The unprecedented devastation along the Mississippi Gulf Coast wrought by Hurricane Katrina has prompted an outpouring of public and private resources to communities and individuals who have lost everything, Governor Marc Racicot, American Insurance Association president said in an opinion-piece recently published by the American Justice Partnership.
Racicot, who is formerly the governor of Montana, told AJP that in the days immediately after the storm, as disaster assistance began to trickle into the hardest hit areas and insurance adjusters began meeting with policyholders to assess the damage to homes and businesses, the scope of the tragedy for many citizens became clear. He said much of the damage from Hurricane Katrina was caused by flooding, not by wind, and estimates are that only a third of Mississippi residents had bought flood insurance from the National Flood Insurance Program.
Unfortunately, this tragedy has now been compounded by the activist impulse of a state attorney general to litigate long-settled insurance contract law.
Racicot’s commentary follows:
Large-scale disasters put public officials in the spotlight along with their communities. While the vast majority use their official powers responsibly to bring order out of chaos, the opposite does occur. In Mississippi, Attorney General Jim Hood filed a lawsuit in state court just a little over two weeks after Hurricane Katrina’s August 29 landfall. While the named target is the insurance industry, the real victims are the citizens of Mississippi who have been given false hope that homes and businesses destroyed by flooding will be rebuilt with insurance proceeds.
Attorney General Hood’s lawsuit clearly threatens the ability of Gulf Coast communities to rebuild after Hurricane Katrina. His attempt to rewrite long-settled insurance contract law regarding flood coverage imperils the stability of the state’s insurance market. The litigation also puts at risk the positive impact of 2004’s comprehensive tort reform law. Gov. Haley Barbour’s goal of linking economic development to a fair and balanced liability system is even more critical now, when Mississippi needs to attract businesses willing to invest in the state’s future.
Hood charges that insurers should pay claims for flood damage – a peril that is clearly not covered under most policies. The relationship between an insurer and its policyholders is determined by their contract, and it is wrong to ask an insurer to pay claims for losses that are beyond the scope of that contract. Any type of post-loss contract rewriting would be extremely unfair to the millions of Gulf state policyholders who did buy coverage through the NFIP.
Hood conveniently ignores what millions know and what has been national public policy for decades – private insurance covers wind damage from hurricanes, but not the damage from the tidal surges that a hurricane can cause. This type of water damage is what the NFIP is all about: for more than 35 years, flood insurance principally has been the responsibility of the federal government under the NFIP. This program has been available to Mississippi homeowners and businesses in flood-prone areas. The fact that Hood inexplicably ignores this division of responsibilities doesn’t make it any less true.
What the attorney general’s lawsuit attempts to do is retroactively rewrite private insurance contracts for those individuals and businesses that chose not to buy flood insurance from the federal government’s flood insurance program. This would inject tremendous uncertainty into the insurance system, which relies on predictability and certainty in order to function for the benefit of policyholders.
If insurance contracts can be retroactively rewritten, all other contracts would be exposed to such amendment. All businesses, and the investors who fund them, need to be able to rely on their contracts as a fundamental principle.
Economic recovery following a catastrophic loss requires a stable insurance market. Insurers underwrite and make possible the many types of business investments that must occur for effective recovery to take place. If the insurance market is destabilized by the type of revisionist history that Hood would like to impose on insurance contracts, the economic recovery of the entire Gulf Coast area would be thrown into question. If that happens, we need look no further than the Mississippi Attorney General’s office to assess responsibility.
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