Rep. Barney Frank, D-Mass.
Rep. Barney Frank, D-Mass., is promising to look into allegations of a failure in the insurance system in the Gulf Coast region.
updated 1/18/2007 9:17:50 AM ET 2007-01-18T14:17:50

Rep. Barney Frank, the head of the House Financial Services Committee, vowed Wednesday to look into an alleged "failure in the insurance system" related to Hurricane Katrina.

"We have received from our congressional colleagues who represent the Gulf Coast serious allegations of a failure in the insurance system to serve the purpose for which it was intended," said Frank, of Massachusetts, and North Carolina Rep. Mel Watt said in a joint statement.

"We believe these allegations deserve appropriate attention and our committee will be looking into these charges," the two Democrats said in a joint statement. Watt heads the House panel's oversight and investigations subcommittee.

Last week, a U.S. district court in Mississippi awarded $2.7 million in damages to a Biloxi couple who sued State Farm Mutual Automobile Insurance Co. after Katrina destroyed their home. The vast majority of the award -- $2.5 million -- was in punitive damages.

The award could have major implications for insurers being sued for damages after the storm, which caused more than $38 billion of insured damages in 2005.

Flood or wind damage?
State Farm and other insurers have argued the 30-foot wall of water thrown up by Katrina caused most of the damages to homes, businesses and casinos along the Gulf Coast. Flood damage is generally covered by federal insurance, not private insurers.

Attorneys for Mississippi residents whose homes were hit by the storm said the destruction was caused by "storm surge" water that was whipped up by high winds, and therefore should be covered by private insurers, who are generally liable for wind damage.

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