Wind or Flood? Type of Damage Greatly Affects Insurance Payouts

In Slidell, La., Hurricane Katrina’s storm surge dumped the contents of two neighboring townhouses into Carol Hess’s backyard, crushed part of her garage and drove debris into her living room, but, her insurance adjuster told her, virtually none of the damage was covered by her homeowner’s policy.

The debris came by water, not wind. And that means Hess’ claim will be filed through her flood insurance policy, the Associated Press and New Orleans Times-Picayune reported.

The debate about whether claims should be filed under homeowners or flood insurance policies is one that several hundred thousand policyholders are coming up against as they try to figure out how to pay for Katrina-related property damage.

“It’s not a black-and-white answer because each claim is different,” said Bill Mellander of the Allstate Natural Catastrophe team in Northbrook, Ill.

Homeowners policies provide compensation for damage resulting from high winds, but do not cover flood damage. The only water losses covered under a homeowners policy are those that occur after a windstorm has damaged a building, such as when water pours into the structure because a fallen tree created a hole in the roof.

Flood damage is covered by federal flood insurance, which is a type of coverage held by a fraction of homeowners. Flood insurance, however, only covers damages up to $250,000.

As a result, many homeowners would prefer to see their claims handled through homeowners insurance. And some policyholders are arguing that wind from the storm caused the levee breach that flooded the city, and that any water damage should be covered under a traditional storm policy.

“In this event, the big (question) will be: What’s wind and what’s water?” said Bob Hunter, director of insurance for the Consumer Federation of America.

Hunter said it will be hard to make a case that wind led to the flooding. “I think that argument may have a class-action lawsuit to follow it,” he said.

The debate was addressed on recently at a meeting of the Joint Legislative Committee on Insurance. At the meeting, some Louisiana lawmakers said they would like the federal government to create a special appropriation to cover the difference between flood insurance and homeowner’s policy payouts.

Carol Hess and her husband, Bobby, have paid $364 a year for their flood policy. And State Farm adjuster Steve Evans said his week that the Hesses will be able to recover a maximum of $155,800 for damage to their Eden Isles home and its contents under the policy. If the adjuster had blamed the damage on the hurricane, the Hesses could have gotten as much as $277,918, according to their homeowners’ policy, which cost $1,640 annually.

“My house is demolished and you’re telling me it was a flood,” complained Bobby Hess, 58, a retired air-conditioning mechanic. “But water didn’t pick up this roof and dump it in my back yard. This furniture didn’t come by water. It was pushed here by the wind. It makes no sense to me. I am totally disgusted with the whole thing.”

While representatives of various insurance companies promise that each claim will be handled on an individual basis, they also note that the rules of the insurance business haven’t changed in Katrina’s wake: any damage caused to a home by rising water is covered by flood insurance, not a homeowner’s policy.

“A flood is defined as rising water, and it doesn’t matter why the water is rising,” said Jeff Albright, chief executive of the Independent Agents and Brokers of Louisiana.

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