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Claims of Insurance Fraud Surface Amid Katrina's Damage

Posted on: Saturday, 17 September 2005, 00:00 CDT

Sep. 16--Less than three weeks after Hurricane Katrina devastated the Gulf Coast, the first claims of insurance fraud have hit the courthouse steps.

The Mississippi attorney general on Thursday sued Illinois insurers State Farm Insurance Cos. and Allstate Corp. and three others, alleging that they are trying to cheat policyholders out of paying for flood damage to their homes.

The suit is the first of what many expect to be a flurry of disputes over insurance coverage in the aftermath of one of the worst natural disasters to hit the United States.

The bill for insurance companies may be as high as $60 billion, an amount that would top Hurricane Andrew as the costliest natural disaster in U.S. history. The ultimate cost to insurers, though, depends on how much damage was caused by strong winds and how much was caused by flooding.

Standard homeowners' policies cover wind damage, not flooding.

But Mississippi Attorney General Jim Hood says such restrictions would bankrupt the state because less than 20 percent of homes and businesses in flood-prone areas of the state have federal flood insurance. His suit blames the damage on Katrina's winds, which caused a devastating storm surge. Excluding the surge from homeowners' policies is an "unfair or deceptive trade practice," Hood said in the suit.

"All that people have left is hope and I'm not going to allow an insurance company to wrongfully take that hope away," Hood said in a statement.

Allstate spokesman Michael Trevino said exclusions related to flooding in the Northbrook-based company's property insurance policies in Mississippi have been approved by the state insurance department and have been in place for years.

"To now seek to retroactively impose on insurers an obligation to pay for losses that were not contemplated under the insurance contract and for which no premium was collected, we believe violates not only core constitutional principles but also ordinary concepts of fairness," he said.

The suit also names Nationwide Mutual Insurance Co., based in Columbus, Ohio; United Services Automobile Association, based in San Antonio; and Mississippi Farm Bureau Insurance.

Hood also accused Nationwide and others of forcing policyholders to sign forms that acknowledged they sustained flood damage before they could receive checks for living expenses. The companies can use the sentence regarding flood damage against policyholders later, Hood said.

Nationwide rejected Hood's assertions.

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ALL,

Source: Chicago Tribune

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