Posted On: February 23, 2007, 3:21 pm CST

Posted By: Larry Lubell

I certainly can understand your frustration.

It is easy for me, sitting in my office in Chicago, to explain the logic and legality behind State Farm's decisions. My home and or office were not destroyed.

As an agent, I'm use to reading policies; I understand the importance of reading the "Fine print" Insurance companies are held to the letter of the law and in turn expect the courts to hold policyholders to the exact terms and conditions of the policy.

One of the problems in discussing this case is the difference between the legal definitions based on the wording in the policy, compared to the commonly understood definition. Katrina was a hurricane. It is common sense that if stand outside during hurricane you are going to get wet. Hurricanes cause high winds, massive amount of rain and yes, storm surge. It goes against reason to argue that hurricanes do not cause flooding.

However, while it is silly to contend that flooding is not connected to hurricanes, it is not silly to argue that it's not covered on your homeowner's policy. If a client calls me to report the theft of his car and his guitar in the back seat; I can't tell him that the stealing of the instrument was not connected to the theft of the auto. But I can tell him that the guitar is not covered under his auto policy.
To make matters more confusing, a storm can cause damage to a structure in multiple different ways at the same time. Your building can be damaged by wind, which is covered, and also by flood that is not. How does the insurance company deny damage caused by a covered peril because additional damage was done by a peril not covered?

To anyone out that that thinks our country would be better off replacing private insurance companies with government agencies, let me remind you of the dismal job FEMA did. Last I checked, FEMA still had thousands of trailers sitting empty. Flood insurance has substantial conditions, limitations, and deductibles. The terms of the government sponsored Flood insurance plan leave enormous gaps, and offer only partial coverage. The people who are now fighting to get their flood claims settled through the plan, might be quite disappointed as well.

I would have hoped that after these storms of 2005, that the government would have stepped in addressed the wisdom of rebuilding structures in low-lying damage prone areas. (There is a reason it's called a "Flood Plain") New Orleans was below sea level before Katrina, it is still below Sea level. It is unrealistic to assume that the levies will hold when the city is hit again. The plans need to include replanting the buffer of vegetation that had been replaced with homes throughout the last 20 years. The plan must leave room for controlled flooding to take the pressure off of the levies in times of high water.
There is a lot that the government can do, but becoming the nation's insurance company is not the right move.
Larry Lubell
Urban Insurance Agency