Cliffs Notes for Homeowners' Policies

Mississippi Senator Trent Lott lobbed another legislative grenade toward insurance companies last month when he introduced a bill in the U.S. Senate that would require homeowners' insurers to fully disclose property insurance coverage and non-coverage in plain language on the front page of every homeowner's policy.

According to a release from his office, Lott's bill would require the information to be in bold font, twice the size of the body of the policy's text. It also would have to contain all conditions, exclusions, and other limitations pertaining to the individual policy's coverage. The bill calls for the Federal Trade Commission (FTC) to enforce this disclosure requirement, and it establishes penalties for insurers who fail to comply through the FTC's existing laws governing unfair or deceptive practices.

Sen. Lott has been a thorn in insurers' sides since his home was destroyed by Hurricane Katrina in 2005. His insurer, State Farm, denied a majority of his claim because it said damages were due to storm surge, an excluded peril on his policy. Lott then sued the State Farm, and the case has yet to be settled. Since then, however, Lott has been a vocal critic of the industry, testifying against insurers in governmental committees at almost every opportunity.

“Insurance policies are notoriously hard to read and understand because they're primarily written in complex legalese,” said Lott, in a release. “While insurance is a legal contract, it also is a product purchased by consumers. That's why I believe every insurer should include a plain-English description of a homeowner's policy, prominently displayed on the policy's first page.”

Senator Lott also said in his release that his bill would save money and time associated with insurance policy disputes.

“Consumer groups have estimated a provision like this could have saved consumers anywhere from $55 billion to $65 billion in Hurricane Katrina's aftermath,” said Lott. “Having a clear, concise description of every policy serves the best interest of consumers, insurers and taxpayers.”

In a statement on her web site, the Property Casualty Insurers Association of America's (PCI) interim CEO June Holmes attacked the legislation, saying that it would only lead to more bureaucracy.

“PCI has long supported efforts to make policy language clear and understandable,” said Holmes. “As a result of our support and that of state regulators, many states — including Senator Lott's home state of Mississippi — are already doing an excellent job in enacting and enforcing these 'plain language' requirements. Senator Lott's proposal will do nothing to enhance the 'plain language' requirements already on the books in almost every state.”