If you were wondering how claims are handled in these situations, here
is an insight into the process. From experiences that I have been seen,
the insurance company will try anything to wriggle out paying a claim.
Claims Mark Recovery's Beginning
But Deciding How Much Damage Is Attributable to Floods May Get Tricky
By Justin Gillis and Amy Joyce
Washington Post Staff Writers
Monday, September 12, 2005
HATTIESBURG, Miss. -- As the immediate humanitarian crisis eases in the
Gulf Coast states, people are turning their attention to recovery, and
for the vast majority, the key to recovery is an insurance claim.
Insurance adjusters are flooding the region to cope with claims
expected to number in the millions. Homeowners across a huge swath of
the country now confront the most important financial moment of their
lives -- getting an insurer to keep its promise to make them whole
after a disaster. Some are likely to be caught up in a contentious
debate over how much of the hurricane's damage should be attributed to
As an insurance man crawled around a roof the other day in the broiling
Mississippi sun, Eddie A. Holloway stood below in the kitchen, pointing
to strips of paint and plaster hanging from a giant hole in the ceiling
of a rental house he owns in Hattiesburg.
The house, in a poor section of town, was rendered uninhabitable by the
storm, and the tenants fled. "They're gone," he said, and so is his
income on the property, perhaps for weeks or months.
State Farm adjuster Curtis Rasmussen, fresh in town from Utah to handle
claims, crawled down a trembling stepladder toting a digital camera to
show Holloway the damage. Hurricane Katrina had stripped the roof bare,
and a new one would be required. On this modest house alone, 70 miles
from the Gulf of Mexico, State Farm will be writing a check for
thousands of dollars.
The scene will replay again and again across the region. Everywhere but
New Orleans, insurance adjusters are thick on the ground already --
stuffing hotels, grabbing anything that resembles office space, firing
up generators and pointing satellite dishes skyward in a desperate
attempt to get Internet access in a region where many people still lack
electricity. They are buoying spirits across three states with
immediate $2,500 and $5,000 checks to cover living expenses.
But the process of adjudicating several million claims has barely
begun, and Hurricane Katrina is already posing a vexing set of
insurance problems that will reach all the way to Washington. For
starters, much of the damage along the Gulf Coast was caused by a surge
of water that rose as high as 30 feet, the biggest storm surge ever
recorded in North America. That surge was technically a flood, even
though it was produced by a hurricane, and it is not covered by
standard homeowners' insurance.
Flood insurance has to be bought separately from the federal
government. Many people in New Orleans had it, and they are likely to
be made whole, though the payments are expected to send the
government's flood-insurance program into the red.
In Alabama and Mississippi, by contrast, many people did not have flood
coverage, and that is sowing the seeds of a potentially vast conflict
involving angry consumers, insurance companies, banks that write
mortgages, state regulators and lawmakers in Washington.
A huge fight may yet be averted if insurers succumb to political
pressure to attribute most of the region's damage to wind instead of
flooding -- a policy that regulators say could put some insurers at
risk of bankruptcy.
If the insurers enforce their policies as written, politicians are
going to find themselves coping with unhappy constituents throughout
the Gulf Coast who did not realize their damage would not be covered.
There is already talk of massive lawsuits and the need for wholesale
changes in the way federal flood insurance works.
"I had $60,000 worth of contents, and I thought I had it made," said
Dorice Mitchell, a 40-year resident of Pascagoula, Miss., who lost many
of his belongings when his house flooded. He walked away from a State
Farm catastrophe center empty-handed last week after learning his
policy won't help him. "They said it ain't worth a dime. No flood
insurance. I'm going to be living in apple crates."
Because the task of assessing damage has barely begun, nobody has a
clear idea how large insurance payouts will be. Preliminary forecasts
run as high as $60 billion, which would make Katrina far costlier than
Hurricane Andrew, the monster 1992 storm that walloped southern
Florida, Louisiana and Mississippi and led to insurance payments of
more than $20 billion in today's dollars. Andrew was a "dry hurricane"
that did not produce anything like the flooding associated with
Insurance companies will not offer estimates of their exposure, saying
it is simply too early to tell. But in this college town in
southeastern Mississippi, it is possible to get a preliminary sense of
the financial scope of the disaster.
Katrina did not fall below hurricane strength until the eye was near
Laurel, Miss., 30 miles northeast of Hattiesburg and 100 miles from the
Gulf of Mexico. The storm caused damage in a dozen states and reached
Canada before it weakened into insignificance. Katrina cut a
devastating path deep into central Mississippi, paralyzing the state
government in Jackson for days.
In regions so far inland they rarely see damage from tropical storms,
Katrina killed dozens of people, snapped electrical poles off at the
ground, drove tree limbs deep into houses, ripped open roofs, knocked
down barns and traumatized tens of thousands of people. As of Saturday,
more than 427,000 households in Louisiana and more than 162,000 in
Mississippi remained without power, according to the U.S. Department of
Throughout the region, governments were struggling over the weekend to
restore basic services. Hundreds of thousands of people were still
living in shelters. Frenzied utility crews sweated in the hot sun,
swatting away bugs, to rebuild the region's electric grid.
State Farm, the nation's largest insurance carrier and also the largest
in the afflicted states, grabbed an old furniture store in Hattiesburg
right after the storm to set up a catastrophe center, and more than 100
adjusters are already operating out of it. State Farm, Allstate and
other insurers have also stuck vans with claims processors in the
parking lots of malls and Home Depot stores across the region.
The companies, whose policies generally reimburse people for temporary
living expenses caused by a disaster, are writing instantaneous checks
for policyholders forced out of their homes. "For some of them it's a
total surprise," said Daniel McNamara, who lives in Connecticut and
heads a Metropolitan Life Insurance Co. catastrophe team operating at
the Home Depot parking lot in Hattiesburg. "They're tickled pink."
Under a tent in a parking lot in Pascagoula last week, policyholders
waited to see State Farm representatives. Shondra Jefferson,
traumatized from watching people drown in the storm, left her 15-minute
meeting with State Farm clutching a $2,500 check. "My funds are
depleted," she said. She plans to use the money to patch her roof and
Consumer advocates who monitor insurance issues say this initial phase
of disaster response usually goes well.
"The insurance industry has learned that while the TV cameras are
rolling, it's good to put on your nice shirt and write some additional
living-expense checks for people," said J. Robert Hunter, former Texas
insurance commissioner and director of insurance at the Consumer
Federation of America in Washington. "It's nice theater. And in fact,
they owe the money. The trouble comes months later."
State Farm's temporary center in Hattiesburg will be ground zero for
handling claims from 13 Mississippi counties, not including the six
closest to the Gulf of Mexico. Randy May, who arrived from Denver after
the storm to head the operation, said his territory includes 24,000
homeowners with State Farm policies. By Friday afternoon, 8,505 of
those policyholders had already called to report claims, and 12 percent
of the cases were classified as having severe damage.
The insurers pride themselves on rapid response to catastrophes. When
Holloway, dean of students at the University of Southern Mississippi in
Hattiesburg, called State Farm to report damage to several of his
rental properties, he heard back from Rasmussen, the adjuster assigned
to two of his houses, within two hours. "I was totally surprised,"
Holloway said. "I'm most grateful for the immediate response."
Still, settling claims is often a laborious process that can involve
haggling over contractor estimates and over the value of a home's
contents, assuming they were destroyed. Particularly near the coast,
many people lost the very records that would let them document the
value of their contents. And demand for contractors will be sky high in
the disaster zone, slowing work.
The biggest debates are likely to come over whether homes near the
coast were destroyed by wind or flood.
Of the estimated 400,000 flooded properties in three coastal counties
of Mississippi -- Hancock, Harrison and Jackson -- just 21,600 had
flood-insurance policies, said George Dale, the Mississippi insurance
Though some flooded residents of Louisiana also lacked flood coverage,
that state is in better shape, according to figures from the Federal
Emergency Management Agency. As of September 2004, 376,681 flood
policies were in force in Louisiana, compared with 41,946 in
Mississippi and 41,336 in Alabama.
"All these people pay high insurance to live on the coast," Dale said.
"They think, 'Well it has never flooded before. I'm paying enough
already -- I don't need it.' "
Hunter, of the consumer group, said most coastal homes probably
suffered some wind damage before floodwaters destroyed them. But he
said insurers have a financial incentive to attribute as much of the
damage as possible to flooding, since they do not have to pay flood
Hunter called on state insurance departments to pressure the companies
to use windstorm modeling or other techniques to try to calculate how
badly homes in a given neighborhood were damaged by wind before the
"What I'm afraid you'll see is, the policyholder has a $100,000 house
and the insurance companies will say, 'It's 5 percent wind damage,' "
Hunter said. " 'Here's $5,000; take it or leave it.' "