Insurance storm

October 03, 2005

The waters left by Hurricanes Katrina and Rita haven't fully subsided and a storm is already rising over insurers denying many claims on the theory that the hurricanes' destructive surges were actually floods. Wind vs. water is an old argument in storm regions because rain and wind-borne water damage is covered by standard homeowners insurance and flooding by far less widely held federal policies.

If this sounds arcane, the difference is tens of billions of dollars in costs for dozens of insurers. And for most home- and business-owners in Louisiana, Mississippi, Texas and Alabama - who didn't have federal flood insurance or whose losses top the low limits of those policies - the difference could be rebuilding vs. bankruptcy.

This big fight over very fine print likely will drag on for years in too many cases, with too many claimants ending up feeling victimized anew by their private insurers or the federal flood insurance program. Just ask those who still remain in insurance limbo after their homes in Anne Arundel and Baltimore counties suffered water damage during Tropical Storm Isabel two years ago.

After Katrina, the Mississippi attorney general quickly sued insurers to compel them to cover storm damage caused by wind or water, and a high-powered lawyer, Richard Scruggs, architect of the 1990s litigation against Big Tobacco, has similarly gone to court. But the plain and simple truth is that this boils down to a contract dispute, and the law (and Mississippi and other states' prior approvals of the insurance policies in question) appears to tilt heavily toward the insurance industry's side. Insurance adjusters are already out looking for water marks on damaged structures - like rings on a bathtub - which in the past have been accepted as a sign of rising water, of a flood, not wind-borne water.

Perhaps some of the vast amount of promised federal relief will soften some of the blows to Katrina and Rita's victims who get short-shrifted by this wind vs. water distinction. Clearly, however, something needs to be done soon to do away with such costly semantics.

As part of standard insurance policies, homeowners ought to be able to buy catastrophe insurance covering natural and manmade disasters of all kinds; it ought to be made as compulsory as possible, particularly in vulnerable regions.

The flood insurance program serves as precedent for federal involvement; state "catastrophe funds," which back up insurers in Florida and California, might provide models for a national public-private disaster insurance fund - a fund that would prevent the insurance storm after the actual one.

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