Within two weeks after Hurricane Katrina, Louisiana Insurance Commissioner Jay Robert Wooley was quoted as saying that with post-hurricane insurance claims, "Lawyers are going to have a ball; it's got more legal questions than you can imagine."
A few days later on Sept. 15, 2005, Mississippi Attorney General Jim Hood filed a lawsuit against five of the largest homeowners' insurers in Mississippi, asking the court to declare as "void and unenforceable" and in violation "of the public policy of the State of Mississippi" common insurance policy exclusions that typically apply to damage caused by water or flood. The same day, a class-action petition was filed in Louisiana state court against 15 separate insurance companies that argued the cause of damage to thousands of homes in New Orleans was the negligent construction of the levees, therefore negating the flood exclusion. Other less-publicized lawsuits followed in each of the states hit by Hurricane Katrina.
Precedents Predict Future
As with many lawsuits, both the Mississippi attorney general's lawsuit and the New Orleans' class-action lawsuit are moving slowly. The Mississippi lawsuit was promptly removed to a federal court by insurers, but on March 10, 2006 -- almost six months after the lawsuit was filed -- the federal judge remanded the case back to state court. While this ruling was generally characterized as a loss for the insurers, the ultimate ruling on the substantive insurance issues in the case is many months, if not years, away. The Louisiana lawsuit also is many months or years from a final decision.
A Legislative Intervention?
Both Congress and state legislatures have reacted to Hurricane Katrina by considering legislative changes. For example, Congress has considered legislation that would give FEMA, which administers the National Flood Insurance Program, the authority to make certain changes in the rates for flood coverage. The Louisiana senate approved legislation that would prevent insurance adjusters from denying homeowners' claims based strictly on floodwater marks, thus requiring insurers to consider other evidence when adjusting a claim. So far, there has been no legislation that attempts to preclude the use of the flood exclusion or other specific insurance policy provisions.
Back Where We Started
Insurance claims resulting from Hurricane Katrina certainly are unique in some respects, and in number are particularly significant. But ultimately, the handling of Hurricane Katrina insurance claims has involved the same general practice as other insurance claims. The process begins with first notice of loss to the insurer. This is followed by an investigation, which includes determining the cause(s) of loss, extent of damage, and the cost for repairs or replacement of damaged property. Experts are retained to give professional assistance in the process. If the cause of loss is covered under the insurance policy, as in the case of wind, then the insurer typically makes payment for the amount of the damage.