Head Of National Flood Insurance Program: Not Aware Of Insurers Passing Off Wind Coverage Onto Federal Flood Insurance

I’ve dwelled on this for a few days now, and I’m going to do it again, because I heard the testimony before Congress last week on this issue, and I’ve seen a number of newspaper stories on whether insurers in Mississippi bilked taxpayers by avoiding wind payments and then paying out federal flood insurance on destruction that included wind damage. 

Here’s the latest from the Sun Herald in Biloxi, an interview with David Maurstad, head of the NFIP, in which he repeats his testimony from last week that he is unaware of the NFIP paying any amounts for wind that should have been paid by private insurers.  Here’s another story, by Maria Recio of McClatchy Newspapers, that the Sun Herald ran last week about Maurstad’s testimony.  As you can see, the tone of the story is that it was amazing that Maurstad denied this when so many people in southern Mississippi believe it, and emphasis was put on the fact that he had he had "no knowledge" of such payments and did not categorically state they had never occurred.

Now if I’m writing either one of these stories, I tell you where I’m going: to the offices of Rep. Gene Taylor and the spokesman for Attorney General Jim Hood, who have alleged these payments, and I’m asking the following questions:

1.  Can you give me the name of five homeowners who received payouts on flood insurance and received no wind payments? If the value of their homes was above the amount payable under flood insurance ($250,000 for the structure, $100,000 for contents) they don’t count, because the unpaid wind payments are theoretically still owed and the homeowner was not made whole by flood insurance.

2.  How many homes were completely destroyed by Katrina, had flood insurance that paid and received no amount of money for wind damage?

3. Show me how you calculate how much wind damage occurred on these homes.

4.  Why am I not hearing these same claims from Louisiana and Alabama?  Did they not also have homes that were destroyed by flood, with some of the homeowners receiving flood insurance payments and no wind payments?

Why are these stories repeating rumors without demanding that the people alleging this stuff put up their evidence?  The writing of the Recio story is particularly hard to figure out: why is the fact that something is "widely alleged" relevant? What’s the proof of the allegations? Among whom are they widely alleged, the staffs of Gene Taylor and Jim Hood? The existence of Bigfoot is also widely alleged, but if I’m a journalist I’m not going to start writing stories that assume their existence and demand that people prove the contrary.

13 Comments

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13 Responses to Head Of National Flood Insurance Program: Not Aware Of Insurers Passing Off Wind Coverage Onto Federal Flood Insurance

  1. Kevin

    I’ve been trying to understand the Broussard case and its implications and I keep coming to the conclusion that what State Farm did was say that they couldn’t distinguish between loss caused by wind and loss caused by water so they weren’t paying anything. Judge Senter mentioned this in Item 14 when he wrote:
    “I also find that State Farm lacks a legitimate or arguable reason under Mississippi law and under the unambiguous terms of the subject insurance policy for failing to make any unconditional tender of policy benefits for the wind damage in light of the estimates reported to State Farm by Dr. Gurley.”
    This, to me, is the crux of the case. If State Farm had said that damages were $X and here’s your check (net of deductible) then the burden to prove any additional damages would be on the Broussards. Instead they just denied the claim. It is clear that if a house is damaged by storm surge then the wind that preceded it was powerful enough to do some damage to the structure. The difficulty is in the estimation of the amount of wind damage. State Farm is an expert in adjusting claims and, as such, should have developed methods to approximate the costs. Using engineering reports is one method. Another method, which I don’t believe has been attempted by insurers would be the use of catastrophe models. The major models are produced by AIR (www.air-worldwide.com), RMS (www.rms.com), and Eqecat (www.eqecat.com). I’ve only had training on one of these models and don’t use it actively in my work, but if I recall correctly there is an option to model losses with or without storm surge. It would seem to me to be an elementary exercise to run the specific hurricane through the model using the affected properties. You can then compare the two types of loss and make an approximation of the percentage of loss due to wind.
    These models are the result of collaborations from scientists in a number of disciplines (they’re a lot smarter than me, and I have a Ph.D. in mathematics) and they represent, to date, the most significant attempts to understand the damage caused by hurricanes. They’re discounted by claims adjusters and regulators as being inaccurate but they’re the best tool that we’ve got and if I had my choice between having a frustrated, tired engineer on the ground trying to piece things together or the result from a model, I’d choose the model.
    That’s how I’d answer your question #3.

  2. Patti in MS

    Mr. Rossmiller, I am resident of Hancock County, Mississippi and happily the water stopped about 2 blocks from house so I only received wind damage. I would like to address your questions from the bottom up. Why no LA or AL complaints? Most of LA residents problems were a result of the levee breach. Katrina came in on the state line of LA and MS thus most of LA was on the lee side of the storm. And if MS residents think they were ignored as a result of this storm have you read any articles related to the residents of Buras, LA where Katrina had her first landfall. AL was about 70 miles east and while they had significant damage, they did not have water as high as it was in MS. The calculation is a major issue in this. The various companies have handled this differently. Some of the companies brought in engineers early on, truly evaluated the situtation and paid on both policies appropriately. The big problem are the companies that didn’t ever retain an engineer until the matter was in litigation (Broussard is one, the Williams case this week is another.) I didn’t know that I should advise my friends to go out and retain a forensic engineer immediately after the storm so that they could prove their first party insurance claim. I expected my friends and myself to have a problem with the company lowballing repair and replacement issues but those are easy to fight or take to mediation. When you show your company that you paid $175 a sq for a roof and that was the best price with the highest estimate of $250 a sq they come around and ante up. I also wonder how many will stay next time so they can video the storm and it’s damage. How many got zip? Don’t know the number but really quite a few. The majority of the stories that I have heard were given something under $10,000 for roof damage, nothing for contents and full flood. People were told that the wind insurer would not pay for anything in contents that was below the water line. Regarding question 1: read all of the complaints at the USDC of Southern Mississippi. You can find a whole lot of people to talk to. It is interesting to hear the stories of a small neighborhood and the various insurers response to the claims of the neighbors. See what companies truly looked for evidence of the wind damage which clearly came before the water and what companies did not. See who had engineers in all wind/water claims and who did not. See who would correct reports when advised that they contained inaccurate information and who did not. It is amazing when some companies paid on both policies and some didn’t on the same block. Amazing as a defense lawyer, I seem to be rooting for the homeowner these days.

  3. Steve Mullins

    Why are you practicing law in Mississippi without a license? I bet I can guess. I am sure a subpoena from one of these cases you claim don’t exist would confirm it. Go whore yourself in some area where you have a clue.

  4. Regarding Steve Mullins’ comment: In Oregon, at least, we are still free to talk about what goes on in other states. I am involved in none of the Katrina cases as a lawyer.

  5. Marc

    Kevin, I’m not 100% sure, but I believe the “surge” option in the cat models is for demand surge. Cat modelers were widely criticized after 2004 for not predicting the demand surge for goods / labor necessary for rebuilding in Florida. I believe an option was implemented in 2005.

  6. Regarding Patti’s comment, I understand the point out the lee vs. windward damage, but Louisiana had a lot of damage and not all of it was in New Orleans and not all of it was from levee breaches. I’ve got to think there are a number of cases where one could point to in Louisiana and Alabama where the home was destroyed by flood but preceded by high winds.
    Your comment has a number of very intesting details about the adjusting process, there certainly is food for thought there. But about the complaints, remember that I posted the question as a journalist going to Gene Taylor, reporters aren’t going to read hundreds of complaints and wouldn’t understand the significance of them if they did. (I say this without rancor to the press and as a former journalist). If Rep. Taylor and others are out there saying this, I would think they have the names, facts and figures at their fingertips and shouldn’t mind sharing them.

  7. Patti in MS

    Gene Taylor has been soliciting insurance horror stories. I can introduce you to a friend in Waveland who has an interesting neighborhood story. Interesting things have been happening in South Mississippi today. SF settled a case before going to the jury but after the judge determined he would not submit the punitive damage question. And Insurance Commissioner George Dale just ordered State Farm to review all of their slab claims in accordance with his directive issued after the storm. See the SunHerald

  8. Patti, I would be interested in hearing your friend’s story, feel free to call me at 503-306-5311 about this or pass on information about your friend to me at dpr@dunn-carney.com

  9. Joe

    You ask how an insurance company calculates wind damage for the slab-house cases? One, use the anti-concurrent clause and the insurance company need not determine whether the covered or excluded peril caused the damage. Two, use evidence to show the wind damage. In the slab-houses areas the destruction was total to the height of the storm surge. It was obvious storm surge caused damage. It was very likely there was no direct evidence that there was wind damage. Sure there was indirect evidence but immediately after Katrina, this evidence was not well defined. Net effect? Wind damage occurred and no payment from their homeowners insurance.
    One thing about the anti-concurrent clause, though. I do not think it applies to the Katrina cases. The clause applies to cases such as a lightning strike knocks out electricity that shuts down a sump pump that allows flooding. The homeowners insurance covers lightning strikes but not flooding and sewer backups. With an anti-concurrent clause there is no fact-intensive determination of the cause in this multi-causation loss. Hurricane Katrina, though, did not involve the series of events that makes determining proximate cause so difficult. There was wind and, later, there was flood. All of the wind damage with the slab-houses occurred before the flood damage. There is no confusion of causation here.

  10. Joe, I believe you are giving the correct interpretation of the anti-concurrent cause language. It is certainly consistent with my understanding of case law on it. I think you hit on a valid point here, and that is that the language does not serve to make covered causes uncovered, it merely prevents uncovered causes from being covered. Great analysis. Some or maybe all the confusion here is generated by the fact that, at least in the State Farm policies, the flood exclusion falls under a section where the preamble contains broad anti-concurrent language, leading many people to refer to the whole thing as anti-concurrent. I’ve probably too loose with my own description at times. A flood exclusion is just a flood exclusion, as you point out. The anti-concurrent language perhaps should not be a factor in the claims adjusting.

  11. Joe

    You wrote the anti-concurrent clause “does not serve to make covered causes uncovered, it merely prevents uncovered causes from being covered.”
    Hmm, I disagree. In my hypothetical with the lightning strike, one court found lightning as the cause of the damage to the house. Therefore, it was a covered loss. But, had there been anti-concurrent clause in the homeowners contract, there would have been no coverage. Certainly from this court’s holding, the anti-concurrent clause would have made the covered loss uncovered.
    As I understand it, answer the question below to determine if the anti-concurrent clause applies to the lightning-strike case:
    Would the loss not have occurred in the absence of the excluded peril—flooding? Answer, yes, there would not have been a loss had there not been flooding.
    Here is the anti-concurrent clause from the State Farm homeowners policy:
    2. We do not insure under any coverage for any loss which would not have occurred in the absence of one or more of the following excluded events. We do not insure for such loss regardless of:
    (a) the cause of the excluded event; or
    (b) other causes of the loss; or
    (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss; or
    (d) whether the event occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these:
    a. Ordinance or Law [RE enforcing law to construct or demolish]
    b. Earth movement
    c. Water damage, meaning:
    (1) flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, all whether driven by wind or not;
    (2) water from outside the plumbing system that enters through sewers or drains, or water which enters into and overflows from within a sump pump, sump well or any other system designed to remove subsurface water which is drained from the foundation area; or
    (3) natural water below the surface of the ground,including water which exerts pressure on, or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure.
    However, we do insure for any direct loss by fire, explosion or theft resulting from water damage, provided the resulting loss is itself a loss insured.
    d. Neglect, meaning neglect of the insured to use all reasonable means to save and preserve property at and after the time of a loss, or when property is endangered.
    e. War
    f. Nuclear hazard

  12. Joe, let me think more about your comment and respond later. My understanding of the origin of anti-concurrent language is that it was brought in to defeat coverage for uncovered damage where courts were finding elaborate causation because it happened in sequence with a covered event. Washington, for example, where I’m pretty familiar with the law, had a number of these cases.

  13. Joe

    That may have been its origin, but, still, its application can prevent coverage of losses due to a covered peril that is the but-for cause or is the predominanting cause of the loss.
    I relied on an article in the latest issue of “The Brief” from the ABA Tort Trial & Insurance Protection Section. The article, also, lists all states and whether they allow anti-concurrent clauses (LA and MS allow them).
    See article:
    Michael C. Phillips and Lisa L. Coplen. 2007. Concurrent Causation versus Efficient Proximate Cause in First-Party Property Insurance Coverage Analysis. The Brief. Winter 36(2):32-43.