Industry representatives say insurers have no intention of settling a suit by the Mississippi Attorney General and making payments for homeowners' hurricane storm surge damage where policyholders did not purchase flood coverage.
Speaking Wednesday in Houston, Attorney General Jim Hood called on insurers to settle a suit he has filed against them for not covering homes damaged by storm surge in the state.
Mr. Hood said that homeowners should not be penalized for not purchasing flood insurance when their homes were not in a flood zone. He said policyholders were under the impression that by purchasing hurricane insurance they would be covered for any events resulting from the hurricane.
The industry has said otherwise, arguing that a flood event is not covered under a homeowner's policy and requires the purchase of flood insurance under the National Flood Insurance Program.
"Clearly Mr. Hood believes that insurance contracts stand for nothing," said Julie A. Rochman, a spokeswoman with the American Insurance Association. "These contracts have been upheld by the courts and no amount of hoping, or wishing, or threats will prevent us from defending those contracts vigorously."
Mr. Hood argued that if the insurance industry did not settle with him, it would have to suffer a flood of state court litigation by individual policyholders.
Ms. Rochman responded that there is always litigation over insurance contracts after a catastrophic event from people who were either not insured or underinsured. It is the responsibility of public officials to help find money to help them, "but to destroy the insurance contracts threatens the system and is a bad instinct. It would destroy the insurance system."
Joe Annotti, vice president of public affairs for the Property Casualty Insurers Association of America (PCI), said, "Companies are out there to live by the terms of their agreements and pay every covered claim, but they will not be bullied into covering claims that are not covered."
He added that if Mr. Hood's challenge were "to come to pass, it would set a precedent that would undermine the entire insurance process in the state and possibly the nation."
"I don't think the industry has any intention of settling," said Roger Schmelzer, senior vice president of state and regulatory affairs for the National Association of Mutual Insurance Companies. "I have not heard of a single company in the industry that has said they would consider settling. The companies understand that the law is on their side, that this is a federal issue and it will be resolved in their favor."
The attorney general's suit is currently in federal court in a jurisdictional dispute. The industry feels the matter, which involves the National Flood Insurance Program, is a federal issue, while Mr. Hood is arguing it is a state matter.
Mr. Hood said if the courts remand the case to Mississippi, the state will win, but if the industry is able to keep the matter in federal courts, the state will lose.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.