Anyone who thought the fallout from Hurricane Katrina would pass by now was sadly mistaken. Trial lawyers are still hammering away at carriers for leaving many policyholders with both wind- and water-related claims up the creek, and some fear a long-term impact on how catastrophic claims are litigated. I tend to agree with the pessimists. I always expect the worst when it comes to the industry's reputation, and I am rarely disappointed.
The day before this week's second anniversary of the day Katrina struck, the American Association for Justice--a group of plaintiff attorneys masquerading as an objective organization--put out a 15-page diatribe whose title said it all: “Pattern of Greed 2007: How Insurance Companies Put Profits over Policyholders.”
The group charged insurers with systematically denying policyholders “fair and just" payment on their Katrina claims. (You can read our complete news story on the report by clicking here, and you can access the full report by clicking here.)
“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 AAJ Chief Executive Officer Jon Haber.
“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,” he added. “We urge state governors and insurance commissioners to investigate this outrageous behavior and take action against it.”
“Time after time when a major disaster strikes, Big Insurance puts its profits ahead of its policyholders,” according to Mr. Haber. “No region of our country is immune from natural disasters, so every American is at risk of being victimized by their insurance company as we have seen after hurricanes, tornados and earthquakes. The insurance industry’s denial of fair and just claims to Katrina victims should be a wake-up call for all Americans.”
In the "he said, she said" world of objective journalism, the industry had a chance to comment, but whether anyone was listening or buying it is another story.
Robert P. Hartwig, president of the Insurance Information Institute, called the report “a great piece of fiction" and said “the notion that insurers are greedy is absurd.” He added that the insurance industry performed admirably in the wake of Hurricane Katrina, paying $41 billion in insured losses on 1.7 million claims.
Later, the Institute, along with three other insurance associations, put out a joint statement, calling the AAJ report part of “a deliberate effort to pad the pockets of the lawsuit industry by drumming up litigation and high jury verdicts.” The various trade groups refuted criticism of the industry point by point, but again, I doubt that got much press outside of the insurance media.
You may be tempted to say this, too, shall pass. Indeed, some defense attorneys believe that in the grand scheme of things, not much will change in terms of how people will react in future windstorms.
However, other attorneys are far more cynical, believing that Katrina suits challenging the longtime flood exclusion will lead to more such litigation down the road. Indeed, the flood exclusion itself might be at risk.
To read more about this exchange of attorney views, click here. And please feel free to offer your views on this dicey subject.
Comments (5)
I wonder if anyone has performed a statistical analysis of how many more people who live in flood prone areas have sought out adequate insurance limits to protect themselves in the event of a similar disaster. You would think people would learn. Have they? Maybe everyone thinks that those lawyers can find a loophole instead.
Posted by Marc Dubois | August 30, 2007 6:24 PM
Posted on August 30, 2007 18:24
Just read that the industry plans on spending $760 million on publicity to enhance their image due to the recent spate of bad press.
Maybe spending some of it on plain-language policies that folks can understand might be a better solution.
Simple, clear, concise coverage language understood by the insured would certainly go a long way to a better understanding of the product being purchased.
Keeping the current jargon simply feeds into the hands of those who seek to fill their pockets by preying on poor folks' misunderstandings.
Posted by Marc Dubois | August 31, 2007 12:42 PM
Posted on August 31, 2007 12:42
As always, well said, Sam!
There will always be the same push-pull mentality following any disaster, and no matter how the industry responds, some will be cursed as Satan for their failure, while others will be praised as a deity for their wonderful work.
Katrina, Andrew, the Cedars Fire, you name it and the same issues have been there. Only the enormity of Katrina and the huge political football it became is, in my opinion, the catalyst for all the continuing furor.
Don't let anyone tell you that following a successful lawsuit, when they have to give 35 or 40 percent of their proceeds to a lawyer, plus the fees they may have already paid, that they don't feel personally exploited and abused.
Sure they do, because they fought for something and won, but then realize they only get about half of what was their due, unless the lawyers sue for outrageous amounts. Thus, no wonder the insurers fight back vigorously.
Katrina, unfortunately,was only the beginning. The ill winds hold more litigation to follow.
Posted by BJ | August 31, 2007 12:56 PM
Posted on August 31, 2007 12:56
Sam, you are correct in your pessimism. Litigation like this tends to play out in a way that rarely benefits our industry.
If these suits continue to flow and clog the courts for years, the industry will be flogged because the perception will be that we have done something wrong, whether that perception is right or not.
This is the classic cliche that where there is smoke there is fire. If enough of these suits are filed, they are given credibility by their shear numbers.
The industry must try to get a judgment that will put these to rest for good.
Considering how some insurers have behaved in this disaster, it will be difficult for us to avoid a PR disaster.
Our industry is literally two years removed from the occurrence of this event and rates have dropped fifty-plus percent during that time, while profits are at record levels.
Put all of these factors together and it is difficult for us to spin the situation in a positive fashion.
Posted by Craig Dolan | August 31, 2007 2:27 PM
Posted on August 31, 2007 14:27
Sam, I fear you are right.
Just view these comments coming out of Mississippi Congressman Gene Taylor's office regarding the ruling by the 5th U.S. Circuit Court of Appeals on concurrent cause (Nationwide vs. Leonard case) this past week:
http://www.sunherald.com/278/story/131328.html
EDITOR'S NOTE: To read more about the decision, go to NU's coverage at this location:
http://www.propertyandcasualtyinsurancenews.com/cms/nupc/Breaking%20News/2007/08/31-ANTICON-dp
Posted by DK Moroy, AIC,IIA | September 1, 2007 8:57 AM
Posted on September 1, 2007 08:57