Property-casualty insurance groups offered gracious farewells following the news that Sen. Trent Lott would be leaving Congress before year's end. But most industry lobbyists no doubt were breathing a sigh of relief, given the animosity the Mississippi Republican displayed after complaining about how he and his constituents were left out to dry on Hurricane Katrina homeowners claims.
As reported by our Washington bureau chief, Dave Postal (click here for his full story), Sen. Lott promised to "bring down" the industry for its poor handling of Katrina claims where evidence of both covered wind and uninsured flood damage was present.
Sen. Lott's threat--which came during a July 13, 2006 phone call to Chuck Chamness, president and CEO of the National Association of Mutual Insurance Companies--was not an empty one.
Indeed, Sen. Lott had led the charge in the Senate to repeal the industry's cherished antitrust exemption. But with its prime sponsor on his way out the revolving door--no doubt, to a lucrative life as a D.C. lobbyist--the bill is likely to be forgotten. (That is, unless the industry is embroiled in yet another controversy that prompts calls for federal oversight.)
Many of our readers have suggested to me that State Farm was insane to reject Sen. Lott's wind claim. The denial, these cynics say, stirred up a hornet's nest, prompting Sen. Lott--normally an ally of insurers on business-friendly issues such as tort reform--to become the industry's worst nightmare.
The two parties ended up reaching a settlement back in April (click here for that story), long after the industry's reputation was dragged through the mud in Congress and its antitrust exemption placed at risk.
Critics say that just goes to show that State Farm should have spared the industry the wrath of Sen. Lott and just settled the claim up front.
But I say that State Farm showed guts by standing by their policy and refusing to pay for what they considered to be uncovered flood damage. (Sen. Lott, unlike many who lost their homes in Katrina, had flood insurance--but its limit was way too low to allow him to rebuild.)
Had State Farm paid off the claims of politically-influential policyholders such as Sen. Lott, despite their conviction that he was not entitled to coverage, that would have amounted to bribery. The industry would have been hit even harder once such blatantly preferential treatment was inevitably exposed.
It's too bad State Farm didn't see the legal process through and defend their position in court, but I can understand why with all the negative publicity tarnishing their reputation, they might decide that it wasn't worth the trouble.
In any case, Sen. Lott gave no indication that he would let up on the industry just because his own claim was behind him. At a late September hearing, he noted that he was “devastated by the insensitivity, unfairness and greed of the property and casualty industry.”
These are odd words coming from a staunch Republican, who normally insist that Big Business can do no wrong. Is the insurance industry any more "greedy" than oil companies? Auto manufacturers? Starbucks? After all, insurers did pay tens of billion in Katrina claims.
What do you folks think?
Comments (4)
I think that Trent Lott used a bully pulpit to try to get what he wanted when he obviously underinsured himself. He did not buy sufficient flood insurance, so he used his high-profile position to push State Farm into a position where they would settle.
Having said that...if State Farm had handled the claim more judiciously, perhaps this would never have come to where it is today.
As I recall, State Farm completely denied the initial claim instead of acknowledging that there was some wind damage. Of the hurricane losses that I have worked as an adjuster, most properties had wind damage even when flooding occurred. I doubt that Senator Lott's residence was any different. To the public, the perception is that denial of all of those claims was a move of greed.
If State Farm had adjusted the loss, paid for wind damage and then excluded the specific flood damage, Trent Lott would have had a much more difficult case to make.
Our reputation as an industry has never been stellar, so tarnish was the last thing that we needed. We need to explain ourselves in a much better fashion to the public. Now, the challenge is even greater.
Posted by Craig Dolan | November 28, 2007 12:30 PM
Posted on November 28, 2007 12:30
From what I have read, this is a total self-serving move on his part. He is deserting the proverbial sinking ship of his party in favor of trying to become a highly paid lobbyist.
The going got tough for his party, so he is getting out while the getting is good. Every man for himself. Nice.
Posted by Aaron Stein | November 28, 2007 2:37 PM
Posted on November 28, 2007 14:37
Part of the problem was State Farm's anti-concurrent causation clause. This despicable clause says that if there is first wind damage, then subsequently there is flood damage, then the policy covers NEITHER! As I understnd it, that clause was aproved in 48 states. HOW?
How can regulators conceivably approve such a clause? Imagine if your house was virtually destroyed by the wind, then flooding finishes it off and the insurance company tells you sorry, you have no coverage at all?
Despicable is all I can say.
And Trent Lott was just as despicable. First, he acknowledged his damage was flood-caused, by filing a claim for flood policy limits.
Then, when it turned out he tried to save a few bucks by knowingly underinsuring for flood, he tried to force State Farm to pay for flood damage under their policy. Then he, a lawyer, claimed that a homeowner's policy was impossible for even him to understand.
(It's written at 9th grade reading level. It may be boring as hell, but it is certainly possible for ordinary humans to read and understand). So he had no idea flood was excluded!
Posted by Bill Lockhart | November 28, 2007 5:32 PM
Posted on November 28, 2007 17:32
It would have been nice to know that Sen. Lott had a brother-in-law by the name of Dickie "Mass Tort" Scruggs.
This country clearly needs to move people away from the beach. The best (only) way to achieve that end is to make the price of insurance prohibitively expensive.
We have more than enough laws on the books now, but we clearly need one more.
Lobbyists need to be licensed, and there needs to be a five-year cooling off period between the date they retire from Congress and the date they can obtain a license. That should be more than sufficient time for guys like Sen. Lott to become irrelevent.
Posted by Charlie | November 29, 2007 10:53 AM
Posted on November 29, 2007 10:53