Katrina victims lost a case

Saturday, August 26, 2006 Scripps Howard: Insurers have won the first round of an epic battle with hundreds of customers who were left homeless and underinsured in the wake of Hurricane Katrina last year. The courtroom victory this week in Mississippi may not be the last word on the question of whether hurricane coverage is applicable when the damage is wrought by a storm-driven flood. But the decision by U.S. Dist. Judge L.T. Senter Jr. may set a precedent for more lawsuits to follow. Senter ruled that Paul and Julie Leonard of Pascagoula could be compensated for damage that they could prove was caused by wind but that they cannot collect damages from storm surge caused by Katrina. Nationwide Mutual Insurance Co.'s policies do not cover wind-driven water damage. A number of legal challenges have been filed by Mississippi Gulf Coast homeowners — including Sen. Trent Lott, Rep. Gene Taylor and two federal judges — whose insurers have denied substantial claims resulting from one of the worst Gulf Coast hurricanes in recorded history. Obscure clause In a typical case, the homeowner was unaware of an obscure clause that exempts coverage for flooding caused by high winds. And typically the homeowner had not considered flood insurance because the home was located outside a designated flood zone. In many cases, the homeowner filed a claim based on wind damage, but has no physical proof that the house was demolished before floodwaters rushed over the property last Aug. 29. An insurance industry spokesman hailed the ruling as relief from "a very large cloud of uncertainty that has been hanging over the insurance market of the Gulf Coast." It also contributed to a stock market rally that boosted share prices for most property and casualty insurers. The performance of the insurance industry on the wind-vs.-water question, however, also invites closer scrutiny by industry regulators and encourages consumers to read the fine print on policies that could reveal unpleasant surprises during times of crisis. According to testimony by the Leonards, Nationwide agent Jay Fletcher told them they didn't need flood insurance. But Fletcher "did not materially misrepresent the terms of the Nationwide homeowners policy to the Leonards, and Fletcher did not make any statements which could be reasonably understood to alter the terms of the Nationwide policy," Senter wrote.