Insurers Face Lawsuits Over Flood Exclusions Following Katrina

PASCAGOULA, Miss. September 16 (BestWire) — Homeowners insurers in Mississippi and Louisiana are facing lawsuits seeking to force them to pay for all Hurricane Katrina-related claims regardless of whether the damage is covered or not. 
 
Homeowners policies excluded damage caused by flooding and have done so for nearly 40 years, since the creation of the federal National Flood Insurance Program in 1968. However, in the wake of the unprecedented damage caused by Katrina, a powerful Category 4 storm on the Saffir-Simpson scale, which struck Louisiana, Mississippi and Alabama on Aug. 29, three sets of lawsuits have emerged which seek to have those exclusions overturned in court. 
 
Attorney Richard Scruggs, known for his successful litigation against tobacco companies, announced at a press conference that he would begin filing lawsuits early the week of Sept. 19. Scruggs said he anticipates "tens of thousands" of lawsuits, which he hopes to consolidate in a common issue case. He said he is suing for the amount of the policy limits for each policyholder regardless of how damage was caused during the storm. His suits will "complement" Hood's suit, he said. 
 
"Insurers are simply trying to avoid paying the homeowners policies by claiming it was a flood when it was a combination of hurricane winds and storm surge," Scruggs said. He said the storm surge is not a flood but a direct result of the hurricane's winds, which is a covered risk. 
 
By definition, a storm surge is wind-driven waves. Insurers insist the surge is classified as flood damage and therefore excluded from coverage under policy forms which have been reviewed by regulators in each state and in force for years. 
 
At stake is potentially billions of dollars for the insurance industry. Insured losses from Katrina are estimated to reach as high as $60 billion (BestWire, Sept. 9, 2005). Total losses, including flood losses, may reach $125 billion. 
 
"To now seek to retroactively impose on insurers an obligation to pay for losses that were not contemplated under the insurance contract and for which no premium was collected we believe violates not only core constitutional issues but ordinary issues of fairness," Allstate Corp. spokesman Michael Trevino said. "We don't think litigation the answer to helping victims of Katrina." 
 
But Scruggs said he does, though he said he does it as a "last resort." 
 
"Our home was utterly devastated in Pascagoula (Mississippi), along with that of our family and friends and people I've grown up with," Scruggs said. 
 
While Scruggs said he hasn't "heard a word" from his insurance carrier, he said "the uniform response from the adjusters they brought in from out of state" was "sorry about your flood" and advice to apply for a low-interest government loan to rebuild. This has "shocked" policyholders in the Katrina-affected areas, Scruggs said, because they had bought hurricane endorsements on their homeowners policies. 
 
Scruggs said the insurance companies used "deceptive" sales practices to sell those hurricane endorsements and collect the extra premium from them. 
 
Another lawsuit is the one Mississippi Attorney General Jim Hood filed Sept. 15, which claims insurers are "attempting to exclude coverage for hurricane loss ... resulting from water, whether or not driven by wind" (BestWire, Sept. 16, 2005). Hood's suit claims the exclusions contradict a state law that mandates full coverage be provided if the proximate and efficient cause of damage, such as wind, is covered under the policy, even if other noncovered causes contributed to the loss. The Florida Fourth District Court of Appeal ruled in a 2004 Broward County case, Mierzwa vs. Florida Windstorm Underwriting Association, that the state's long-standing "valued policy law" allowed the