Mississippi Attorney General Seeks to Nullify Flood Exclusions in Homeowners Insurance Policies

Strategic Insights -

Mississippi Attorney General Jim Hood has filed a suit in the Chancery Court of Hinds County, seeking to have the flood exclusions in homeowners insurance policies declared null and void in the wake of Hurricane Katrina. The storm caused widespread damage and estimated insured losses of up to $60 billion. Hood's suit claims that insurers are attempting to exclude coverage for flood damage, contradicting a state law that mandates full coverage for damage caused by wind, even if other noncovered causes contributed to the loss.

Key Takeaways:

  • The suit, filed against Mississippi Farm Bureau Insurance, State Farm, Allstate, United Services Automobile Association, and Nationwide Mutual Insurance Co., seeks to declare the policy contracts "void and unenforceable."
  • The Attorney General's office claims that insurers are attempting to exclude coverage for flood damage, despite a state law that requires full coverage for damage caused by wind.
  • The Florida Fourth District Court of Appeal ruled in a 2004 case that the state's valued policy law allowed insureds to recover policy limits under wind coverage, even if they received a substantial payment for flood damage under the National Flood Insurance Program.
  • Insurance trade groups, including the Property Casualty Insurers Association of America and the American Insurance Association, argue that the flood exclusions are a well-established fact and have been in place for nearly 40 years, since the creation of the federal National Flood Insurance Program in 1968.
  • The National Flood Insurance Program was founded to assist citizens who otherwise wouldn't be able to obtain flood coverage, and to ease the burden for insurance companies that believed it to be actuarially unsound to include the risk of flood in standard insurance policies.
  • The NFIP also assisted citizens who otherwise wouldn't be able to obtain flood coverage, and each contract, from California to Maine, was written according to the standards set by state regulatory agencies and approved by those agencies after careful review.

Statistics:

  • Estimated insured losses from Hurricane Katrina: up to $60 billion (BestWire, Sept. 9, 2005)
  • Number of years the flood exclusion has been in place: nearly 40 years, since the creation of the federal National Flood Insurance Program in 1968
  • Number of insurance companies named as defendants in the suit: 5 (Mississippi Farm Bureau Insurance, State Farm, Allstate, United Services Automobile Association, and Nationwide Mutual Insurance Co.)

Sources:

  • BestWire (Sept. 9, 2005)
  • BestWire (June 2, 2005)
  • Property Casualty Insurers Association of America
  • American Insurance Association
  • National Flood Insurance Program
  • A. M. Best Company, Inc.