Housing Bubble
Hood files lawsuit against insurers after Katrina flooding
The office of Attorney General Jim Hood has filed a civil action in the Chancery Court of Hinds County, Mississippi, First Judicial District against the insurance industry seeking to declare void and unenforceable certain provisions contained in property casualty insurance policies issued to Mississippi Gulf Coast residents excluding coverage from damage caused by Hurricane Katrina.
"All that the people have left is hope and I'm not going to allow an insurance company to wrongfully take that hope away. Although some insurance companies are trying to do the right thing, I won't allow the others to take advantage of people hurt by Hurricane Katrina"
The Complaint asks the Court to declare that certain insurance contract provisions are void and unenforceable as the same are contrary to public policy, are unconscionable, and are ambiguous. The provisions at issue attempt to exclude from coverage loss or damage caused directly or indirectly by water, whether or not driven by wind. The Complaint states that these provisions should be strictly construed against the insurance companies who drafted the insurance policies and their exclusions. The Complaint also states that the issuance of such insurance policies violates the Mississippi Consumer Protection Act.
The Complaint also asks the Court, among other things, to enter a Temporary Restraining Order to immediately stop insurance companies from asking property owners to sign documents stating that their loss was caused by flood or water as opposed to wind, and to stop using water exclusions to deny or reduce coverage for hurricane damage or loss. The Court is also being asked to enter a preliminary and permanent injunction with regard to these same matters.
"I’m hopeful that next week we will be able to stop unscrupulous insurance adjusters from requiring people to sign away their rights to ‘flood damage’ claims in exchange for a significantly smaller amount which will be used for immediate living expenses. I want to encourage the people to continue to fight and I’ll do everything I can to make sure that insurance companies pay what they owe." Hood said.
The American Insurance Association (AIA) has responded by characterizing the lawsuit as "groundless".
AIA Southeast Region Vice President Cecil Pearce said that "the attorney general must well know that, for more than 35 years, flood insurance principally has been the responsibility of the federal government under the National Flood Insurance Program (NFIP). This program has been available to Mississippi homeowners and businesses in flood-prone areas. What the attorney general's lawsuit attempts to do is retroactively rewrite private insurance contracts for those individuals and businesses that chose not to buy flood insurance from the federal government's flood insurance program. This would inject tremendous uncertainty into the insurance system, which relies on predictability and certainty in order to function for the benefit of policyholders."
They point out that the long-standing, clear division of responsibility – with the federal government providing flood insurance – was emphasized earlier this week by Mississippi Insurance Commissioner George Dale (D), who said at a legislative hearing: "The industry will pay what they owe. They will not pay what the policy did not provide because (policyholders) didn't pay a premium for it."
The AIA maintain that the relationship between an insurer and its policyholder is determined by the policy language in each insurance contract. They say it is not appropriate to force any insurer to pay claims for losses beyond the scope of their contract, as the attorney general’s lawsuit seeks to do.
Pearce belives that "Mississippi’s economic recovery in the aftermath of Hurricane Katrina will require a stable insurance mechanism. Insurers underwrite and make possible the many types of business investments which must be in place for effective recovery to occur. We have an historic commitment to the State of Mississippi and its consumers, and we intend to honor our contracts with our policyholders."
