeowners Sue Insurers for Denied Katrina Claims

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Homeowners Sue Insurers for Denied Katrina Claims

Homeowners Sue Insurers for Denied Katrina Claims

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MELISSA BLOCK, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

MICHELE NORRIS, host:

And I'm Michele Norris.

In Mississippi, thousands of homeowners along the Gulf Coast are waiting for their day in court. Hurricane Katrina destroyed their houses and insurance companies have refused to pay for much of the damage to property on the water saying the policies didn't cover flood damage. Now some insurance company managers have been ordered to testify in these cases.

And as NPR's Kathy Lohr reports, that may help some homeowners.

KATHY LOHR: Dr. Wesley McFarland lived in a big yellow two story home right off the water in Bay St. Louis, Mississippi for 53 years. Then Hurricane Katrina came along and demolished that house.

Dr. WESLEY MCFARLAND: Okay, the house sat here. These were the front steps and it went back to the driveway that goes around that tree. That concrete slab.

LOHR: The only sign of the home on McFarland's property now is the concrete front steps that remain. An old fountain made from an old iron sugar kettle still works and McFarland even has a sprinkler running trying to get some grass to grow back on his place. He doesn't understand why his insurance company, State Farm, denied his claim.

Dr. MCFARLAND: Oh, I'm certainly frustrated, but I'm also angry.

LOHR: Since nothing is left on the property, it's hard to say exactly how McFarland's house was swept away. But that's exactly the point. State Farm spokesman Fraser Engerman says much of the damage along the coast was caused by water after the storm.

Mr. FRASER ENGERMAN (State Farm Spokesman): We don't cover floods, and if the facts show the cause of the damage was wind or wind driven rain, such losses will be generally covered. But if the evidence shows that it was due to flood or storm surge, that is clearly not covered in the insurance policy.

Dr. MCFARLAND: This house exploded due to the Hurricane winds before the water ever came. There's no doubt.

LOHR: Inside the FEMA trailer that sits on his property, McFarland pulls some large photographs out of an envelope.

Dr. MCFARLAND: Now see these trees, they're all twisted and blown over. Some of them go to the north, some of them go to the west, some of them go to the southwest. My house was right up here.

LOHR: So everything was scattered in every direction.

Dr. MCFARLAND: Helter skelter winds. Helter skelter.

LOHR: McFarland's case and five others like it are getting ready to go to trial. They are known as slab cases because that's all that is left of their homes, the foundations. Zach Scruggs is McFarland's attorney.

Mr. ZACH SCRUGGS (Plaintiff's Attorney): What the case law says if the wind came first and did the damage, then it doesn't matter what happened after that. And when you have 120 to 150 mile winds beating on your house for two, three, to four hours before the water gets there and the water's coming by the wind also, then there is coverage.

LOHR: Scruggs says State Farm and other insurance companies are operating in bad faith by denying claims without a good reason. In some cases Scruggs says, insurance companies have two engineering reports done. The first one would have provided coverage but the second one was used to deny payment.

Mr. SCRUGGS: I think the motivation was to insurance companies in general to pay as little as possible as long as possible.

LOHR: Two whistle blowers have stepped forward. Adjusters who used to work for State Farm have turned over thousands of pages of documents and are now working for Scruggs.

Mr. SCRUGGS: Their experiences, they saw some things they believe weren't proper in the adjusting and handling of these claims and they're very brave to go forward.

LOHR: In a Mississippi case this summer involving Nationwide, a federal judge decided that a couple could be compensated for wind damage but the facts in that case showed little actual damage caused by wind. Some say the case is a good precedent for homeowners who will eventually get paid something for hurricane damage in the future. Others say it's a victory for insurance companies. Engerman with State Farm says the majority of his clients are satisfied.

Mr. ENGERMAN: We've closed over 98 percent of the claims that we've received. We've paid out 3.5 billion dollars to our policyholders in the Gulf Coast. So the assertion that somehow State Farm is not paying on claims is simply wrong.

LOHR: State Farm and other insurance companies say homeowners had to have separate flood insurance policies to cover water damage. They're also asking the judge to move the trials further north out of the Gulf Coast saying they can't get a fair trial here. One reason insurance companies might be concerned about their reputation is because there's been a lot of criticism from homeowners all the way to Congress. Representative Gene Taylor who had a house in Bay St. Louis lost it and received no money from his homeowner's policy. Taylor spoke on the House floor back in November.

Representative GENE TAYLOR (Democrat, Mississippi): I want to go on record as saying I think there ought to be a national registry of child molesters and, at the moment, insurance industry executives, because I think Americans ought to know if they live near one.

LOHR: Echoing this sentiment, many homemade wooden signs have gone up at vacant properties along the Coast villain-ising insurance companies. Many who live here say little is happening in these coastal communities as far as rebuilding because people just don't have money to pay mortgages on property they lost and build a new home too. So they are waiting to see how this new set of legal cases is decided.

Kathy Lohr, NPR News.

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