Insurance ‘Bait And Switch' | Jackson Free Press | Jackson, MS

Insurance ‘Bait And Switch'

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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."

Previous Comments

ID
67353
Comment

State Farm pulling out of the state. Hope the settlement was worth it.

Author
Kingfish
Date
2007-02-14T13:02:30-06:00
ID
67354
Comment

If State Farm has to shaft its customers to stay in Mississippi, I'm not sure we need them... Cheers, TH

Author
Tom Head
Date
2007-02-14T13:04:40-06:00
ID
67355
Comment

There are only so many insurance companies. Hope no one else has that attitude. You get to where there are only one or two that will write homeowner's policies in MS then you'll turn around and start complaining about monopolies.

Author
Kingfish
Date
2007-02-14T13:07:02-06:00
ID
67356
Comment

I have a certain amount of faith in the free market system, Fish. The same folks who bought their homeowners' policies through State Farm will be looking for new coverage if State Farm leaves. If a new company is smart enough to swoop in and fill that void, great. If not, there are worse things in the world than a temporary monopoly. The important thing is that homeowner's insurance be real, meaningful homeowner's insurance--none of this sneaky-ass foolishness like State Farm pulled. Cheers, TH

Author
Tom Head
Date
2007-02-14T13:20:22-06:00
ID
67357
Comment

what are you going to do when that new company comes in and has very high rates, which they probably would have. Only so many companies have the capitalization, licensing, etc required to underwrite insurance. Now, I am going to say this and it won't be popular to say but alot of this stuff is the fault of the homeowners. I'm in the mortgage business and wholesale to brokers and banks. You'd be amazed at how many times borrowers do everything possible to avoid coverage. They will raise hell, cuss out the loan officer, walk away from purchasing a house or cancelling a refinance if they have to get flood insurance. The borrowers will pay for surveys to avoid paying for flood insurance. The realtors raise hell if their clients have to get flood insurance. The borrowers raise hell if they are required to get coverage by the lender. They raise hell that the lenders require more than payoff coverage. Too often the borrowers CHOOSE to be underinsured then when something happens, they raise hell they are not covered. If you saw what I do all the time, you'd see where I am coming from. I say that as someone who knows personally ALOT of people who lost everything in katrina. And yes, alot of them got screwed. However, there is a flip side as well.

Author
Kingfish
Date
2007-02-14T13:30:26-06:00
ID
67358
Comment

Kingfish, I'm not sure what point you're trying to make. For me, the most compelling argument made by the attorney general is that the policies in question covered hurricanes in general and did not list storm surge as one of the exemptions, despite the fact that the exemptions are extremely detailed. Therefore, storm surge is not exempt. That has nothing to do with borrowers putting pressure on lenders to weasel out of sensible coverage. It seems simple to me: State Farm never anticipated such a devastating storm surge from a hurricane. They knew they would have to pay out a lot of money. They had their lawyers come up with a strategy to get out of some of the payment. If they want to go sulk about it elsewhere, I'm with Tom. I'm sure the insurance market will stabilize in time.

Author
Brian C Johnson
Date
2007-02-14T15:11:32-06:00
ID
67359
Comment

The only point I am making Brian is that it should come as no surprise that State Farm is pulling out of the state. I have said before that is the problem with this. If you stick it to the insurance companies, they can always leave and State Farm just did. Its a catch 22 and I don't have an answer to be honest. I thought Dale's idea to change these covereages to just a general disaster clause was a good idea. Get rid of wind or flood or other forms of disaster and have one general policy for that. That might be something to explore. I've heard people from N Mississippi say they shouldn't see their premiums raise to cover people on the coast. What about when we pay for their tornado damage? We are all in this together so the better spread around the better it is for everyone. The other point about borrowers was merely an aside I threw in from the main point. I think you'd agree with me that you can never get in trouble being overinsured. I was referring not to people who had necessary coverages and got screwed but people who choose not to get them. I mean Brian, if you live below I-10 on the coast, common sense should tell you you are at a much higher level of risk for hurricane damage than someone in Hattiesburg or Collins. Of course if I was an agent, I'd be having them sign a nice distinct disclosure even if I had to write it myself about how their homeowners didn't cover storm surge or hurricane damage.

Author
Kingfish
Date
2007-02-14T15:43:37-06:00
ID
67360
Comment

Kingfish - I get your point and completely agree. The flippant attitude of some regarding the State Farm announcement leads me to believe they have never purchased home or business insurance. I'm guessing that the latest exploits of Mayor Meltdown will grab the headlines but this is BIG news-and not just for SF customers. There is an awful lot of economic activity (e.g. home purchase & construction, business expansion) that cannot occur until insurance is secured. The fact that the company that insures one out of (roughly) every three homes in this state is going to stop issuing new policies has very serious implications for our economy. For the record, I think that SF did act badly in several cases after Katrina and that lawsuits were inevitable. But I also think that the plaintiffs over-reached and now we're seeing the results. I hope SF re-considers their position-and soon.

Author
Mr PR Professional
Date
2007-02-14T15:53:31-06:00
ID
67361
Comment

I know of cases where they acted badly BUT they have had the best reputation for paying policyholders as compared to say.......All State.

Author
Kingfish
Date
2007-02-14T15:55:31-06:00
ID
67362
Comment

PR: one further point. Insurance is right now crippling the Gulf Shores/Orange Beach market. rates have gone up to where you are paying on a condo close to a thousand a month in a lot of cases. that is killing the market there. It will hit New Orleans and the Coast at some point. It will have a horrible effect on an economy.

Author
Kingfish
Date
2007-02-14T15:57:41-06:00
ID
67363
Comment

The flippant attitude of some regarding the State Farm announcement leads me to believe they have never purchased home or business insurance. Does this include the "several cases" of people with State Farm insurance who lost everything on the Coast?

Author
DonnaLadd
Date
2007-02-14T16:42:52-06:00
ID
67364
Comment

I think Ms Ladd what he means is that some have the attitude that if they leave "so what"? You are right in what you say in that post. That is why I say its a catch 22 to some degree.

Author
Kingfish
Date
2007-02-14T16:49:17-06:00
ID
67365
Comment

Well, there is a certain train of free-enterprise thought that says that another insurance company or two would replace them. I've never understood the attitude of some that we're supposed to allow businesses to play dirty in fear that they will "leave." The whole point of competition is to ensure that the "best" survive. And that means within a certain amount of smart regulation that doesn't allow them to hurt consumers. You just can't always let one or two of the powerful companies make the rules, or the benefits of real competition and free enterprise fall to the wayside. If State Farm does not have the basic ethic to pay the claims they're supposed to, and have to be forced to by lawsuits, then I'd like to see their business fail and a better one take its place.

Author
DonnaLadd
Date
2007-02-14T16:54:40-06:00
ID
67366
Comment

I agree with what you are saying. However, like I told Tom, the amount of capitalization required and the risks involved, its not like manufactured goods like computers or cars where a competitor is just waiting to move in. That was one problem for years with tort reform. You only had a couple of companies willing to write medical malpractice insurance. One question batted around is should insurance companies be regulated by the states or feds as that might cut down on what seem to be arbitrary decisions by the states so insurance companies won't be forced or feel forced to pull out of a state. You can't make them do business in a state. I really don't know on alot of this stuff. Just some observations and questions I have.

Author
Kingfish
Date
2007-02-14T17:05:17-06:00
ID
67367
Comment

As with any story, there are many sides. In 2005, over 22% of all property insurance in the State of Mississippi was written by State Farm. SF has not determined how is is going to treat the renewal situation. If SF decides not to renew the current policies, that will leave a LARGE hole. While I agree that in a free market, companies would come in to fill that hole, you need to remember that insurance is not a "free market." It is heavily regulated by the Commissioner of Insurance. This has an impact in two ways: (a) The Commissioner limits the companies that can write by requiring that these companies be stable, strong, etc. and (b) the rates charged by insurance companies are subject to the Commissioner's approval and must be actuarially sound. This will help keep the cost of insurance, well, not reasonable, but not unbearable. State Farm policies -- like most property insurance policies -- contain an exclusion for flood damage. For years, the courts (of Mississippi and elsewhere) have ruled that such a flood exclusion is (a) valid and (b) includes storm surge (even if the words "storm surge" are not used; my policy says "tidal surge" and I would expect it to apply to "storm surge"). This *includes* Judge Senter. Many of these policies contained a "hurricane deductible" that explicitly applied to wind coverage for damages caused by a hurricane. In general, the deductible was higher, e.g., 2% of the limits rather than $1,000. This was not an endorsement that said "All damages caused by a hurricane are covered." For those insureds who had damage to their house caused by something covered, they deserve to get paid. To the extent that State Farm -- or any other insurance company or the National Flood Insurance Program -- failed to do that, the courts and regulators are right to step in and correct those instances. My two cents . . . Newt

Author
Newt
Date
2007-02-14T18:13:59-06:00
ID
67368
Comment

Just in from AG/verbatim: (audio from today's news conference at http://www.agjimhood.com) "Today's announcement by State Farm is disappointing but not surprising to me. One of the main reasons for reaching the settlement was to keep State Farm here, because they have 25% of the insurance market on our Coast. It was our hope that this settlement would stabilize the insurance markets down there and we would be able to continue our rebuilding efforts. I still contend that if there is a dime left on the ground on our Gulf Coast, there will be an insurance company there to pick it up. In the most catastrophic year in history, State Farm increased their profits by $3.9 billion to increase their networth to over $50 billion. In other words, they didn't lose a dime. It is not the legal or political environment as they allege, it's an environment they created by not paying what they owe." Attorney General Jim Hood State of Mississippi Jan Schaefer Public Information Officer Office of the Attorney General State of Mississippi 601-359-2002 (office)

Author
DonnaLadd
Date
2007-02-14T18:33:39-06:00
ID
67369
Comment

When I moved in 2001 State Farm would not transfer my policy, they continued to do this until tort reform legislation was passed. My boss brought a house on January 19, 2007 amd State Farm wrote for him, and this was during the settlement talk time. State Farm uses the power of there being the bigest Home Insurance Policy writer in the state to scare the people of Mississippi into the grove that they want us in. This to shall pass.

Author
malt
Date
2007-02-14T18:52:37-06:00
ID
67370
Comment

so why was he trying to get FIVE MILLION DOLLARS FROM THEM FOR HIS OFFICE???????????????? looking out for the little man my gluteus maximus.

Author
Kingfish
Date
2007-02-14T19:01:39-06:00
ID
67371
Comment

please point me to the link where it states that and then I will reply

Author
malt
Date
2007-02-14T21:03:36-06:00
ID
67372
Comment

http://www.agjimhood.com/pressreleases/statefarm/settlementagreement.pdf

Author
Kingfish
Date
2007-02-14T23:55:39-06:00
ID
67373
Comment

No comment yet on Hood trying to get 5 million for his office?

Author
Kingfish
Date
2007-02-15T11:06:48-06:00
ID
67374
Comment

No I had a hard day at work and wanted to read the complete settlement agreement, and I can not justify the whole 5 mil. There would be some cost reimbursted to the counties for the grand jury fees, and some cost with experts and depositions, but no I do not see 5 mil. But what I do see is that the AG is trying to protect us from the altered engineer reports and how state farm would with-hold payment of the agreed upon fees to the engineering companies unless they wrote the report as state farm wanted. No, it is not perfect, but it is a step in the protection of the citizens of Mississippi against one of the largest privately held companies in America. I say thank you Jim Hood.

Author
malt
Date
2007-02-16T01:23:07-06:00
ID
67375
Comment

Here is a story on the new insurance bills filed in Congress http://www.nola.com/news/t-p/washington/index.ssf?/base/news-1/1171610610303630.xml&coll=1

Author
Kingfish
Date
2007-02-16T09:32:42-06:00

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