As people and businesses begin to pick up the pieces of their lives in the aftermath of Hurricane Katrina, the issue of insurance claims is slowly beginning to emerge as a critical one. In Louisiana alone, thousands of homeowners and businesses are insured with policies covering hurricane damage. Will insurance providers pay to repair (or replace) commercial and residential property losses? Will they provide coverage for business interruption? Health-care costs? Personal-property losses? Will the carriers handle claims in good faith, or will they conjure up convoluted arguments, low-ball legitimate bids, demand nonexistent documentation, cause protracted delay, and play endless claims games, intimidating insureds into accepting a fraction of what they are owed? The prognosis is bleak.
The New York Times reported last week that during a meeting called by Louisiana's insurance commissioner, J. Robert Wooley, 300 industry representatives were already discovering ways to avoid and limit payouts. Some were preparing to cancel health-care benefits on employees whose companies have been forced to suspend business operations. Others were characterizing losses as caused by flooding (typically excluded) rather than by storm damage (typically covered).
The state of Mississippi on Friday sued the state's property-casualty insurers, accusing them of selling confusing policies that failed to offer property owners coverage for damage they might reasonably expect from a hurricane -- such as flooding.
These arguments are all too reminiscent of insurance industry assertions made following California's Loma Prieta and Northridge earthquakes, when insurers were using vaguely worded earthquake-policy exclusions for "soil stabilization" to deny costly foundation-repair claims.
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.... The next problem for Katrina victims will probably concern how insurers will calculate property losses. Again, based on past experience, the companies, following repeated demands for documentation destroyed in the disaster, will attempt to underpay real and personal-property claims by 30 to 45 percent and more. They will support this effort using opinions from insurance company-paid estimators and appraisers and with loss assessment printouts from computer programs using antiquated, highly inaccurate data. Like everything in the insurance business, it's about the numbers.
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Katrina victims may face additional obstacles, including everything from binding-arbitration agreements requiring insureds to submit all disputes to decision-makers pre-approved by their insurance companies, to having to fight rulings by insurance regulators in bed with the companies they are supposed to be regulating. As to this latter point, hurricane victims may find themselves with even less support from state regulators than Loma Prieta victims because consumer protections in Louisiana are not as strong as in California.
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