Trial Bar Report: Insurers Still Denying Claims 2 Years After Katrina

Two years after Hurricane Katrina decimated the homes of thousands of Gulf Coast residents insurance companies are still systematically denying policyholders fair and just claims payments following this and other natural disasters, a report by the trial bar’s American Association of Justice contends.

The report, “Pattern of Greed 2007: How Insurance Companies Put
Profits over Policyholders,” charges that insurers collected billions in
premiums from policyholders and then stiffed them in their time of greatest need. The report maintains that two years since the nation’s worst natural disaster, insurance companies have reaped more $100 billion in profits.

However four national insurance groups released a joint statement blasting the AAJ release, claiming the plaintiffs’ attorneys group’s report ignores the facts about insurance companies’ response to Hurricane Katrina “in a deliberate effort” to encourage litigation and high jury verdicts.

“The trial bar, hiding behind the name of the American Association for Justice, is using the second anniversary of Hurricane Katrina to manipulate American consumers by spinning a fictional tale that comes straight from the pages of a John Grisham novel,” said Carl Parks, senior vice president for Government Affairs, at the National Association of Mutual Insurance Companies (NAMIC). “The facts tell a different story, and facts are stubborn things.”

Hurricane Katrina generated the largest loss in the history of the insurance industry—1.7 million claims resulting in $40.6 billion in insured damage, said Dr. Robert Hartwig, president of the Insurance Information Institute. In addition, flooding from the storm surge and the ensuing failure of the aging New Orleans levee system cost the National Flood Insurance Program more than $16 billion.

Hartwig said Katrina’s 2005 companions, hurricanes Rita and Wilma produced another 1.4 million claims and $15.3 billion in damage. And the unprecedented four-storm season of 2004 resulted in an additional 2.5 million claims and $25 billion in damage.

According to Hartwig, two years after Katrina made landfall, approximately 99 percent of homeowners insurance claims, including those in hard-hit Louisiana and Mississippi, have been settled. In Louisiana, approximately 688,000 homeowners claims, totaling $10.8 billion, have been settled. In Mississippi, more than 350,000 homeowners claims, totaling $5.4 billion, have been settled.

“Effectively all of the nearly 350,000 claims from damaged vehicles, totaling $2.2 billion, have been settled,” he said. In Louisiana, only 537 out of more than 1,000 suits filed in U.S. District Court remain on the docket. The state-sponsored mediation program in Mississippi has settled 3,034 of 3,687 cases in that state.

The trial bar has spearheaded challenges to insurance policy contract language, such as the exclusion of flood coverage in homeowners policies, that have been rebuffed by federal courts in Louisiana and Mississippi, according to the insurer trade groups.

The AAJ’s report denied that most claims have been paid and called on insurance regulators to immediately initiate investigations into companies that continue to “unfairly delay and deny thousands of unresolved claims in light of the obscene profits insurers have pocketed over the past two years.”

The group set up a special Web site to enable citizens to contact their state officials with the same demand.

“While the insurance industry is enjoying record profits, thousands of
people continue to live in FEMA trailers and other temporary housing,
waiting for their policies to be honored,” said Jon Haber, AAJ CEO.
“It is a sad and shocking fact that after every natural disaster insurance companies adopt a pattern of delaying and denying the payment of just and fair claims. We urge state governors and insurance commissioners to investigate this outrageous behavior and take action against it.”

Insurance trade representatives claimed the report was an atempt by trial attorneys to garner media attention for more lawsuits.

“The trial bar’s defeats in the courts are behind its concerted effort to get the media to focus on the small number of disputed claims, creating the false impression that insurers turned their backs on large numbers of Gulf Coast consumers,” said Joseph Annotti, senior vice president, Public Affairs, of the Property Casualty Insurers Association of America.

Annotti maintained that while the most significant lawsuits failed in the courts, the litigation succeeded in creating uncertainty about the validity of insurance contracts. This level of uncertainty helped to further destabilize insurance markets in the region, leading, in part, to higher rates and the unwillingness of some insurers to sell coverage in coastal areas, he argued.

Industry representatives further maintain that the visibly slow progress in rebuilding some Gulf Coast communities, most notably New Orleans, is due to the tremendous damage the storm did to municipal infrastructures (roads, waterways, and railways, water systems, electrical systems, schools and hospitals), to delays in the allocation and distribution of government funds, and to the tremendous dislocation of large segments of the population in the region—not to the lack of insurance dollars.

“There has been very little reporting on the fact that Gulf Coast banks are swollen with payments from insurance settlements and that the majority of the rebuilding efforts in the region are fueled by those claims payments,” said Gov. Marc Racicot, president of the American Insurance Association.

“Those homeowners and business owners who took prudent steps to adequately insure their property before the storm, particularly the purchase of flood insurance from the federal government, had the financial resources to rebuild in the Gulf Coast or to relocate,” said Racicot. “Unfortunately, the dramatic demographic shift in the Gulf Coast has resulted in many businesses thinking twice before re-opening in the same location and many citizens seeking areas with better schools and public services.”

The insurance industry representatives added that the financial strength of the industry prior to Hurricane Katrina allowed companies to pay claims promptly.

Sources: American Association of Justice
AIA, I.I.I., NAMIC, PCI

To view the AAJ report, visit http://www.justice.org/POG2007.pdf