THE LEGAL CASE FOR PAYMENT OF KATRINA
Since Hurricane Katrina devastated the Gulf Coast, there has been much public discussion about whether damage to homes was caused by wind and rain, or by flooding. Many policyholders have policies covering wind and rain damage (under homeowner’s policies), but not flooding, which is a separate policy underwritten by the federal government.
Despite press releases and public pronouncements by the insurance industry that those without flood insurance should get nothing if their home was eventually flooded,1 the situation is far from clear cut. Some consumers purchased what they were told was full hurricane coverage and were not clearly told by insurance representatives that flood coverage was not included. They may have been misled. Others were told flood insurance was unnecessary.2
Moreover, even though a property may have been washed away by the storm surge, it was likely first hit by heavy winds so that by the time the water wiped out the property, some percentage of the property was already destroyed by wind and rain. And suppose the storm surge, caused by low pressure, was 10 feet, but wind caused waves on top of the surge for another 5 feet. If someone’s home is at 12 feet and damaged, was not wind the “proximate” cause of the damage?
Indeed, the law is not what the insurance industry says it is.
Some courts have found that where wind and flooding both cause damage, as long as the wind damage is a “proximate” or “efficient” cause of the damage, insurers cannot dodge paying on a claim.
Courts have repeatedly held that ambiguous contract language, such as in a homeowner’s policy, is resolved in the policyholder’s favor.
The attitude of the insurance industry in the aftermath of Hurricane Katrina, as they force policyholders to fight to get their claims paid, is consistent with the industry’s efforts to limit claims payouts in other hurricane situations.
September 22, 2005
1 The Property Casualty Insurance Association of America, the major industry trade association, issued its first press release with this message on August 31, 2005, and has issued similar press releases nearly every day since.
2 Angela Early of New Orleans, LA, reported to the Americans for Insurance Reform Katrina Insurance Hotline on September 19, 2005 that when she was purchasing her homeowners insurance, her insurance agent at State Farm said that additional flood insurance would not be necessary as she did not live in a flood zone. Her agent explained further that the decision to not purchase flood insurance was going to save her a lot of money and, as she reported to AIR, “anytime someone tells you that you're getting a deal, you take it.”
3 Grace v. Littitz Mutual Ins. Co., 257 So.2d 217, 224 (Sup. Ct. Miss. 1972)(citing Lititz Mut. Ins. Co. v. Boatner, 254 So.2d 765 (Miss. 1971); Kemp v. American Universal Ins. Co., 391 F.2d 533 (5th Cir. 1968)).
4 Id. at 219.
5 Grace, at 224.
6 Id.; see also Lititz Mut. Ins. Co. v. Boatner, 254 So.2d 765 (Miss. 1971), Commercial Union Ins. Co. v. Byrne, 248 So.2d 777 (Miss. 1971).
7 Murray v. State Farm Fire and Casualty Co., 509 S.E.2d 1, 11 (W.Va. 1998)(“When a loss is caused by a combination of covered and specifically excluded risks, the loss is covered if the covered risk was the proximate cause of the loss.”); Bartholomew v. Cameron Country Mut. Ins. Co., 882 S.W.2d 173 (Mo. Ct. App. W.D. 1994).
8 Berry v. Commercial Union Ins. Co., 87 F.3d 387 (9th Cir. 1996)(quoting Sabella v. Wisler, 377 P.2d at 895).
9 McMaster v. New York Life Ins. Co., 22 S.Ct. 10 (1901).
10 Murray, at FN5.
11 Mierzwa v. Florida Windstorm Underwriting Assoc., 877 So.2d 774 (Fla. Dist. Ct. App. 2004).
Americans for Insurance Reform, 90 Broad St., Suite 401, New York, NY 10004; Phone: 212/267-2801; Fax: 212/764-4298
(AIR is a project of the Center for Justice & Democracy)