Gulf victims deluged by bad advice

September 25, 2005|By JAY HANCOCK

Can somebody please challenge trial lawyer Dickie Scruggs and Mississippi Attorney General Jim Hood before they make the devastation from hurricanes Katrina and Rita even worse?

You've seen these guys. They're all over TV, stating that all homeowners' policies cover floods as well as winds and wind-driven rain, that insurers should pay flood claims for people without flood policies and essentially that the English language doesn't mean what you think it does.

Scruggs, of Mississippi, who became famous suing tobacco companies, was on CNN three out of four days after Katrina receded.

Hood got even bigger coverage after he sued five insurers he said were trying to weasel out of paying.

But there are huge red flags.

It's not just that Scruggs' and Hood's legal theory is wrong and that the respect for law and contracts they promote would turn Mississippi into the economic equivalent of Belarus.

A few phone calls suggest that the assertions and evidence they are marshaling for their case are malarkey.

There certainly is a tragic problem: Gulf Coast residents are out probably billions of dollars because much damage from Katrina was caused by flooding, not wind, and perhaps only one home in three was covered by federal flood insurance.

Unless they say otherwise, traditional home insurance policies cover only wind damage or moisture entering the house because of the wind damage - if the roof blows off, say.

The solution offered by Hood and Scruggs - claiming insurance companies owe for flood damage even if policies don't cover floods - is not correct or even plausible, as shown by cursory fact-checking.

Scruggs keeps saying Gulf Coast residents were required to buy hurricane coverage and should expect all hurricane-related damage - flood and wind - to be paid for.

"Everyone on the coast, in order to have insurance for the last six or seven years, has had to purchase at an additional premium what is known as a hurricane endorsement," Scruggs said on MSNBC last week.

Wrong.

"I've never heard of a hurricane endorsement," says Amy Whittington, assistant commissioner for the Louisiana Department of Insurance. At my behest, she asked the staff to scour the records for hurricane endorsements, and the best they could come up with was a policy specifically covering hurricane damage for boats, not houses.

Well, maybe Scruggs is talking about Mississippi, not Louisiana. I read Scruggs' quote to Lee Harrell, Mississippi's deputy insurance commissioner.

"I'm not sure what Dickie's talking about," he says. "I'm not aware of that."

To back his claim Scruggs' spokeswoman sent me a two-page Allstate document titled "Hurricane Deductible Endorsement." But it doesn't help his case. It doesn't offer extra coverage, and it makes no mention of an additional premium. All it does is change the deductible for wind damage in the event of a hurricane - a common feature, regulators say. And it makes clear, in bold type, that it pays ONLY for wind damage.

Katrina anguish comes partly from the fact that the inundation surpassed official high-risk flood zones and reached areas Scruggs says are ineligible for subsidized flood insurance. "Actually, it's not offered to anyone above the flood line, because it's federally guaranteed," he said on CNN.

Wrong.

"No, that's false," says Ed Pasterick, spokesman for the Federal Emergency Management Agency, which administers the National Flood Insurance Program.

"That's a terrible message to put out," said Louisiana's Whittington.

Flood insurance is available almost everywhere. Virtually anybody in Mississippi, Louisiana or Texas could have bought it, and the Federal Emergency Management Agency says it has spent millions on publicity to urge people outside official flood zones to buy flood insurance.

Attorney General Hood's lawsuit claims that insurance policies disallowing flood coverage are "unduly and unreasonably complex" and that policy exclusions for "flood" and "water damage" are ambiguous.

Wrong.

"Water Damage means: Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind," reads a typical policy sent to me by the Mississippi Department of Insurance. Even "Exhibit A" in Hood's lawsuit - the only one on his Web site so far - is dubious. It's a purported form from the "Nationwide Flood Ins. Co." requiring homeowners to acknowledge flood damage to get claims advances. "If they sign this form they are giving up their rights," Hood asserted, in seeking an injunction against such practices.

But nobody signed it. The form contains nothing remotely close to a rights waiver and says nothing about Katrina. Plus, there is no Nationwide Flood Insurance Co. in the records of A.M. Best, which publishes industry directories, says Best spokesman James Peavy.

The real Nationwide insurance disavows the document, says there is no such company and denies making people acknowledge flood damage to get advances, says spokesman Joe Case.

Several times over three days I tried to interview Scruggs and to get Hood's spokesman to authenticate the Nationwide document. Neither responded by my deadline.

Let's repeat that there is a national tragedy along the Gulf Coast, amplified by the fact that so much damage is uninsured. But what's needed are federal recovery funds, private donations and precautions for the future, not false hope and attempts to extract flood insurance claims for people who didn't pay flood insurance premiums.

If you think homeowner's coverage is expensive now, wait until Hood and Scruggs win in court.

jay.hancock@baltsun.com

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