The New York Times
September 3, 2007 By LESLIE EATON and JOSEPH B. TREASTER
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.
