Video: Insurance lawsuits

updated 9/16/2005 12:27:48 PM ET 2005-09-16T16:27:48
STORY

The state of Mississippi has filed suit against major insurance companies that are reportedly denying coverage to residents displaced by Hurricane Katrina’s storm surge.

Mississippi Attorney General Jim Hood wants insurance companies to pay billions of dollars to residents who did not have flood insurance.  Approximately, three out of 10 homes in the ravaged areas of Alabama and Mississippi had flood insurance at the time of the storm.  But many residents in the effected areas realized too late their monthly insurance premiums did not protect them from flood damage.

Attorney  Finley Harckham and Donna Rosato, a writer for “Money” magazine joined  Dan Abrams, host of 'The Abrams Report’ on Thursday, to discuss the new troubles these victims now face. 

To read an excerpt of the conversation continue to the text below. To watch the video, click on the “Launch” button to the right.

DAN ABRAMS, HOST, 'ABRAMS REPORT':  Mr. Harckham, let me ask you first, in terms of this Mississippi lawsuit, basically the state of Mississippi is saying, yes, we know there's some fine print in there which says it doesn't quite cover if it's water damage, but the attorney general is saying effectively we want that provision suspended.  Any chance of winning that? 

FINLEY HARCKHAM, ATTORNEY:  I think there is, Dan, because what the attorney general is recognizing is that the insurance industry for this catastrophe in Mississippi is essentially saying that the policies that they sold are worthless because on the one hand, they're saying there's no flood coverage and then they're saying it's incumbent upon the policyholder whose home no longer exists to prove that there was wind damage that might somehow come into play. 

And so what this suit raises is the issue of whether these provisions ought to be voided on grounds of public policy because what the policy gives with one hand, it takes away with the other.

ABRAMS:  Because when you're talking about the effects of a storm, it covers wind damage, but not water damage is basically saying, well, you're only a little bit covered for hurricanes. 

HARCKHAM:  That's right.  And even then, they're saying you don't even get the little bit unless you can prove as to a house that no longer exists, the extent of the damage that was caused by the wind and not the water that was driven by the wind. 

ABRAMS:  But Donna, you all give very sensible tips to people in “Money” magazine about to sort of live your life and how to live an economically sound life, et cetera.  Before this all happened, would you all have advised people to get flood insurance?  Was that something that was on the radar? 

DONNA ROSATO, “MONEY” MAGAZINE:  Yes, actually flood insurance is an important thing to get.  It's something you can research wherever you live, you will know if you're in a flood plain or not, but flood is one of the most common causes of damage to a home and it doesn't cost that much money.  So it would have been a good thing if you thought you were in a flood plain to take advantage of. 

ABRAMS:  But you can only get it from FEMA, right, and then there's a cap on how much you can receive. 

ROSATO:  There is a federal program because private insures don't want to offer flood insurance, there's a federal program that make its available, so you can get it if you want it.

ABRAMS:  Finley, the insurance industry is going to say something similar to what Allstate said, which is you know flood insurance has been offered for a long time.  People have known that flood insurance is out there for nearly four decades and the reason flood insurance, they'll argue, is offered by FEMA, by the federal government is because private insurers don't cover for floods.  How do you get around that legally?

HARCKHAM:  Well that is all true, but what has not been made clear to homeowners is the extent of the exclusion for flood.  And I think the way you get around it legally is you say you can't give coverage for one herald (ph), wind, and then take it away because the effect of the wind is the flood and there is some precedent in various states where these types of provisions have been challenged. 

ABRAMS:  And what about New Orleans?  I mean New Orleans is really the big question there, right, because you've got a levee that's been breached that caused the vast majority of the damage and I would assume that a lot of the insurance companies are going to say hey, it was the floods.  It was the water.  It wasn't the hurricane directly. 

HARCKHAM:  Right and yet if it's the breaking of a levee, it's not a classic flood situation of the river overflowing its banks.  There was some other intervening cause that came into play. 

ABRAMS:  Yes.

HARCKHAM:  I think the big thing to keep in mind as this case works its way through the courts is to remember the lesson from 9/11 when the insurance company cried foul and said they never intended to cover terrorism, that they were going to be bankrupted by terrorism claims and they turned around and had record profits the following year.  They raised their rates and they can recoup their losses in no time and—so they're not going to be hurt if this lawsuit...

ABRAMS:  Very quickly, Donna, you told one of my producers that this was one of those rare instances where you all don't have advice really to give people as a result of this. 

ROSATO:  No, that's not true.   If you've been displaced from your home and you don't have flood insurance, keep track of all your expenses, apply to FEMA, and there are other things that you can—President Bush is going to announce a whole bunch of financial aid tonight.  There's going to be political pressure for helping these victims. 

ABRAMS:  Yes.

ROSATO:  So there is something to do. 

ABRAMS:  Good.

ROSATO:  The best thing you should do right now is document all your costs, everything that you've lost and save all those records. 

Watch the 'Abrams Report' for more analysis and interviews on the top legal stories each weeknight at 6 p.m. ET on MSNBC TV.

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