Insurance ‘Bait And Switch’
by Adam Lynch
Photo by Brian Johnson
January 3, 2007
State Attorney General Jim Hood said he would be willing to settle a multi-million dollar lawsuit against insurance companies like State Farm, Allstate, Nationwide, Farm Bureau and USAA if they would come to the table, but blamed the companies for sticking to the courts and delaying a judgment.
"The tactic they're using is 'Delay, delay delay, and hope they go away,' and unfortunately, a lot of people have had to go away on the Gulf Coast, and all I'm trying to do is give them a quick decision," Hood said at a press conference last week.
At the urging of attorneys for insurance policy-holders, Hood filed a civil suit in September 2005 against companies, and policy-holders, like Mississippi's own Sen. Trent Lott, have knocked heads with insurance companies that are refusing to cover billions of dollars of hurricane damage through what Hood called "policy fine print."
"Our consumer-protection statutes prohibit a bait-and-switch plan. You sell a person a policy and say it covers hurricanes and then when you read the fine print it takes out 85 percent of the damage caused by hurricanes: storm surge. That's a classic bait and switch," Hood said.
Hood argued that provisions in some insurance contracts—particularly some hurricane coverage policies—are void and unenforceable because they're "unconscionable and ambiguous." Hood says the insurance companies should pay policy-holders for storm surge, since that is the chief cause of destruction for homes near the coast. Insurance lawyers counter, however, that the policies in question do not cover the flood damage of storm surge, and that this information is stated plainly in the policies that policy-holders signed.
Hood was emboldened after a recent decision by U.S. District Judge L.T. Senter sending the case back to state courts.
"I don't believe our state courts will uphold those exclusionary clauses," Hood said.
Representatives of Allstate and State Farm did not return calls for comment, but some insurance-company advocates have argued that some smaller companies could go out of business if they are forced to pay out billions of dollars in surge damage.
Hood dismissed such arguments. "Insurance companies made $46 billion last year," Hood said. "They made an 18 percent increase in their profit over the most catastrophic year heretofore in history in 2004 with four hurricanes in Florida. That industry is making a tremendous amount of money. Now they'll take one little company, a mutual company, for example—owned by the policy-holders—and it might go belly up, so that they can say 'Oh, we'll go broke,' but when they're making that kind of profit it just doesn't stand. It's not true. Insurance companies have $427 billion in reserves that they never even touched. They could pay for the Iraq war, and they never touched those reserves, even after Hurricane Katrina."
Advocates for the insurance industry warn, however, that homeowners' insurance may become harder to find if insurers have to cover the surge protection.
"The most significant repercussion if the companies lose this case would be that the courts in the state of Mississippi are not willing to uphold the terms of a contract that has been approved by the regulator," said Robert Hartwig, chief economist at the Insurance Information Institute in New York. "That means that insurers will be faced with an unpriceable risk in the state and a hostile business environment. The business environment for them will become untenable in that area."
Hartwig used The Mississippi Farm Bureau, which is also named in the case, as an example. "The Mississippi Farm Bureau is no longer in the homeowner insurance business," he said. "They couldn't even weather the storm."
© Jackson Free Press, Inc.
