The actions of Nationwide agent Jay Fletcher came under scrutiny in the case of Leonard vs. Nationwide as it was originally alleged that Mr. Fletcher discouraged Mr. Leonard from buying flood insurance.
While Mr. Fletcher himself was dismissed as a defendant when the case moved to federal court, just how he handled his dealings with Mr. Leonard is important for a number of reasons. Among them is the fact that, according to National Flood Insurance Program Administrator David Maurstad, about 50 percent of property owners in high-risk flood areas lack flood insurance.
In his opinion, Judge L.T. Senter accepted the fact that Mr. Fletcher told his client he did not need flood insurance. "Fletcher sometimes discouraged his clients from purchasing flood insurance policies. That much is clear from the testimony of a variety of witnesses, including Fletcher's office assistant, Cindy Byrd Collins," the judge wrote.
But why shouldn't Mr. Leonard buy flood insurance? The question wasn't asked or answered, according to the court.
"Leonard apparently inferred that Fletcher's reason for advising him that he did not need a flood policy was that his homeowners' policy would cover any and all water damage that might occur during a hurricane," the judge wrote. "This was an erroneous inference, and one that might have been avoided had either party to the conversation been more articulate in his inquiry or in his response."
Neil Alldredge, senior vice president of the National Association of Mutual Insurance Companies, said the one possibly troubling aspect of the ruling was the judge's reference to an absence of a standard of care in terms of Mr. Fletcher's assertion that his client did not need flood insurance.
"It is possible that this could lead some people to think there might be a need for one," he said.
In an attempt to achieve universal flood coverage, regulators last year proposed a radical "all-perils" policy that would declare the current nearly four-decade system of private-federal coverage of storm damage a failure. When that proposal proved to be a nonstarter, regulators then attempted to codify some sort of checklist to ensure homeowners understand what is covered and what is not under a standard homeowners policy–in essence, to ensure the Fletcher-Leonard conversation does not repeat itself. But the industry has always been wary of such requirements not only because of the paperwork it entails, but the potential gold mine for the plaintiffs' bar that may exist in any new requirements not followed to a tee.
The National Association of Insurance Commissioners is now looking at the checklist as part of an overall program for catastrophe coverage that includes a federal-state backstop for such risk and new risk mitigation incentives.
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