As the second anniversary of Katrina approaches one is struck by the slow pace of the recovery of New Orleans.One of the important reasons is the attitude of the insurance companies.They are simply refusing to pay up!People who thought they were adequately covered by their homeowners' policy and Federal flood insurance have got the shock of their lives.Insurance companies have gone back on promises, offered very low settlements,withheld payments,and are trying to pick holes in the claims lodged by people.They are claiming that most of the damage was caused by flooding and not by the hurricane winds,because damage due to flooding is not covered.People complain that insurance companies are also understating the cost of repairs.The result is that thousands of lawsuits have been filed in various courts.
So what is happening in the insurance industry these days.People complain that these companies are now returning less and less of the money they collect by way of premiums while settling claims.While home insurance is becoming a scarce and expensive commodity the companies are making bumper profits.This also affects the pace of recovery as the poorer folks simply can't afford to pay the annual premiums any more.Some people also face cancellation of existing policies.Some people have simply moved out because they can't afford to stay on in New Orleans any more.
In November last year a US district judge sided with policy holders arguing that the language excluding water damage from some of the insurance policies was ambiguous, as it did not distinguish between floods caused by an act of God such as excessive rainfall and floods caused by an act of man, which would include levee breaches which eventually destroyed New Orleans.
However a few days back a Circuit Court of appeals ruled in favor of the insurance companies.The court concluded that regardless of what caused the floods the policies clearly excluded water damage caused by floods.The policy holders are in no mood to give up however and are preparing to appeal.Clearly the last word has not been said in the matter.
So why is it that things are not clear even though insurance as an industry is fairly old and one would have expected such issues to have been settled by now.One of the reasons is that insurance contracts are complex in nature.Individual policy holders seldom bargain over the terms of the contracts. Clauses have multiple meanings.You may find later that there are substantial exclusions also.As a general rule it is expected that courts will will decide ambiguity in favor of the policy holder.Again the courts should ensure that their reasonable expectations are met.Are companies taking advantage of homeowners' ignorance?Hopefully this question will be answered soon.
A lot will depend on the interpretation of the doctrine of 'proximate cause.' Sometimes included and excluded causes act in tandem.So while you may be covered against hurricane damage you may not be covered against floods. But what if the floods are caused by the hurricane.Then what if a home is so completely destroyed that you cannot determine if it was destroyed by the hurricane or by floods.The jurors clearly have a tough one on their hands here.But it is clear that the final verdict will determine the future course of the insurance business in the country.
So what does one do in the meantime?Make photos or videos of all your important possessions and keep them in a safe place.These documents will help you file a full flood insurance claim.Store important documents and irreplaceable personal objects ,such as photographs in a safe place where they won't get damaged.For additional information discuss what you want with your agent beforehand.The National Association of Insurance Commissioners has information available on rates charged by insurers and also the frequency of consumer complaints company wise.Take out a policy with a financially sound company.They are more likely to settle quickly.Remember that floods and earthquakes are not covered by a standard homeowners policy.
Till the final verdict is out one will just have to wait and watch.