Katrina: For the Responsible

[Annie]

having worked in Insurance with State Farm for 3+ years, I'm telling you, it will come down to wind vs. water:

http://www.nola.com/newslogs/tporle...ola_tporleans/archives/2005_09_15.html#079886

Flood-damage insurance limits dismay residents
Homeowners policies cover only so much

Federal flood policies don't cover loss of use

By Jeffrey Meitrodt
Staff writer

Carol Hess hoped she had shed her last tear over the ruins of what used to be her lovely four-bedroom house in Slidell. But an hour after the adjuster from State Farm came to visit her hurricane-ravaged property this week, Hess was crying again.

Though Hurricane Katrina's storm surge dumped the contents of two neighboring townhouses into her back yard, crushing the back of her garage and driving a mountain of debris into her living room, the adjuster told Hess that virtually none of the damage would be covered by her homeowner's policy.

His explanation: The debris came by water, not wind. And that means Hess' claim will be filed through her flood insurance policy.

The debate about whether claims should be filed under homeowners or flood insurance policies is one that several hundred thousand policyholders are coming up against as they try to figure out how to pay for Katrina-related property damage.

"It's not a black-and-white answer because each claim is different," said Bill Mellander of the Allstate Natural Catastrophe team in Northbrook, Ill.

Homeowners policies provide compensation for damage resulting from high winds, but do not cover flood damage. The only water losses covered under a homeowners policy are those that occur after a windstorm has damaged a building, such as when water pours into the structure because a fallen tree created a hole in the roof.

Flood damage is covered by federal flood insurance, which is a type of coverage held by a fraction of homeowners. Flood insurance, however, only covers damages up to $250,000.

As a result, many homeowners would prefer to see their claims handled through homeowners insurance. And some policyholders are arguing that wind from the storm caused the levee breach that flooded the city, and that any water damage should be covered under a traditional storm policy.

"In this event, the big (question) will be: What's wind and what's water?" said Bob Hunter, director of insurance for the Consumer Federation of America.

Hunter said it will be hard to make a case that wind led to the flooding. "I think that argument may have a class-action lawsuit to follow it," he said.

The debate was addressed on Friday at a meeting of the Joint Legislative Committee on Insurance. At the meeting, some Louisiana lawmakers said they would like the federal government to create a special appropriation to cover the difference between flood insurance and homeowner's policy payouts.

Carol Hess and her husband, Bobby, have paid $364 a year for their flood policy. And State Farm adjuster Steve Evans said his week that the Hesses will be able to recover a maximum of $155,800 for damage to their Eden Isles home and its contents under the policy. If the adjuster had blamed the damage on the hurricane, the Hesses could have gotten as much as $277,918, according to their homeowners' policy, which cost $1,640 annually.

The news blew them both away.

"My house is demolished and you're telling me it was a flood," complained Bobby Hess, 58, a retired air-conditioning mechanic. "But water didn't pick up this roof and dump it in my back yard. This furniture didn't come by water. It was pushed here by the wind. It makes no sense to me. I am totally disgusted with the whole thing."

Carol Hess couldn't hide her disappointment: "I paid $1,600 a year for nothing."
This scene will likely be replayed countless times in the coming months, as insurance adjusters spread out across southeastern Louisiana, where most of the damage from Katrina was caused by water, not wind.

While representatives of various insurance companies promise that each claim will be handled on an individual basis, they also note that the rules of the insurance business haven't changed in Katrina's wake. That means any damage caused to a home by rising water is covered by flood insurance, not a homeowner's policy.

"A flood is defined as rising water, and it doesn't matter why the water is rising," said Jeff Albright, chief executive of the Independent Agents and Brokers of Louisiana. "If it rains faster than it can be pumped away, that's a flood. If a wind blows the Gulf of Mexico or some other body of water ... into the city, that is a flood and it is covered under flood insurance. Rising waters, by definition, are excluded from a homeowner's policy."

For insurers, the distinction could save them billions of dollars. Any losses from flood insurance are covered by the federal government, and with damage from Katrina now estimated at $200 billion, it's easy to see why adjusters aren't anxious to make exceptions.

In many parts of New Orleans, most of which lies below sea level, flood insurance is required by mortgage companies. But according to the Insurance Information Institute, about half of New Orleans residents still don't have flood insurance, compared with a national average of about 80 percent.

Some homes in the New Orleans area that were affected by the 17th Street Canal flooding don't carry flood insurance because they are not in a flood plain.
Bobby and Carol Hess could have gotten rid of their flood policy last year, when they paid off their 15-year mortgage. But they didn't even consider a change.

"I always took the advice of my insurance agent," said Carol Hess, 57, an administrative worker for the IRS in New Orleans. "I asked several times if I had adequate coverage, and they said yes."

Based on several property sales near their home on Moonraker Drive, Hess figures her house was worth about $350,000 before the storm. She estimates the family's personal property, including two small boats, was worth about $70,000.

Most of that property is now lying in her driveway or the front yard.

"This is the worst I've seen so far," said Evans, who has visited hundreds of water-logged homes in his six years as a catastrophe specialist for State Farm.

To mitigate the damage to the two-story home, Bobby Hess removed everything that got wet when 3 feet of water inundated the property, including the kitchen cabinets, the first-floor furniture, the carpeting and the appliances. He even ripped out four feet of sheet rock on every wall, figuring it was the only way to stop mold from taking over the entire house.

He also hauled out an eight-foot dresser that belonged to a neighbor across the nearby canal. It was one of many artifacts that washed up in his living room. The fact that so much debris made it into his house still stuns him.

As he does ever time a major storm marches across the Gulf toward New Orleans, Hess covered each door and window of his home with a half-inch of plywood, all of it carefully labeled. Then he and his wife headed to a hotel in Montgomery, Ala.

Despite his precautions, storm surge drove debris right through his sliding glass doors, shattering the glass and bending the frames. The water also dumped about five feet of shattered timber in his back yard, as well as a water heater and two refrigerators. The only thing Carol Hess recognizes in the mess is their riding lawnmower, which is barely visible.

"Who is going to clean up this mess?" she asks Evans, who works as an adjuster on behalf of both the National Flood Insurance Program and State Farm. "The majority of this is not ours. Does the parish pick this up? Does the insurance company?"

Once again, because Evans has determined that the primary cause of the damage was rising water, the answer comes as a blow. Hess is told that her policy will only cover the removal of debris that is in her house or touching it - she and her husband are responsible for everything else.

After studying a copy of her homeowners' policy, Carol Hess walks over to Evans and points to an item marked "loss of use." She asks him what it means.

Evans acknowledges that her home is now "uninhabitable," and says that if the damage had been caused by a hurricane, she would have been entitled to up to two years of additional living expenses. But the government offers no such coverage with flood policies, he notes.

For Carol Hess, the answer is the last straw. She and her husband have been living in their son's small Madisonville home for the past two weeks, but their daughter-in-law is expecting a baby next month. They will have to move out soon and were hoping to rent a trailer and live in their driveway with air-conditioning supplied with a generator. Now, they don't know how they will pay for it.

"What are we supposed to do?," asks Hess, crying.

Evans suggests contacting FEMA, which is expected to hand out billions of dollars in disaster relief.

"There is a lot of money coming into this state," Evans says. "I'm sure a lot of it is going to help people like you with your uninsured losses."

That doesn't console Hess. "I called FEMA a week ago. I have yet to hear from them."

Six hours after arriving at their home, Evans hands Bobby Hess a check for $10,000 to cover damage to their personal belongings. Ultimately, he says, the couple will get $31,400 for their personal property - he just needs them to finish an inventory first.

Evans said it would take another week to give them a check for the damage to their home. Again, he said it could reach their policy limit of $124,400 - or less than half of what the owners think it is worth.

Evans is apologetic. "I wish there was something different I could tell you," Evans told the Hesses. "But the government wrote this policy; we're just here to administer it."

Carol Hess isn't mollified. "I know the coverage is dictated by the government, but the damage is being determined by State Farm."

Staff writers Mary Judice, Jaquetta White and Rebecca Mowbray contributed to this report. Jeff Meitrodt can be reached at [email protected].