[StBernard] Insurers Bear Brunt of Anger in New Orleans

[Westley Annis]

Insurers Bear Brunt of Anger in New Orleans

NEW ORLEANS - Maxine Cassin, a prominent local poet, thought her homeowners
insurance would be more than enough to cover the $100,000 of hurricane
damage to her Uptown house here. But two years after Hurricane Katrina hit,
Ms. Cassin and her husband, Joseph, are still stranded far from home; their
insurer has offered them just $41,000. 

Emile J. Labat III, a funeral home owner and real estate investor, thought
his $300,000 homeowners policy, along with federal flood insurance, would
repay him for repairing his house on Elysian Fields Avenue. But now Mr.
Labat feels he was deceived. Many of his losses were not covered, and he was
stunned that his deductible worked out to be $16,000. 

June Rees, a retired nursing professor, gave up on living in New Orleans and
reluctantly moved 75 miles away to avoid skyrocketing insurance costs. The
price of her homeowners and flood insurance was going to quadruple, to
$8,000 a year, and it still would not have covered wind or hail damage. 

"I've just been ripped out of it," Ms. Rees said of leaving her home in New
Orleans, "as if somebody tore me away from everything I'm grounded to." 

Insurance companies may have paid out $11 billion to Louisianians in the two
years since Hurricane Katrina, but they have also become a new villain in
the tales people tell about the slow recovery here. Every neighborhood is
full of horror stories about companies that reneged on their promises,
offered only pennies on the dollar in settlements, dribbled out payments,
deliberately underestimated the costs of repairs, dropped longtime customers
and sharply increased the price of coverage. 

And it is not just talk. Though, traditionally, relatively few customers sue
their insurance companies, about 6,600 insurance-related lawsuits have
landed in Federal District Court here; 3,700 of them are pending. Few have
gone to trial. Some homeowners have settled; other cases have been dismissed
or sent to state courts, which are also handling thousands of disputes. 

Thousands of formal complaints have been filed with the Louisiana Department
of Insurance, 4,700 of them in 2006 alone. That is just a tiny fraction of
the number of people who feel aggrieved, regulators say: for half a year
after the storm, calls to the department reached 20,000 a month. 

Louisiana estimates that, on average, homeowners have received $5,700 less
than the state believed they should have after the storm, leaving the
government's rebuilding program, the Road Home, responsible for covering an
extra $900 million of losses for 160,000 families. And even that program,
originally expected to cost about $7.5 billion but now projected to cost
several billion more, is not paying enough to make many homeowners whole
again. 

The usually eye-glazing topic of homeowners insurance is so incendiary now
that State Senator Walter J. Boasso, a Republican turned Democratic
candidate for governor, has proposed jailing insurance executives found to
have acted in bad faith. 

Disputing Damage Causes 

Insurance companies say the $11 billion they have paid for damage to houses
in Louisiana is a record. But they have refused to pay for damage they
contend was caused by flooding - which is generally not covered by
homeowners insurance - even though many people here believe much of that
damage was caused by hurricane wind, which usually is covered. 

Several lawsuits here and in Mississippi accuse insurance companies of
trying to overstate flood damage so that taxpayers would pick up more of the
tab through the federal flood insurance program, which has paid out $13
billion in Louisiana. These contentions have prompted several federal
investigations. In other cases, customers are arguing that the companies
used deceptive business practices, putting pressure on engineers and
insurance adjusters and deliberately underestimating the costs of repairs. 

Industry spokesmen say that most homeowners are satisfied and that 99
percent of homeowners' claims have been settled. Any problems stemmed from
the huge size of the disaster, they contend, or from homeowners' failure to
buy adequate insurance or to read their policies carefully. Rising rates,
they say, reflect a more realistic sense of the risk homeowners assume by
living in dangerous coastal areas. 

"The insurers did an admirable job under very difficult, unique and extreme
circumstances," said Robert P. Hartwig, the president and chief economist of
the Insurance Information Institute, a trade group in New York. "The vast
majority of homeowners affected by Katrina are happy and pleased with the
settlements they received from their insurers." 

But in New Orleans, many people say that just because they stopped fighting
their insurers does not mean they are satisfied. 

"You're so worn down by everything you've been through that you just don't
have the fight left in you," said Yolanda Moon, who had expected to receive
$39,000 from her insurance policy for wind damage. Instead, she and her
husband got $3,000. 

Profits and Pain 

Byron McDonald admits that by neighborhood standards he may have spent too
much money - $350,000 - to build his two-story brick house in the Gentilly
neighborhood here, which was finished in 2000. But Mr. McDonald, 61, said he
wanted a place he could live in until he died, so he was not worried about
the resale value. 

The owner of a party supply company, Mr. McDonald bought the maximum flood
policy available from the government program, $250,000, and about $200,000
in private homeowners insurance to cover wind damage. 

After the house took on five feet of water during Hurricane Katrina, the
government flood program paid Mr. McDonald the full amount, plus $67,000 for
contents. 

Mr. McDonald believed that his private insurer, the Hanover Insurance Group,
was supposed to pay for damage above the flood line. Hurricane Katrina's
winds had torn a ventilator off the roof, leaving a big hole for rainwater
to pour through, and the water had damaged hardwood floors upstairs and
kitchen cabinets. He said he had $200,000 worth of wind damage. 

But Hanover's response was different from the federal flood program's. The
company assessed him a $5,000 deductible and has paid him only $900, he
said. 

Hanover, he said, did pay him $1,500 for temporary living expenses, but then
demanded it back when it decided that his losses had come from flooding. He
said he had spent $53,000, mostly to rent places to live in other parts of
the state. Dealing with his insurance company, he said, "is like talking to
a wall." 

Because Mr. McDonald has sued Hanover, Michael F. Buckley, a spokesman for
the company, declined to comment on the claim. But he said Hanover had paid
more than $500 million for damages from Hurricane Katrina in Louisiana and
was "proud of the work we've done in response to the storm." 

Other homeowners and insurance adjusters say Mr. McDonald's situation is
part of a regionwide pattern in which insurance companies have tried to
reduce the amount they owe policy owners, often by shifting the costs to the
taxpayer-supported flood insurance program. One group of former adjusters
who contend these practices have occurred filed a federal whistle-blower
lawsuit, hoping to collect a share of anything the government might recover
from insurance companies. 

The group's lawyer, Allan Kanner, said he had gathered evidence that private
insurance companies are putting the burden on taxpayers to cover the
companies' own losses at more than 150 homes. Included are four on the
eastern edge of New Orleans that he says received about $95,000 apiece, even
though their damage had been caused by wind and rain, not flood. 

The insurers, including State Farm and Allstate, the two biggest in
Louisiana, adamantly deny that they improperly shifted claims to the federal
flood program. "When the wind blows for a certain number of hours before the
levees broke, it's a difficult call," said Joseph Annotti, the spokesman for
the Property Casualty Insurers of America. "But the adjusters made the best
call they could." 

A federal investigation into similar accusations in Mississippi is
continuing. 

The insurance companies have, however, scored a victory in federal court
here, where a judge ruled recently that, in effect, anything homeowners
collect in federal flood insurance should be deducted from the amount that
private insurance companies may owe them, said Gregory P. DiLeo, a lawyer
representing policyholders. 

Although the judge intended to make sure that owners could not earn a profit
from their insurance payouts, "Homeowners are saying, 'That's not fair. I
paid for two coverages,' " Mr. DiLeo said. 

The complaints about low payments to hurricane victims come on top of
widespread criticism that insurance companies are profiting off their
customers' pain. The critics cite record industry profits of $48 billion in
2005 and $68 billion last year, while policies cover less and cost more. 

Insurance companies, which traditionally have made much of their profits by
investing premiums until the money was needed to pay claims, are now paying
back to policy holders less of the premium money they collect, according to
data from the A. M. Best Company, which evaluates insurers. 

These trends began well before Hurricane Katrina hit, but the most recent
period "has been the worst," said J. Robert Hunter, director of insurance
for the Consumer Federation of America. 

Insurers say they began paring back coverage and raising rates on home
insurance when costs from big claims began eating into their profits, and as
competitors selling only auto insurance began luring away their most
lucrative customers. 

In 2005, home insurers in Louisiana and in other coastal areas lost billions
because of Hurricane Katrina and other storms, said Mr. Hartwig, of the
insurance trade group, even as profits went up elsewhere in the country and
for other kinds of insurance. Last year, profits went up throughout the
industry because no hurricanes made landfall in the United States. 

Mr. Hartwig said that insurers were not insensitive or greedy, but that "an
insurer that is financially weak or insolvent is no use to anybody." 

Premiums Out of Reach 

The extensive damage done by the storms of 2005 has sharply raised the cost
of homeowners' insurance in the region, for those who can find a policy at
all. Those costs have become a major impediment to recovery. 

"It makes it very difficult for people, particularly those of marginal
means, who want to come back, to rebuild," said Lawrence Ponoroff, the dean
of the Tulane University School of Law here. "It is very tough on
institutions and on attracting new business to the area." 

The higher premiums have made buying a house - or selling one - here more
difficult, said Lynda Nugent Smith, who has been selling real estate here
for 34 years. "All of a sudden your insurance goes from $2,000 a year to
$6,000 a year," Ms. Smith said. "It's just that cherry on top that makes the
whole pile of ice cream and whipped cream fall over." 

Spiking insurance prices have also discouraged builders from putting up
much-needed rental housing here and are causing big problems for nonprofit
groups trying to develop housing for the poor and the elderly. 

One such group, Enterprise Community Partners, has 11 projects on the
drawing board, but only one deal has closed. And the insurance on the
project is about $2,100 a year per unit, almost seven times more than it
would have been before the storm, said Michelle K. Whetten, Gulf Coast
director for Enterprise. "Another issue," she added, "is getting a policy at
all." 

James J. Donelon, the state insurance commissioner, said that some companies
were no longer writing new policies in Louisiana and that many were raising
prices, increasing deductibles, and cutting coverage for wind and hail. (The
state is so worried that insurers will stop doing business there that it has
agreed to spend $100 million in incentives to lure companies.) 

Mr. Annotti, the insurance industry spokesman, said the billions of dollars
paid out for the unexpected surge of hurricanes in recent years has pushed
insurers for the first time to focus on how crowded the coastlines have
become with expensive homes and businesses. 

"From a business perspective," he said, "you look at the coastal markets and
the catastrophic exposure and you say, 'That's a dangerous place to write
policies. I need to charge more or limit what I'm writing.' " 

State laws are supposed to protect long-time customers from losing their
insurance; even so, many people in Louisiana report that their insurance
policies have been canceled. 

Take Terral E. Miller, a sales executive who bought his first and only house
in the Lakeview neighborhood in 1981. "We were very happy there, we enjoyed
it very much, and it was almost paid for," he said of the two-story
tan-brick house that backed up to the 17th Street Canal, which breached
after the storm. 

Shortly after the storm, Mr. Miller, 50, was found to have colon cancer,
which has since spread to his lungs and forced him to retire. He lives in an
apartment in a different neighborhood. Earlier this year, he said, his
insurer canceled the policy on the shell of the Lakeview house, on the
ground that the house was unoccupied, leaving him without any liability
coverage. 

With everything else he was going through, that was the last straw, Mr.
Miller said. In April, he had the house bulldozed.