MISSISSIPPI LAWSUIT WILL HURT HOMEOWNERS, INSURERS
October 3, 2005
Hurricane Katrina left parts of Mississippi disheveled or destroyed, and now the state's Attorney General is bringing more destruction by filing a lawsuit against private insurers for not covering flood damage, according to the Wall Street Journal.
Attorney General Jim Hood calls the exclusions "unconscionable," yet insurers have had flood exclusions in their contracts for years. The reason? Those who are most likely to be flooded purchase flood insurance, which makes it impossible for private insurers to spread risk. Hence, the federal government has offered its own flood insurance for the past 37 years.
If the lawsuit stands up in court, homeowners as well as insurers will have to pay, says the Journal:
- Insurers may be liable for an additional $15 billion on top of the $60 billion they will likely pay insurers for hurricane Katrina.
- Some insurers will go bankrupt or simply leave the state, shrinking the competition in the state's private insurance market.
- If private insurers are required to provide flood coverage, premiums for all policyholders will likely increase by $500 a year.
While few Mississippians purchased national flood insurance through the government, they chose not to either because they didn't want to spend the money or they assumed they would receive federal funds to rebuild anyway, says the Journal.
Hood believes that residents thought their homeowners' policies covered hurricane damages, so insurers have an obligation to cover flood victims. Never mind that insurers have not collected a single dime in premiums for flood coverage, says the Journal.
Source: Editorial, "Category 5 Lawsuit," OpinionJournal.com, September 26, 2005.
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