Latest Assault on Katrina Victims

When is a storm not a storm? When it causes "flood" damage, according to a federal judge in Mississippi. A family whose policy protected them against storms, but not floods, was denied compensation by their insurer from damage caused by Hurricane Katrina, a decision that U. S. District Court Judge L. T. Senter, Jr. upheld today. The clause that Nationwide Insurance used to deny family's claim the judge admitted was ambiguous, but he nevertheless ruled that the policy the plaintiffs purchased against storms did not cover "wind-driven water damage." The ruling will likely affect, at minimum, hundreds of similar cases along the Gulf Coast, particularly since it is Judge Senter who oversees all Katrina-related insurance claims in the state of Mississippi.

The relevant clause in the Nationwide storm policy is below, asserting that the policy does not cover:

Water or damage caused by water-borne material. Loss resulting from water or water-borne material damage described below is not covered even if other perils contributed, directly or indirectly to cause the loss. Water and water-borne material means

1) flood, surface water, waves, tidal waves, overflow of a body of water, spray from these, whether or not driven by the wind.

A "storm," then, according to the judge's interpretation of Nationwide's policy, is wind, and ceases to be a storm as soon as it is accompanied by water. When water is involved, "whether or not driven the wind," then you've got a flood on your hands. No flood insurance? Sorry, no money.

Further, the insurance agent who sold the policy is admitted by the judge to have a pattern of discouraging the purchase of flood insurance, which presumably would be covered under Hurricane Katrina, while simultaneously maintaining to his customers (according to the plaintiffs) that the storm policy covered any storm-related eventuality, including water damage. Unsurprisingly, in light of the verdict, the judge accepted the insurance agent's recollected version of his sales pitch over the plaintiffs'.

The families affected by this ruling, many of whom are unemployed, with no savings, and surrounded by a community support structure in shambles, will now have to pay up to the entire cost of rebuilding their homes and replacing their property on their own. And while any undergraduate in economics could tell you how much more difficult Judge Senter's ruling will make it for these small, rural economies in Mississippi and Louisiana to grow again, Joseph Annotti of the Property Casualty Insurers Association of America disagrees:

From our perspective, it lifts a very large cloud of uncertainty that has been hanging over the insurance market of the Gulf Coast. A healthy insurance market is absolutely key to a rejuvenated economy down there.

And no, he was not joking.