Key Fact Missing

The AP does a great job in this story reporting absolutely everything but the most important fact:

The Supreme Court has refused to offer help to Hurricane Katrina
victims who want their insurance companies to pay for flood damage to
their homes and businesses.

Wow, those insurance companies suck, and they have the Supreme Court in their pocket.  The only teeny-tiny fact missing is that the people suing had policies that very explicitly did not cover flood damage.    They sortof acknowledge this but say the insurance companies should pay anyway, because the flood was caused by a broken levee and that somehow is not really the same kind of flood, sort of.  Or whatever. 

  • MGW

    I saw that article too and thought the same thing. The version I saw was headlined something like "Supreme Court refuses to lend Katrina victims a helping hand." The article description said something about the funds would have been used to rebuilding and for starting new businesses.

    The article acts like the court has discretion in this and that the court is being greedy somehow. It's not the courty's money to dole out and they are bound by the laws, just like everyone else.

    Let's hope the LA supreme court hs the same sense and overturns the LA appeals court decision.

  • skh.pcola

    Flood: "An overflowing of water onto land that is normally dry."

    Nawlins was normally dry until the levee broke. Seems like that fits the definition. I have no special sympathies for the folks who live there, but flood insurance ought to cover...floods, regardless of the source.

    An apt analog is buying wind insurance and not covering tornado damage because, you know, tornadoes aren't really "wind." If we want or need to parse insurance policies' terms to this level, every homeowner will purchase 30-40 different policies to cover every conceivable calamity.

  • Eric

    skh.pcola,

    I think you might be missing something here. Flood insurance is NOT, in this country, provided by private insurers, only the government. The insurance policy in question specifically stated that coverage will not be provided in the case of natural water damage; the plaintiffs allege that, because the New Orleans levy broke, the water damage was "manmade."

    Unbelievable.

  • skh.pcola -

    Insurers don't cover flood because it's so easily avoidable. We can identify, using topography, what zones are likely to get flooded. These zones are usually just a few square miles in area. People in these zones need flood insurance, but since flooding is so likely, no sane insurer would offer it.

    The government stepped in to offer flood insurance, thereby allowing people to build and rebuild properties that are almost certain to get flooded out every few years. It's nothing more than taxpayers subsidizing stupidity.

    (As for New Orleans, even if private insurers did offer flood, there's no way any building in that city would have been covered. The risk is just too high.)

  • Eric

    Well said, Quincy.

    And because it has somehow become a "right" to live anywhere one chooses without having to pay the costs, we the people end up paying for endless rebuilds on coastline and in flood-prone regions. It's ridiculous.

  • Ryan

    Quincy,

    I would think that most insurers don't offer flood insurance because the government offers it at a rate that is too low to cover the risk. That makes private insurance companies unable to compete because they cannot subsidize their losses with tax money so they stay out of the market for the most part.

    Allstate does offer additional flood coverage:
    "Excess Flood Insurance Coverage May Be Available
    In some states, if you purchase National Flood Insurance through Allstate and find you need more coverage than the maximum limit provided by the NFIP program, you may be eligible to purchase additional coverage through an Excess Flood Insurance* Policy from your Allstate agent."

    "People in these zones need flood insurance, but since flooding is so likely, no sane insurer would offer it." -Yes they would if the price was right. How likely is death? I am not a doctor or anything, but I think the death rate is around 100%. Life insurance is widely available. It simply has to be priced to reflect the risk.

    I am sure that if you wanted to pay the price, you could get flood coverage right now from a private company, but the price would knock your socks off.

    skh.pkola -

    These are people for the most part that either refused flood coverage when they purchased their home insurance because they didn't want to pay the price, or were unaware that their policy did not cover flooding and now think they were swindled.

  • The Supreme Court is right on this, and the insurance companies shouldn't be liable.

    They do still suck, though.

  • "I am sure that if you wanted to pay the price, you could get flood coverage right now from a private company, but the price would knock your socks off."

    You're actually right about this, though in a high risk flood zone this would be in the thousands of dollars per year. Imagine if an area floods every five years, causing on average $100,000 of damage. Here in Northern California, this situation exists a lot. This results in an Average Annual Loss of around $20,000. To maintain reserves, the insurer would have to collect an amount close to or equal to the Average Annual Loss. No insured would even consider buying such coverage. The insurance model does not work for high risk flood zones. It has nothing to do with government subsidies or not.

    As for Allstate offering excess flood coverage, excess is a whole different ballgame. It's a money-making engine for Allstate since the NFIP limit is $250k/single family residence. Most flood damage is contents and interior damage, rarely resulting in the total loss of the structure. The likelihood that the second layer of coverage will get used is minimal except in high-priced areas.

    "How likely is death? I am not a doctor or anything, but I think the death rate is around 100%. Life insurance is widely available. It simply has to be priced to reflect the risk."

    But what is the likelihood that the insured will die over the term of the policy? (Permanent life insurance like whole life plans are actually hybrids of insurance and investment, and so use a different underwriting model.)

    A structure in a high risk flood zone is the equivalent of a customer seeking term life insurance at the age of 85 with terminal cancer. The loss for the insurance company is almost certain to come within the policy term. No sane insurer would take on that deal either.