Hurricane Ike: Bad Insurance Winds Blowing

While the ill winds of Wall Street and the government takeover of AIG has taken over the news, the victims of Hurricane Ike are receiving scant attention. But Ike's victims should be forewarned that like the victims of Hurricane Katrina, the prevailing legal winds seem to be blowing against the interests of property owners seeking to recover losses caused by water and wind disasters.

Sadly, thousands of Texas Gulf Coast storm victims who are now picking up the pieces after Hurricane Ike may be in for a shock when they file insurance claims and try to collect. Many policyholders think they are fully covered for the kind of wind damage inflicted by the front end of hurricanes and tropical storms but don't realize that most policies contain a troublesome little clause known as Anti-Concurrent Causation, or ACC. This typically convoluted insurance term spells big trouble for consumers because it lets insurers deny coverage for most, if not all windstorm losses when flood-related damage -- normally excluded in standard property policies -- is also involved. People who thought they were covered for wind damage learn about the ACC only after disaster strikes, and are forced to make the case that their now-destroyed home was heavily damaged first by destructive winds and finished off by flooding -- and then the argument may not even work

The chicken-or-egg debate over whether wind or water contributed the greatest damage to property has been around a long time, but Hurricanes Katrina and Rita in 2005 triggered an unprecedented mass of consumer complaints and challenges to insurer denials. An important principle of insurance law has always been that if policy language is ambiguous, than the decision should redound to the benefit of the policyholder. While thousands of cases remain to be resolved as a result of Katrina and Rita, the trend is becoming clear: a string of court rulings have found ACC clauses to be "unambiguous," handing insurers a significant legal victory. Insurers marketing property policies in vulnerable areas like the Gulf Coast can now count on broad exclusions to avoid covering wind damage and have less incentive to explain the legal realities to the policyholder.

More exclusions mean less protection for property owners. In coastal areas of Texas, Louisiana and Florida, this means that coverage against wind damage is harrowingly narrow, confined to relatively rare incidents of high winds unaccompanied by rain or storm surge.

The truth is that comprehensive coverage for "multiple perils" such as a combination of wind, water and hail, is expensive. But consumers should have the choices -- and costs -- clearly laid out in front of them so that they can make informed decisions about their coverage. There is every indication that legions of policyholders -- especially in the Gulf States -- are unaware of the ACC loophole. Private insurers as well as state-backed high risk insurance pools that sell coverage in areas where the private carriers refuse to tread, all have an obligation to inform the public in clear English what the contract covers and what it does not. State regulators should play a more active role. And the age-old principle: caveat emptor... let the buyer beware, has never been more important.

Comments

[dawnseattle]

As a home owner, retiree and former WA State Representative living in Seattle it is good see Former Insurance Commissioner Senn educating the public again in the slippery, sly workings of insurance companies. The information in this article by Senn is the kind of information we in Washington became used to receiving from her. She has been a fierce opponent to greedy insurance executives, and they spent fortunes on the campaigns of any who would take her on. While others in the nation struggle with pre-existing condition language in health insurance Commissioner Senn lead the winning debate for consumers and workers. In WA state pre-existing language no longer plague us o hold us hostage to jobs because we can not change insurance following an illness. The big Insurance companies balked, whined and threatened to leave Washington but all of their fears were unfounded, consumer based policies did not shrink their bottom line and employers did not go under due the cost of a family friendly insurance benefit.

Given the changing weather patterns it is important that people demand that their insurance commissioners are their advocates not the pawns of insurance industry.

Hopefully, Senn will be a frequent blogger to this site and others to educate the public on those things that the people of Washington appreciated during her terms as a public official who understood her responsibility to the public.

[SaltySaltillo]

Interesting, but three comments are needed: (1) smart homeowners down here on the TX gulf coast already have separate flood policies in addition to regular home insurance, (2) flood and storm surge damage was much more limited and localized than windstorm damage (something long-distance observers of Ike don't understand), and (3) many homeowners policies in coastal areas like Galveston and Brazoria counties exclude windstorm damage and so smart homeowners need to insure through the insurer of last resort - the Texas state government's windstorm insurance program - in order to complete their coverage.

[fredlonsdale]

This comment goes to regulation.

One chief officer of a large insurance company musing about state regulation of insurance companies, was reported to have said, 'I would prefer to deal with 50 chimps than one big gorilla in Washington.'

The regulated companies can get just about anything they want. State banking regulators were trumped when the banking/credit card companies were targeted for predatory and misleading lending. They even got bills passed circumventing bankruptcy laws to the detriment of the ordinary citizens.

The type of insurance that contributed to AIG's failure was mostly unregulated by law.

[TerrapinCB]

Boy, I look forward to this. My house is now just a concrete slab in Crystal Beach.

[avraamjack]

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