Interim Report: No Proof Insurers Labeled Katrina Wind Claims as Flood

A preliminary report from the federal government has found no evidence to support allegations that private insurers improperly shifted wind damage claims from Hurricane Katrina onto the federal government’s flood insurance program.

At the same time, the Department of Homeland Security says that although its “limited review” did not uncover any evidence, it could not rule out the possibility that such shifting of claims by insurers participating in the Write-Your-Own program occurred.

DHS said it reviewed 98 National Flood Insurance Program claim files in Mississippi and interviewed officials from the Federal Emergency Management Agency, homeowners and insurance experts.

“Our sample revealed no evidence that wind damages were improperly attributed to flooding,” DHS reported.

After reviewing the 98 flood claims, DHS found only two had clear mention of wind damage involvement in the claim. Overall, the report concluded, “There was no indication that wind damage was attributed to flooding or that flood insurance paid for wind damage.”

DHS said it spoke with 20 flood adjusters who did damage investigations and reviewed their files but found nothing improper.

“Most adjusters were not involved in any wind damage assessments and felt they were not under pressure from WYOs to attribute wind damage to flooding,” the report states.

June Holmes, interim CEO for the Property Casualty Insurers Association of America (PCI), said insurers hope the report “will put to rest the plethora of misstatements accusing insurers of improperly shifting wind claims to the National Flood Insurance Program (NFIP), and that we can move forward to identify the best solutions to the nation’s natural catastrophe crisis.

DHS did, however, note that certain “complicating factors” meant it “could not rule out the possibility” that shifting of claims occurred. Among the “complicating factors” the report cites are difficulty in distinguishing between wind and flood damage, especially when all that is left on a property is slab; policy language that excludes coverage if flooding occurs concurrent with wind or other causes of damage; adjusters working for WYO insurers which it said creates a perception of conflict of interest; and limited oversight of WYO by FEMA.

DHS said it plans to issue a final report but gave no date.

Disputes over coverage for wind versus water damage from the 2005 hurricane season have arisen between policyholders and private property/casualty insurers in the Gulf States. While many of these disputes have been settled, a number are still in court or arbitration.

The DHS report follows another one on the subject issued earlier this summer from the U.S. Government Accountability Office. The GAO report suggested there could be a conflict of interest when the private insurer for a damaged property allocates wind and flood losses between itself and the federal program.

Officials for FEMA, which administers the NFIP, told GAO staffers they do not have authority to collect wind damage claims data from WYO insurers, even when the insurer services both the wind and flood policies on the same property.

“As a result, for hurricane-damaged properties, such as those damaged by Hurricanes Katrina and Rita, NFIP does not have all the information it needs to ensure that its claims payments were limited to damage caused by flooding,” the GAO found. “Concerns over the processing of these flood claims are heightened when the same insurance company serves as both NFIP’s WYO insurer and the property-casualty (wind) insurer for a given property. In such cases, the same company is responsible for determining damages and losses to itself and to NFIP, creating a potential conflict of interest.”

GAO also said that the lack of both flood and wind damage data limits the usefulness of FEMA’s quality assurance reinspection program for NFIP flood claims. GAO found that the NFIP reinspection program does not incorporate a means for systematically collecting and analyzing both the flood and wind damage data together to reevaluate the extent to which wind and flooding were deemed to have contributed toward damages to the property.

According to FEMA, the NFIP paid nearly $16 billion in flood claims in 2005. Since 1978, the NFIP has paid $31.4 billion for flood insurance claims and related costs.

Meanwhile, the Associated Press reported that the U.S. Department of Justice is weighing whether to intervene in a lawsuit that accuses insurers of overbilling the federal government for flood damage from Hurricane Katrina, according to a judge who unsealed the case earlier this month.

Two sisters who worked for E.A. Renfroe & Co., a Birmingham, Ala.-insurance adjusting firm that helped State Farm Insurance Co. adjust claims after Katrina, filed a whistlblower suit in April 2006. High-profile litigator Richard “Dickie” Scruggs filed the suit on behalf of the women, Cori and Kerri Rigsby.

The suit remained under seal to allow the Justice Department to weigh whether to intervene. U.S. Magistrate Judge Robert Walker in Gulfport, Miss. unsealed the case over obections from the DOJ that doing so could undermine its decision-making process.

The suit accuses insurance companies of pressuring engineers to falsify reports so storm damage could be blamed on flood water instead of wind, which transferred the costs to the NFIP.

The Rigsbys’ suit isn’t the only one of its kind. In Louisiana, group of former insurance adjusters have a suit pending that also accuses insurers of overbilling the NFIP for Katrina. U.S. Attorney David Dugas decided against intervening in that proceeding.

Sources:
DHS
www.dhs.gov

GAO
www.gao.gov