Ben,
I very much enjoyed speaking with you and your wife at Deja Vu. I hope to see you in another production. If you need anyone in one of your own deals, call me. Let me add that I thought your web site www.hurricanekatrinasucked.com was great. I hope you can continue the effort.
I did want to address as per our conversation a summary of what I believe is a huge issue not being given "air time," i.e. the issue of wind versus flood. This is a multi-billion dollar swindle being carried on by the various insurance companies. Here is how it goes. State Farm Fire & Casualty Co. (SF), Allstate and others belong to one or more groups that survey constantly court decisions throughout the United States on both a federal and state level. When they see some decision adverse to them, they simply amend their policies through what are called endorsements. You and I receive these periodically when we renew our policies. SF, which I'll use as an example, does not send you along with the endorsement any information telling you the effects of the endorsement""how it will affect you. The policies we have, you and I, developed out are what was called "fire policies." The original policies covered the peril of fire; however, the companies broadened coverage and increased the premiums to cover other perils, such as wind damage, theft, etc. The new policies are now known as homeowners policies. The companies then slipped in a few years back clauses in their policies saying that any contribution to a loss from a non-covered peril "no matter how small" would result in a zero recovery. We can more easily see this in our present predicament of wind vs. flood. Thus, if your home is destroyed and flood, a non-covered peril, contributed to the loss (even 1%) the clause within the policy known as an anti-concurrency clause or ACC would give you no coverage whatsoever. This is clearly subject to abuse and some states have voided these statutes by statute while others have not upholding the clause to the detriment of the consumer. In Louisiana, we have no court case prior to Katrina that confronted the issues now posed. Further, the Louisiana legislature has never addressed the issue. Thus, SF and others are using "their" interpretation of the clauses to swindle billions of dollars from unwary consumers. I worked with Senator Julie Quinn during the last special session of the La. legislature to submit a bill that would declare such policy interpretations to be against public policy. When the bill got to the house insurance committee, the chamber was packed with lobbyists and insurance companies to defeat the bill, which they succeeded in doing. Further, I believe 5 of the 12 members were insurance agents. Prior to the hearing the insurance companies had contacted their agents to call their reps to defeat the bill. SF said they would leave the state if the bill passed. One of the legislators asked an insurance spokesman why anything that ever came before the committee favorable to the consumer they (the insurance companies) would say they would leaving the state. There was no answer.
"These events in total represent a very unusual frequency and severity, but not so unusual that they were outside of our modeled risk exposures nor our pricing. . . .
We believe that the results of 2005, while disappointing, are consistent with our role as a premier global reinsurer and with our longer-term risk/return model. . . We have grown our book value per share at an average annual rate of 11.3% over the last four years, despite a decline of 12.6% in 2005. In addition, we have returned significant capital to our shareholders through share repurchases and shareholder dividends. I am pleased to announce that we once again increased our annual common share dividend. This marks the twelfth consecutive year that we have increased our dividend."
This does not sound like anyone is going out of business to me.
We are now left to defend ourselves against SF that has billions of dollars and untold numbers of lawyers to fight each individual. Further, in Louisiana the insurance companies were successful a couple of years ago in stripping from our statues the ability of the consumer to collect reasonable attorney fees should they be win the case against the insurance company whose refusal to pay was found arbitrary, capricious or without probable cause. To fight a case, the court costs would be $20,000 to $30,000. Practically no attorney will assume a case on a contingency and risk the loss of such money. The insured that just lost their home is unable to pay an attorney or put up such monies. What I have seen is many people just giving up. What can a person do with a $80,000 complete loss on their home? Can they pay an attorney and put up court costs? Certainly not.
Iin the case of Murray v. State Farm Fire & Casualty Company, 203 W. Va. 477 (1998), the court stated:
"Indeed, if we were to give full effect to the State Farm policy language excluding coverage whenever an excluded peril is a contributing or aggravating factor in the loss, we would be giving insurance companies carte blanche to deny coverage in nearly all cases. . . . Here, the State Farm policies would deny coverage whenever an excluded peril is a contributing factor to the loss. Since, in most instances, an insurer can point to some arguably excluded contributing factor, this rule would effectively transform an "all-risk" policy into a "no-risk" policy. . . . A statement in a concurring opinion to Howell makes clear how State Farm's interpretation of the lead-in clause goes against the reasonable expectations of policyholders. Justice Barry-Deal stated that "[n]o reasonable person would pay for insurance against some future peril if it were possible for the insurer to avoid liability by discovering an excluded peril somewhere in the chain of causation.... [W]here an insurer chooses to insure against the direct and proximate results of a certain peril, it may not rely on the concurrence of an excluded cause to deny coverage. . . .
"Our examination of the State Farm lead-in clause leads us to a similar conclusion. As indicated previously, when an insurance carrier chooses to insure against a loss proximately caused by a particular peril, it may not rely on the mere concurrence of an excluded peril to deny coverage. The excluded peril must itself be the efficient proximate cause of the loss. Because State Farm's lead-in clause conflicts with the reasonable expectations of the parties, it should be construed to allow coverage for losses proximately caused by a covered risk, and deny coverage only when an excepted risk is the efficient proximate cause of the loss."
The above state is one of the ones that do not let the insurance companies use the ACC to swindle the little man.
Our insurance commissioner is in the right hand pocket of the insurance industry and refuses to act claiming "incredibly" the insurance companies are not denying claims based on the wind vs. flood issue. I have letters including my own that say just that. To reiterate, my home was completely destroyed and the claim was denied by SF on the basis it was lost due to a combination of wind and water.
Who is the most affected? Naturally it is the poor who have no contacts, relatively small claims (less than $100,000), and no funds to proceed with a case.
I could go on and on but hope the foregoing gives you a flavor of what is happening.
Thanks.
Bernard Smith, bsmith1934@aol.com
