A key coverage issue for the insurance industry will come to the fore as adjusters try to assess damage, and one insurance department has already provided some direction for insurers. The Commissioner of Insurance in Mississippi has issued a Bulletin concerning the settlement of homeowners claims in his state (see here). Key points:
…homeowners policies offered throughout the United States generally contain a water damage exclusion.
It will be a fact issue whether the loss was caused by wind or water.
… the insurance company must be able to clearly demonstrate the cause of the loss.
…where there is any doubt, that doubt will be resolved in favor of finding coverage…
…where…the damage was caused by water, I expect the insurance company to be able to prove… that the damage was caused by water and not wind.
…I ask that the insurance industry construe coverage issues in a manner that will afford coverage to as many of our citizens as possible.
Flood insurance can mitigate this problem, but it is likely that many homeowners with loss from water damage did not purchase flood insurance, although the numbers may vary between different areas.
“We estimate about 40 percent of properties have flood insurance - and virtually all the damage caused in New Orleans was by floods, not winds,” a FEMA spokesman said. From MSNBC (see here).
Homeowner claims from Katrina are going to be a problem for the industry because of this very significant coverage issue. On an account by account basis it is easy to see how coverage accommodations might be made, but it is going to be very costly for the industry on a macro basis if this practice is followed. The adjusters are going be under tremendous pressure to get it right, quickly, with difficult access. And cat reinsurers will not likely support any significant deviation from coverage.
Our hope is that the insurance industry is fair and reasonable in its handling of claims from Katrina.
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