Mississippi Coast faces the storm after the storms: wind or water damage?

Insurers in unpopular position with public and some officials trying to answer multibillion question case-by-case

The wind came first. It pried off boards and shot debris into windows at Ron Peresich’s home on Biloxi’s (Mississippi) Back Bay. It tore off rooftops and buckled walls in Bud Ray’s Long Beach neighborhood. In Bay St. Louis, Kelvin Schulz watched the wind peel back tin like skin off a pear from the roof and sides of a building.

“It’s always the wind,” said Tim Destri, National Weather Service meteorologist in Slidell, “no matter what insurance (companies) try to tell people. You almost always get some damaging winds before the water starts coming.”

Preliminary analysis, including sophisticated computer modeling by the U.S. Navy, offers evidence that Katrina’s winds battered homes and property for hours before water surged ashore, rising to 35 feet in some places.

Still, each piece of property is its own crime scene.

Which culprit?
Is wind the culprit, or water?

Because of Katrina’s unprecedented destruction, it is a multibillion-dollar question for the insurance industry. Companies have hired engineers to provide the answer, one property at a time, even when a slab is the only evidence left.

Property owners must either settle for what’s offered, or hire their own experts, including attorneys and engineers, and find
eyewitnesses to document wind damage.

“When the damage is caused by water, not wind, the policy doesn’t pay,” said Greg Copeland, a Jackson attorney who has represented insurance companies for more than 30 years. “That’s appropriate since the companies never charged any premium to insure against the risk of water damage.
“Every house is its own story. You just have to deal with each story.”

The insureds, including political and legal heavy hitters, see it differently. They believe insurance companies are looking to avoid their obligations.

Public outcry
Miss. Attorney General Jim Hood has filed a lawsuit against the state’s major insurers, claiming among other things that the insurance exclusion for water damage violates the state’s Consumer Protection Act and deprives consumers of any real coverage choices. Private lawyers also have signed up thousands of clients who want their property insurance claims paid.

Because of the public outcry, Insurance Commissioner George Dale is offering a program that allows disgruntled consumers to take their insurance company to mediation, where an objective professional will help the two sides try to settle.

“The Mississippi coast endured six hours of severe hurricane-force winds before the wind-driven storm surge inundated places that had not flooded in recorded history,” U.S. Rep. Gene Taylor, D-Miss., concluded in a letter asking the House speaker to support federal assistance for homeowners without flood insurance.

“The insurance industry is badly mistreating the people of the Gulf Coast and is doing so with help from state and federal government policies. The states allow homeowners insurance policies to exclude all damages caused by rising water, while the federal flood insurance program targets only flood-prone areas. This system is destined to fail whenever a catastrophic event, such as Katrina, inundates areas that normally are at low risk of flooding.”

Water assumption
Insurance companies start their investigations with the assumption that water caused most of the damage, said Brian Martin, Taylor’s policy director in Washington.

“People who had flood insurance are getting paid on their flood claim, but very little else,” Martin said. “There seems to be a clear pattern there. Even just separating the wind and the water, right off the bat, there’s no reason to do that except to deny claims. It’s not a system designed for consumers.”

James “Bud” Ray of Long Beach knows firsthand what Martin is talking about. He’s spent thousands of dollars and countless hours documenting wind damage to his home. He engaged two engineers, bought Katrina weather reports and rounded up eyewitnesses: All indicate hurricane-force wind damaged his home before the water arrived.

Even Dale, who advises people to find eyewitnesses from the storm, was impressed with Ray’s efforts. “Bud is one of the ones that’s doing it right,” Dale said. “Bud didn’t wait on the insurance company to get their experts to say why the claim shouldn’t be paid. Bud went out and got his own experts who determined why the claim should be paid.”

Dale confirmed that he called Ray’s insurer, Clarendon National Insurance Co. “I told them, based on the information he had, I would think his claim is owed. But just because I told them his claim is owed doesn’t mean they have to pay the claim. I’m not a judge. That’s what the courts are for.”

Insurer letter
Ray started gathering evidence before Clarendon let him know in a letter on Sept. 15 that it was reserving its right to deny coverage:

“Should our inspection reveal that the damage to your home was caused by flood, surface water, waves, tidal waters, overflow of a body of water and/or spray from any of these, the damage to your home, other structures and personal property, as well as additional living expenses that you will incur, will likely not be covered.”

Ray said Clarendon’s investigator, a company called CGI, sent an engineer to his property 91 days after the storm. A slab is all that remains of the 4,000-square-foot beachfront home, pool house and garage.

Ray had flood insurance, but a $290,000 check for buildings and contents will cover only about a quarter of the destruction. He has $615,000 in coverage on buildings, and $286,000 for personal property and loss of use, under his homeowners policy with Clarendon. He hasn’t seen a dime.

“After awhile, it just gets you bumfuzzled,” Ray said. “I don’t know how much more overwhelming information I need for them to step up to the plate. As far as I’m concerned, the insurance industry’s morals are out the window. They have no morals. I think actions speak louder than words, that’s why I say that. You’ve got to know that they have one intention and that’s to keep from paying you.”

Insurer responses
Bill Robinson, Clarendon’s senior vice president for claims, declined to comment on the company’s claims other than to say: “Our general approach is the insured pays a premium for protection and if the loss is covered, we pay the claim.”

His response is echoed by representatives for other insurance companies, including the big players: Allstate, State Farm and Nationwide.

“If you’re a policyholder and you’ve made a claim, the insurance company should be able to respond to that claim, to the extent that you have coverage,” said David Dasgupta of the Insurance Services Organization, which compiles financial and statistical information on the industry. Insurers have reported $11.5 billion in covered homeowner and commercial property losses, he said.

Claims figures
Dale’s office reported that insurance companies have paid $5.3 billion in homeowner and commercial claims for Katrina’s wind damage, while the National Flood Insurance Program has paid $1.5 billion. Only 21,600 flood policies were in force in the three Coast counties when Katrina hit.

Storm surge and wind losses from Katrina are estimated at $20 billion to $25 billion for Louisiana, Mississippi and Alabama. Risk Management Solutions, which estimated the losses, does not have figures for Mississippi only.

“The (insurance) industry is prepared to say, ‘We can see how much of this was flood and how much was wind,” said Bill Bailey, director of the Hurricane Insurance Information Center, established by the insurance industry.

“I think the exclusion in the standard homeowner’s policy is comprehensive and absolute. If the water comes from the sky down, it’s covered. If it comes from the ground up, it’s inundation. You can’t start writing checks for flood insurance. They just didn’t buy the coverage. We’ll break it down to the best of our ability.”

Homeowners who lack the resources to challenge insurers will probably settle for less than they are owed, insurance and legal experts say.

“I don’t see the carriers opening their purse strings and simply paying claims that have questionable liability,” said Leslie L. Knox, an officer in the National Association of Public Insurance Adjusters, who represent insureds.

“I can’t believe these engineers are on site to evaluate the structural integrity of the buildings when many of these buildings aren’t even there. They’re there to document the insurance company’s case for no liability. In order for there to be a successful outcome to the homeowner, many of these cases are going to have to be litigated. Relying on the expert opinion of the insurer, I think, would be naive at best.”