Check Under The Hood
Jim Hood is anything but a subtle person, as insurers learned to their chagrin this month when the Mississippi attorney general tried to strong-arm them into paying flood-related losses not covered under standard homeowner policies.
Speaking at a conference set up by a top-notch plaintiff agitator–the law firm of Anderson Kill & Olick–Mr. Hood tried a carrot-and-stick approach. The stick was Mr. Hood's warning that if carriers refused to settle his lawsuit over flood claims, regardless of any policy restrictions, they would be inundated with policyholder suits and left to the mercy of insurer-hating juries.
The carrot was cynical and self-serving–be smart and settle Mr. Hood's suit, which, he insisted, would end up being cheaper than fighting thousands of individual court claims. "Imagine the onslaught of a mass of lawsuits" litigated one at a time, he suggested, summoning up the image of rogue juries composed of bitter people unsympathetic to the industry's contractual defense. "Insurers would get hammered in individual suits," he warned.
"This is not a scheme to extort money," he added. I'm not so sure.
To the industry's credit, insurer groups reacted with a stiff backbone. While insurers are committed to living up to the terms of their policies, "they will not be bullied into covering claims that are not covered," vowed Joe Annotti, vice president of public affairs for the Property Casualty Insurers Association of America.
"Clearly, Mr. Hood believes that insurance contracts stand for nothing," added Julie Rochman, senior vice president at the American Insurance Association. Dismissing Mr. Hood's insistence that insurers would either have to pay up a little now, or pay big time later, she added that policies excluding flood damage "have been upheld by the courts, and no amount of hoping or wishing or threats will prevent us from defending those contracts vigorously."
"I have not heard of a single company in the industry that has said they would consider settling," added Roger Schmelzer, senior vice president at the National Association of Mutual Insurance Companies.
Let's hope the industry sticks together. Everyone knows this could get ugly, with thousands of homeowners left without coverage. But if carriers cannot stand by their contracts, they haven't got a leg to stand on, period. Surrendering to Mr. Hood's thinly veiled threat would open the door to thousands of other claims for prior hurricanes that resulted in uncovered flood losses. The cost to the industry would be devastating.
Luckily, insurers seem to realize what is at stake. PCI's Mr. Annotti said capitulating to Mr. Hood would set a precedent "that would undermine the entire insurance process in the state and possibly the nation."
Mr. Hood's lawsuit was an act of desperation, and now he is compounding his mistake by trying to coerce insurers into paying claims they did not cover.
Mr. Hood's motives are clear. At the Anderson conference, he lamented that Mississippi is "facing a potential economic collapse," with 14 percent of the economy knocked out. He is counting on squeezing billions more out of insurers to give his state a jump start.
Everyone sympathizes with the plight of those whose homes were damaged in the hurricanes. Insurers clearly owe tens of billions in legitimate claims to help people trapped in the path of the storms rebuild.
However, forcing insurers to pay claims they do not owe with empty threats and bogus lawsuits is not the answer. The solution is to reconsider our entire approach to flood insurance to make sure everyone has coverage they paid for up front.
Sam Friedman is NU's Editor-In-Chief. He may be reached at sfriedman@nuco.com.
"Forcing insurers to pay claims they do not owe with empty threats and bogus lawsuits is not the answer. The solution is to make sure everyone has flood coverage they paid for up front."
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