You’ve probably been reading about the rising tide of homeowner ire over the way their insurance policies are worded. Generally, homeowner’s insurance does not cover flood damage. Federally-underwritten flood damage insurance is recommended for people living flood-prone areas, but many of those left homeless by Katrina hadn’t purchased flood insurance and were covered by standard homeowner’s policies only.
Over the past couple of weeks, the army of insurance agents have been examining these damaged and destroyed properties, looking for a tell-tale high-water line, indicating flooding… and used this as a disqualifier for covering the total extent of the damage, the rationale being that this was not hurricane damage per se (caused by winds, rain, and wind-tossed debris), but damage caused by “flooding” (even though this “flooding” was the storm surge effect generated by the hurricane, compounded by heavy rains).
Insurance and meteorological semantics aside, couldn’t a glancing blow by Hurricane Rita muddle the waters of legalese further? I’m thinking of two kinds of scenarios in particular:
Home largely destroyed due to flooding by Katrina; agent has already assessed the damage and denied total coverage, citing “flood” damage. Home suffers further damage due to winds and rains pouring in through structurally compromised (or non-existent) roof – but escapes being flooded a second time. Home eventually gets revisited by insurance agent… couldn’t the homeowner argue that whatever “flood”-caused damage occurred in the first storm (sodden drywall, flooring, and personal effects, etc.) was basically replicated by the rains of the second? That the house suffered the kind of damage associated normally with flooding from Rita (i.e., having to replace the drywall, etc.), only this time from the rains alone (due to the home’s pre-devastated condition)?
Home largely destroyed by Katrina, due mostly to flooding, but not visited by an agent until after Rita had hit, too. In this case the agent will see evidence of flooding and attempt to DQ much of the damage, but the homeowner will argue that the ambiguity of what damage occurred when (as in the above scenario) leaves room for doubt. If enough water pours in through broken windows and a compromised roof to potentially cause total devastation from those causes alone, does it matter if the house was also simultaneously flooded? In a context of such ambiguity, whose side is favored by the wording of a typical homeowner’s policy? Would the homeowner need, say, the whole roof to have been ripped off as the standard of proof for total devastation by wind and rain?
I have a feeling we’re going to see a record wave of lawsuits along these lines for years to come.
And with any luck, we’ll see the end of separate flood & earthquake policies and a straightforward Federal requirement for insurance co’s to sell only all-hazards coverage and a straighforward Federal requirement for property owners & renters to buy same.
And what lobbyist-free world did that sentence come from ???
Sadly, the real insurance situation going forward will probably continue to look much like the abject muddle it presently is.
Maybe progressive state and federal legislators could pass bills requiring such comprehensive insurance coverage, but if they don’t force insurers to offer coverage in hurricane-prone areas, the insurers are likely to balk and refuse to underwrite any coverage in those areas, or in those states. If the law bans “red-lining” such areas, the high costs associated with offering genuinely comprehensive coverage would be passed along to the consumer – either in prohibitively high policies for the flood-prone areas, or in incrementally higher costs for the insurer’s customer base.
It’s a rather different context, but here in New Jersey a law was passed several years ago regulating auto insurers’ profit margins (and possibly restricting their right to refuse underwriting the most dangerous drivers; I’m not sure about this point, though) – with the result that many of the nation’s largest insurers refused to do any auto insurance business in New Jersey at all. The legal restrictions have since been relaxed or lifted, IIRC, and many insurers (GEICO being one) have returned.
This is probably headed to GD or IMHO because of the complexity of the situation you’ve got going here. As for people who’ve already had their homes inspected and flood damage identified, damages resulting from Rita will be relatively easy to identify.
This is likely to be an over simplification of what’s really going to happen, but it’s the general principle.–known prior damage will not be paid as part of the new claim. It iwill be paid or denied under the previous (Katrina)claim.
On homes that have not yet been inspected the situation will be a little different because old and new damage may be difficult to seperate. Especially if the owner himself doesn’t know as he’s been evacuated since before this whole mess started. It will be at that time when insurance companies will show their true colors–do they serve the interests of the policyholders and give them the benefit of the doubt? Or do they serve stockholders and deny as much as possible. In the end, the buren of proving the insurability of the loss falls on the CUSTOMER. Yup.
The problem with the comprehensive policy proposed by the OP is that it will be massively expensive. Certainly, no more or less so than if the homeowners had purchased flood as well as standard homeowner’s insurance, but there’s a very good reason why people don’t buy flood, and in other regions erathquake, insurance–they don’t want to pay for it. When I was dealing insurance in Seattle a few years back, the earthquake endorsement on a homeowner’s policy increased the premium by 50-100%! Pennies for dollars of coverage, really. It’s a bargain considering the alternative. But insurance is not most peoples #1 priority. It’s somewhere deeper on the list after big screen TV’s, lunch at McDonalds, cigarettes, gasoline and the mammoth SUV’s that drink more than their fair share…“quality of now living” stuff. Insurance is something everybody wants, but which they hate paying for. I wish ill on nobody, but who’s fault is it when a homeowner opts not to buy flood or earthquake insurance? Or life insurance? It’s not my fault. And I for one do not wish to have mandatory coverages added to my insurance policy if it means doubling my rates to have coverages I was opting out of in the first place.