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In the aftermath of Hurricane Katrina, property owners who suffered the loss of their homes and entire communities faced the ultimate nightmare: insurance companies began denying claims resulting from wind damage.  

Katrina, according to the NOAA brought "peak winds near the surface of around 140 mph in the eyewall at time of landfall...the maximum sustained wind speeds peaked near 175 mph and remained at that speed until the afternoon".  The winds caused damage in Mississippi as far north as Jackson where trees were downed, roofs were lost and some areas lost power for over a week.  

To mitigate their losses, insurance companies such as State Farm issued the following policy to their claims adjusters and engineers: in all cases where flood was also a factor, blame all of the damage on the water and deny the claim:

Damage to Property Caused by Flood Waters with available Flood Policy

Where wind acts concurrently with flooding to cause damage to the insured property, coverage for the loss exists only under flood coverage, if available.

Thus the insurance companies began denying claims by the thousands, leaving policy holders who had paid their premiums in good faith year after year without any other recourse but to sue.  At the same time, U.S. taxpayers were bilked, as these wind claims were settled as flood insurance losses by the NFIP (National Flood Insurance Program).

Litigation ensued in federal court, and policy holders won their case at District Court; however that decision was reversed on appeal.  A couple from Long Beach MS, Margaret and Magruder Corban, filed their suit in state court.  The circuit court initially ruled against them, citing the 5th Circuit decision.  The couple appealed, and asked the Mississippi Supreme Court to rule on several questions arising from the federal court's decision.

Before the MS Supreme Court insurance companies argued that the "anti-concurrent causation clause" found in their policies left them off the hook for any structural losses where water played even a minuscule role.  For example, an attorney for Nationwide argued that even if 95% of a home was destroyed by wind, and the remaining 5% by storm surge, that the company would not "pay a dime":

On Thusday the MS Supreme Court issued its decision.  It was unanimous:

We conclude that the ACC clause has no application for losses caused by wind peril.  An insurer may not abrogate its duty to indemnify for such loss by the occurrence of a subsequent, excluded cause or event, a position advanced by amicus Nationwide.

In other words, the insurance companies have to pay.  If they still deny a wind damage claim, they will now have the burden of proving that flood waters arrived before the wind did.  

It's hard to tell how many people this ruling will help.  Many of the people I know have already settled their cases.  I called one friend right away to see if she had settled.  She had a $65k policy with State Farm, and the last time we talked about it she was still in litigation.  Unfortunately she settled in the Spring for $25k; after lawyers' fees, she received $15k.  (She had flood insurance, and of course the NFIP payed her claim right away.  The flood policy alone was not enough to rebuild her home, but she was fortunate to get assistance from a non-profit group that provided volunteer labor.)

Congressman Gene Taylor (MS 4th) commented on the decision:

The decision shifts the burden of proof to the insurance companies, instead of the policy holder. Congressman Gene Taylor, who lost his home to Hurricane Katrina, called it a victory for all South Mississippians.

"We know, for a fact now, that in almost every instance, they shifted all that burden, said the water did it and made the national insurance policy pay. And if you notice, the national flood insurance plan lost billions of dollars that year. The insurance industry made $44 billion that year," Representative Taylor said.

Rep. Taylor has fought tirelessly for those affected by the storm, and has been an outspoken critic of the insurance industry.  He has introduced legislation that would expand the NFIP to cover wind damage as well as flood, and garnered support from Republicans like Trent Lott, Haley Barbour, and Bobby Jindal.  The insurance industry opposes the bill, even though they have stopped writing policies on the Coast that would cover hurricane damage, announced that they will not cover wind damage in future hurricanes, and simultaneously raised premium rates for existing customers about 400% (policies which now only cover homes damaged by fire and theft.)

Odd that Taylor can work so hard for a government insurance plan to protect coastal Americans' property, yet be against a government health care plan that would protect their lives.  

Originally posted to willowby on Sat Oct 10, 2009 at 01:47 PM PDT.

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