WASHINGTON–Insurance companies' handling of Hurricane Katrina claims will be investigated by the Department of Homeland Security thanks to Sen. Trent Lott, R-Miss. who has a personal beef with his home insurer.
The senator, who is suing State Farm Fire & Casualty over a Katrina claim, inserted language mandating the investigation in the department's appropriations bill, which sets its funding for the year 2007.
Signed by President Bush on Oct. 4, the measure mandates a DHS probe over the next seven months.
"As is well known," said Lee Youngblood, a spokesman for Sen. Lott, "the senator has some concerns about the insurance industry and the way the insurance industry handled things, post-Katrina, on a number of levels."
The provision "would allow the IG [inspector general] to look into the insurance industry's approach to the National Flood Insurance Program and see if there were any problems" with how claims were handled, Mr. Youngblood said.
Specifically, the bill calls for the DHS to examine whether insurers operating under the National Flood Insurance Program's Write-Your-Own program "improperly attributed damages from such hurricane to flooding covered under the insurance coverage provided under the national flood insurance program rather than to windstorms covered under coverage provided by such insurers or by windstorm insurance pools in which such insurers participated."
The bill sets a deadline of April 1, 2007 for the inspector general to report the DHS findings to Congress.
Rep. Gene Taylor, D-Miss., called for a similar study in legislation designed to reform the flood insurance program, but that bill failed to win passage. Like Sen. Lott, Rep. Taylor has filed suit against State Farm Fire & Casualty over handling of a claim after the hurricane.
The language of the Homeland Security Appropriations bill does not mandate the mechanics of how a study would work, and Mr. Youngblood said the specifics of the study would be determined by the IG's office.
Mr. Youngblood said Sen. Lott expects only for the study to "determine whether the program was misused in any way."
Fraser Engerman, a spokesman for State Farm, said: "Most of the government programs we participate in, including the National Flood Insurance Program, already have longstanding auditing procedures. We understand that is part of the process and we intend to cooperate fully with any additional inquiries that may come our way."
The DHS probe will join Mississippi inquiries by federal and state grand juries, which are investigating State Farm Katrina claims handling.
Mr. Lott's case against the company is currently scheduled for June of next year in U.S. District Court in Gulfport, Miss.
The senator filed suit when his home was destroyed and the company told him the loss was not covered because the damage was caused by flooding–a peril excluded in his policy.
Mr. Lott contends his agent represented that the policy covered all hurricane damage and that the policy is supposed to cover hurricane-driven storm surge.
When he announced his action, Mr. Lott said he had "joined in a lawsuit against my longtime insurance company because it will not honor my policy, nor those of thousands of other South Mississippians, for coverage against wind damage due to Hurricane Katrina."
He is represented by the law firm of his brother-in-law, high-profile attorney Richard Scruggs. Mr. Scruggs in his first case to be brought on the wind vs. water issue secured his clients only minimal damages and the insurer claimed victory.
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