Insurance Transparency Project

I-Fans,

It would be hard to overstate the significance of yesterday’s verdict in which a New Orleans federal jury found that wind, not water, wiped out a Slidell home owned by the Weiss family.

Allstate spokeswoman Kate Hollcraft said the company was “shocked” by the verdict, but it shouldn’t be.

Evidence at trial showed that the Lake Pontchartrain storm surge rose only 14 feet, but the house was built three feet higher, and second, that Allstate’s own engineer initially leaned toward winds as likely wiping out the house. Here’s the Times-Picayune:

“Jim Neva, a surveyor and engineer who inspected the house for Allstate, initially told Robert Weiss, who is listed as the policy holder, and his wife, Merryl, that wind may have destroyed the home before the surge of water washed away its remnants. He later backed off that conclusion, and deferred to engineering consultant Craig Rogers of Rimkus Consulting Group.

Rogers, who wrote the final report on the home for Allstate, convinced Neva that storm surge demolished the house. Rogers said he didn’t personally inspect the property until after he wrote the report. He said he based his conclusions in part on evidence gathered by other Rimkus engineers — a practice he described as common.”

Good luck with that, Craig. Rimkus, you will recall, is under fire in Mississippi as independent engineers hired in the scramble after Katrina have come forward in cases brought by the Merlin Law Group to say that their reports were altered. I’ll paste a headline because I’m having trouble finding a link.

The Weisses got about $35,000 on a policy with a limit of $583,000, so less than 10 cents on the dollar. Allstate argued that flood did most of the damage, and that the family got paid, $350,000 from the flood program(1).

Allstate’s lawyer, Judy Barrasso, said sustained winds at the house did not exceed 100 mph. “There was plenty of evidence to show the winds were not strong enough to topple this house and the storm surge was,” she said.

Fair enough. But if you’re an insurer, you could find plenty of evidence that the Category Three-plus winds were devastating, including the eyewitness who told me in my pre-ITP days that he saw houses in Slidell collapse like “a deck of cards” long before the water rose (find the last story in the column). One his neighbors and an ITP correspondent is an MSU meteorologist who put together an extensive report, which I will post as soon as I get permission, on Katrina wind speeds.

But, that’s what juries are for. And I know insurers benefit from an unspoken assumption from us big city geniuses and paragons of fairness that juries in the South and in rural America — let’s admit it, WSJ edit page — just aren’t serious. That’s, um, false. This jury, for instance, found that any flood payments must be deducted from the amounts insurers owe, which is only fair.

And lastly, I add this coda from Louisiana Lawyer Supreme, who, if he’s not careful, will be pressed into a guest-blogging role. I edit for length; the full comment is on the site.

“Allstate has started to send out notices telling policyholders (like me) that their renewals ‘will include a new endorsement, which excludes coverage for loss from windstorm or hail.’ …Frankly, I don’t know what use I can make of ‘insurance’ that doesn’t protect me from losses from hurricanes. Isn’t that sort of like beer without alcohol? (War Eagle comment:  “Das iz gut!”) … The notice helpfully adds: “Louisiana has a program called Louisiana Citizens Property Insurance Corporation that may be able to provide you with this coverage… They can’t cancel you, but they can foist the real risk off to the public fisc, and make money while doing so. Maybe the guys at McKenzie are not the smartest in the insurance ‘room’ after all.”

Thanks to Ida, our newly deputized ITP correspondent and assistant War Eagle, Jim, and LLS.

1. The story doesn’t say who adjusted the flood claim, but usually a single company handles both wind and flood. And, yes, that is a conflict of interest, although arguably a manageable one. However, I’m not sure, frankly, the program’s administrator, Computer Sciences Corp., creator of “Colossus,” is on top of it. In any case, Sen. Lott added this provision to the budget bill in February, as the Times-Pic reported:

“One of the few specific Katrina initiatives in his budget calls for the inspector general of the Department of Homeland Security to investigate whether insurance companies were right to attribute a significant amount of Katrina damage to flooding rather than wind damage, significantly reducing the industry’s liabilities. Congress is already planning hearings on the subject.”