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Lessons learned after the storms: two years after hurricanes Katrina and Rita, policyholders are still fighting to get coverage for their losses. If you're going to help these policyholders take on their insurers, you need to be prepared.

Article Excerpt
Something positive has emerged out of the devastation the 2005 hurricanes caused--and is still causing--to individuals, businesses, and communities throughout the Gulf Coast states. For those of us who toil routinely on behalf of policyholders and are passionate about the rights of insureds, this post-Katrina phase is an exciting time.

Investigative reporting on insurers' anticonsumer actions is at a historic high. News media are providing in-depth coverage of insurers' top-down strategies to increase profits by cheating claimants. Improper sales and adjusting practices that deprive honest Americans of paid-for financial security are being exposed. Lawmakers and judges at the state and federal levels are scrutinizing the private insurance system that is so inextricably intertwined with our economy. Government's role in the business of insurance is being weighed.

More and more policyholders are questioning whether they are really in good hands. Consumer trust of the industry is at an all-time low.

News stories about altered expert reports, lowballing, bad faith, and unfair exclusions are hardly revelations to the policyholder advocates and disaster victims who have been contending with these chronic problems for decades. But now, a powerful senator, Trent Lott (R-Miss.); other members of Congress; and state legislators are moving to enact legislative reforms. Several states recently enacted or proposed laws that allow policyholders to get redress in court for insurers' bad faith. (1) Policyholder bills of rights were introduced in Florida, Louisiana, and Mississippi in the 2007 legislative sessions.

Many thousands of property owners are pursuing their fights in court to collect on broken insurance promises. And despite intensive maneuvering by insurance industry strategists, the judicial system is functioning effectively. (2) Insurers are feeling the pressure, and some of those top-secret corporate directives that turn claims into profit centers are going to be stopped.

According to Robert Crown, a public adjuster based in California, there is an industry standard known as the "rule of 9" under which insurers calculate that 9 out of every 10 claimants simply accept whatever they're offered on claims. This means that only 1 in 10 policyholders typically challenges a lowball offer or denial. Fewer still hire counsel and file suit.

So insurers have numbers on their side. They can point to the extraordinarily large numbers of claimants who don't sue as proof of happy customers. They can aggregate claim pay-outs after natural disasters as evidence of all the money they paid out. And they do. Consider this press release issued a year ago by the Insurance Information Institute (III):

One year after Hurricane Katrina, nearly 95 percent of homeowners insurance claims have been settled in Louisiana and Mississippi, insurance companies have paid billions in storm damage claims, and the vast majority of homeowners' in both states say they are satisfied with their insurance company.... In Louisiana, insurers have settled 658,700 homeowners' claims or 94.8 percent of expected homeowners' claims from Hurricane Katrina, totaling $10.3 billion, reported the III. In Mississippi, 334,800 or 94.3 percent of expected homeowners' claims, totaling $5.2 billion, have been settled. (3)

These claims stand in stark contrast with direct reports from Katrina and Rita victims (4) and the unprecedented volume of litigation that policyholders initiated against their insurance companies in Katrina's aftermath. Yet the numbers appear to be empirical statistics that support insurers.

Digging deeper, it...

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