Insurance companies' handling of Hurricane Katrina claims will be investigated by the U.S. Department of Homeland Security thanks to Sen. Trent Lott, R-Miss., who has a personal beef with his own homeowners insurer.

The senator–who is suing State Farm Fire & Casualty over a Katrina claim–inserted language mandating the probe into the department's 2007 appropriations bill, signed by President Bush earlier this month.

“As is well known,” said Lee Youngblood, a representative for Sen. Lott, “the senator has some concerns about the insurance industry and the way the insurance industry handled things, post-Katrina, on a number of levels.” The provision, he added, “would allow the [inspector general] to look into the insurance industry's approach to the National Flood Insurance Program and see if there were any problems” with how claims were handled.

Specifically, the bill calls for DHS to examine whether insurers “improperly attributed damages” from Hurricane Katrina to flooding rather than to windstorms. The bill sets a deadline of April 1, 2007 for the inspector general to report his findings to Congress.

Rep. Gene Taylor, D-Miss., called for a similar study in legislation designed to reform the NFIP, but that bill failed to win passage. Like Sen. Lott, Rep. Taylor has filed suit against State Farm over the handling of a claim after the hurricane.

The language of the appropriations bill does not mandate the mechanics of how a study would work, and Mr. Youngblood said the specifics of the study would be determined by the inspector general's office.

Mr. Youngblood said Sen. Lott expects only for the study to “determine whether the [NFIP] program was misused in any way.”

Fraser Engerman, a representative for State Farm, said “most of the government programs we participate in, including the National Flood Insurance Program, already have longstanding auditing procedures. We understand that is part of the process and we intend to cooperate fully with any additional inquiries that may come our way.”

The DHS probe will join Mississippi inquiries by federal and state grand juries, which are investigating State Farm's Katrina claims handling.

Sen. Lott's case against the company is scheduled for next June in U.S. District Court in Gulfport, Miss. He filed suit when his home was destroyed and the company told him the loss was not covered because the damage was caused by flooding–a peril excluded in his policy.

Sen. Lott contends his agent represented that the policy covered all hurricane damage, and that the policy is supposed to cover hurricane-driven storm surge.

When he announced his action, Sen. Lott said he had “joined in a lawsuit against my longtime insurance company because it will not honor my policy, nor those of thousands of other South Mississippians, for coverage against wind damage due to Hurricane Katrina.”

He is represented by the law firm of his brother-in-law–high-profile attorney Richard Scruggs. In his first case to be brought on the wind vs. water issue, Mr. Scruggs secured his clients only minimal damages and the insurer claimed victory.

Special Reports /

Homeland Security Dept. To Probe Claims-Handling For Hurricane Katrina

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