State needs a new policy on insurance
By Randy Schultz
Palm Beach Post Editorial
Sunday, July 16, 2006
Aug. 5 of last year, in his weekly column to constituents, Sen. Trent
Lott, R-Miss., praised Congress for passing legal reform that would
"curtail frivolous lawsuits which threaten American jobs."
Twenty-four days later, Hurricane Katrina took out Sen. Lott's house
in Pascagoula. Last December, Sen. Lott hired one of those rapacious
trial lawyers - who also happens to be the senator's brother-in-law -
to go after the insurance company that Sen. Lott believes owes him
money for his destroyed home. Funny how lawsuits look less "frivolous"
when you're the plaintiff.
Sen. Lott is among 3,000 Mississippi clients of Richard "Dickie"
Scruggs, who was in court last week on behalf of Julie and Paul
Leonard. Their losses from Katrina came to $130,000. The insurance
company paid $1,300, claiming that almost all of the damage was from
water, not wind. Mr. Scruggs counters that devastating winds came three
hours before the storm surge, and that the Leonards' casualty agent
told them not to bother with flood insurance. Mr. Scruggs makes the
same argument for Sen. Lott, who once criticized Democrats for thinking
that "the answer is a lawsuit. Sue everybody."
Florida has been through the wind vs. water legal debate. Here, the
ruling in 2004 went against the insurance companies. But the
Legislature fixed that in 2005 with a law that overrode the court. Why
does Tallahassee wonder why Floridians are so mad about insurance?
Getting out of paying claims
The facts of the Florida wind-water case were slightly different, but the issue was the same.
In October 1999, Hurricane Irene caused damage to a Broward County
home that amounted to more than half of the property's insured value.
Under county rules, that meant the home had to be torn down and rebuilt
under a tougher code. The owners had property and flood insurance, but
they faced a big gap between what their claims paid and their cost. So,
they sued to have their wind insurer - the Florida Windstorm
Underwriting Association, the first version of Citizens - pay the
The owners lost at trial. In June 2004, however, the 4th District
Court of Appeal in West Palm Beach ruled for them. In its opinion, the
court said that a company responsible for "even a fractional share" is
"liable for the face amount" - in that case, the total insured value -
because, under Florida rules, ambiguous policies go "in favor of the owner".
Repealing that decision was the insurance industry's top priority
for the 2005 legislative session. As so often happens, when insurers
discover that they might actually have to pay claims - mold, sinkholes,
hurricanes - they try to get out of paying claims. Why do insurance
companies wonder why so many of their customers are mad at them?
Start doing favors for consumers
Since Hurricane Andrew in 1992, here is what Florida has done for the property insurance industry:
The state created the hurricane catastrophe fund, which helps insurers pay claims in a bad storm year.
The state allowed insurers to form state versions, known as "pups,"
of their big-dog companies. Allstate Floridian, for example, can claim
that it needs a huge rate increase to make up for storm claims, even as
Allstate is bragging about how much money it's making.
The state created a system of arbitration for rate increases, rather
than let the insurance commissioner decide. The companies win almost
The state refused to create an Office of Public Counsel that would
represent consumers during rate requests. The state has such an office
for utility rate requests. For the most part, the state relies on the
insurance industry for information when deciding what premiums should
be. An Office of Public Counsel, staffed with trained specialists,
could challenge the industry's numbers.
The state refused to enact a "loyalty clause" that would have
prevented insurers from dropping policies if a customer had paid
premiums for three years and done nothing to breach the contract with
And, of course, the state negated that appeals court ruling the industry hated.
It took personal tragedy for Trent Lott to lose his political
dislike for lawsuits. How much more will it take in Florida for the
many groups worried about insurance costs - Realtors, small businesses,
retailers, chambers of commerce - to understand that they outnumber
even all the insurance lobbyists in Tallahassee and to make the
Legislature understand why so many people are mad?
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