At the urging of a local attorney noted for his litigation against the tobacco industry, Mississippi's attorney general said he would examine the flood exclusions in homeowners insurance policies to determine their legitimacy.
The Wall Street Journal reported that Attorney General Jim Hood would review the exclusions to determine if there is anything "unconscionable" in the forms. The action came after Mississippi attorney Richard Scruggs, who was a prime mover in the multibillion-dollar class action settlement with the tobacco industry, and a brother-in-law of Sen. Trent Lott, R-Miss., called on the evaluation of the exclusions in the interest of public-policy.
Mr. Scruggs did not return a phone call for comment. A spokesman for Mr. Hood confirmed the comments.
Industry representatives were critical of the review, noting that making insurers pay for a risk they did not calculate into their portfolios would cause insolvencies among carriers.
"The insurance companies have been responsive and responsible after Hurricane Katrina from everything I have heard to date from the insurance commissioners in Louisiana, Mississippi and Alabama," said Diane Koken, Pennsylvania's insurance commissioner and president of the National Association of Insurance Commissioners, by e-mail. "We will continue to assist consumers to assure they are treated fairly and in compliance with insurance laws. Expecting companies to pay for losses for which a policy does not provide coverage and premium was not collected impacts financial solvency and could have serious long-term implications."
During a media teleconference call today, members of the Property Casualty Insurers Association of America were critical of the move, saying that the exclusions are well-established contract law and have been in existence since establishment of the flood insurance program in 1968.
They said with the experience in Florida, claims were settled within six months of the event to the satisfaction of the parties in most cases, and insurers will continue to strive to settle claims in the interest of the policyholders according to the language of the policy.
Politically, there will be pressure to settle claims where damage claims involve wind and flood damage to the advantage of the policyholders, said Greg Lacoft, PCI's senior counsel and regional manager for Louisiana.
"Claims adjusters will go in [to the disaster areas] and adjust claims accordingly," he said. "They will know the difference between wind and flood. They are going to look to the contract language."
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