- The Washington Times - Wednesday, February 28, 2007

State officials from Louisiana and Mississippi accused insurance companies of fraud yesterday during a congressional hearing about complaints over homeowners’ damage claims after Hurricane Katrina.

The House Financial Services oversight and investigations subcommittee is considering reforms to the way insurers determine the amount of claims they must pay.

“Everybody I’ve talked to in the process is unhappy,” said Rep. Melvin Watt, North Carolina Democrat and the subcommittee chairman.

He said Gulf Coast homeowners tell him that their claims were not “timely paid.” Insurers “tell you they were just following the terms of their insurance contracts,” Mr. Watt said.

So far, insurance companies have paid about 1.7 million claims totaling $40.6 billion from the Aug. 29, 2005, hurricane, the most-expensive natural disaster in U.S. history, according to the Insurance Information Institute, a trade group for the insurance industry.

About 95 percent of the homeowners’ claims have been paid, but others linger in state courts crowded with lawsuits, witnesses said.

Mississippi Attorney General Jim Hood, who testified before Congress yesterday, has filed a lawsuit against insurance companies that accuses them of deceiving policyholders.

“There’s a great misconception that we’re trying to make the insurance industry pay for something they didn’t insure,” Mr. Hood said.

Insurers sometimes led homeowners to believe hurricane damage would be covered by their flood insurance, but then refused to pay their claims if some of the damage was caused by high winds, he said.

“We’re trying to make them pay for what they did insure,” Mr. Hood said.

He also said insurers had engineering reports showing a combination of water and wind damage was likely during a hurricane but knew they could avoid paying claims by invoking “anti-concurrent cause provisions” in policies that require compensation for only one form of damage.

“In essence, a bait and switch,” Mr. Hood said.

An insurance-industry economist denied the charges, saying state and federal regulators never would allow insurers to defraud customers.

Robert Hartwig, chief economist for the Insurance Information Institute, also said the insurance industry was devastated almost as badly as many Gulf Coast residents by Hurricane Katrina.

State Farm, Mississippi’s largest homeowner insurer said last month that it would stop writing new homeowner and commercial policies in the state because it had enough of the “untenable” legal and political climate there.

The company said the decision was a result in part of the wave of litigation the company has encountered since the storm.

The hurricane damage created claims that wiped out the equivalent of insurance industry earnings from Louisiana homeowners’ policies for the past 25 years and “every dime ever earned in that state,” Mr. Hartwig said.

“What we need to do is redouble our efforts to strengthen building codes in this country,” he said. He also said states should develop land-use policies that encourage development farther from coastal areas vulnerable to hurricanes.

Rep. Bobby Jindal, Louisiana Republican, said the insurance industry earned profits of $44 billion in 2005, despite the hurricane payouts.

Mr. Hartwig said the profits represented all forms of insurance, including workers’ compensation and automobile.

Homeowners insurance returned a significant loss for the industry, he said. The only exceptions were in a few states with small risks from natural disasters, such as Illinois.

He warned against legislation to impose more regulations on the industry, saying they could hurt their business and cause credit-rating agencies to downgrade insurers.

“We are one of the most-regulated industries in the country,” he said.

Said Rep. Gary G. Miller, California Republican: “If there was ever an impetus to reform, it is now.”

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