Settle Lawsuit Or Face Tidal Wave Of Katrina Flood Claims, Hood Warns

"Imagine the onslaught of a mass of lawsuits" dealt with one case at a time, Mr. Hood said. A jury made up of people within the community would not be sympathetic to the carriers, and "insurers would get hammered in individual suits," he added.

The attorney general said he brought his suit contesting carriers' assertion that they are not responsible for water damage to homes after listening to the plight of the Mississippi residents whose homes were damaged by the storm.

He said policyholders were under the impression they had purchased insurance covering them for losses from a hurricane, only to discover insurers refused to pay for losses that involved water damage.

To be covered totally for this event, he said, a policyholder would have had to purchase three forms of insurance–homeowners, hurricane and flood insurance.

However, he explained, many homeowners believed that since they were not in a flood zone and were not required to purchase flood insurance, their losses from a hurricane would be covered.

Mr. Hood argued that flood insurance only covers events from flooding or tidal waves as the result of standing water rising over its banks. In this case, 90 percent of the losses were the result of storm surge, or wind-driven water that blew up to nine miles inland, far beyond what is regarded as a flood zone.

Since storm surge is not specially excluded from the policy, he said, it is included and should be covered.

Mr. Hood said the issue is currently on appeal in federal court over the issue of jurisdiction related to flood, but he expected the case to be returned to state court within two weeks.

He said he is not seeking to alter the nature of flood insurance, but does want to protect those who thought they had insurance for this event and prevent an economic meltdown.

Mr. Hood commented that Mississippi is "facing a potential economic collapse" and that 14 percent of the state's economy had been knocked out.

He said the area had just recovered five years ago from 1969′s Hurricane Camille, and "now it is all gone."

Mr. Hood added that if a settlement is not reached soon, residents without adequate shelter will begin to leave as winter approaches, making the conditions for economic recovery worse.

He was extremely critical of the industry for its attempts to paint the residents as "those dumb rednecks who did not have enough sense to buy flood insurance."

In fact, he added, many people, including professionals, were "duped [by the carriers] into believing that if they had hurricane coverage then they would be covered."

He said the industry is pretending that if it does pay the flood losses it would go broke, when in fact the losses would cost insurers between $2 billion and $4 billion–a fraction of the $38 billion profit it has reported, according to Mr. Hood.

The total net income for the property-casualty industry for 2004 was close to $40 billion, according to National Underwriter Highline Data.

"But like other boneheads," the industry would rather fight over the issue, he said, instead of being "smart and coming together" on a settlement.

"This is not a scheme to extort money," he added.

He also called for the revamping of the National Flood Insurance Program, saying that the maximum limits of payment are inadequate, and insurers need to have more of a stake in the program.

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"This is not a scheme to extort money," said Mississippi AG Jim Hood, urging insurers to settle a suit he's filed over wind-driven water damage claims, contending that policyholders were "duped into believing" they would be covered for such exposures.