Homeowners Despair As Insurers Refuse to Pay

Debate over coverage stalls efforts to rebuild and may land in court

by WILL ROTHSCHILD

BAY ST. LOUIS, Miss. — Angry messages spray-painted on jagged pieces of scrap plywood line Beach Boulevard, where families lived and vacationed for generations before Hurricane Katrina.

“State Farm screw U2?”

“State Farm’s mediation is a hoax.”

And this one, from a congressman:

“Katrina: Act of God. State Farm: Work of the devil.”

Nine months after Katrina’s record-setting storm surge destroyed some of the most desirable real estate on the Gulf Coast, the signs are a clear signal that people here are losing hope of ever being made whole again.

Private insurer losses for Katrina are estimated at $40 billion to $60 billion, making it the costliest catastrophe in U.S. history and renewing debates about the insurance industry’s ability to pay for such losses.

But that discussion means little in Bay St. Louis, where hundreds of homeowners have learned that if your home is destroyed by a hurricane’s storm surge, your hurricane insurance policies might be useless. The scenario serves as a sobering wake-up call for Southwest Florida homeowners who think their flood and wind policies will safeguard their investments in the event of a catastrophic storm.

Joe De Benvenutti and his wife, for example, thought they had done everything to protect their dream home: They had $250,000 in flood coverage — the maximum allowed by the federal insurance program — and a “total replacement value” hurricane policy through State Farm.

The flood program paid out.

But State Farm has refused to pay on the grounds that Katrina’s 30-foot storm surge — not its 140 mph winds — wiped out their home and the damage isn’t covered by their policy. With a home valued at nearly $700,000, the flood payout doesn’t come close to replacing all the Benvenuttis lost.

“We’re not sitting here wanting a handout,” says Benvenutti, whose strapping physique even at 53 gives away the glory of his youth when he played football at Ole Miss. “We don’t want anything extra. We just want what we paid for.”

It is unclear how many Floridians could be in the same situation: living on the water with flood and wind policies that they think will cover their losses. But State Farm alone insures nearly 250,000 Floridians who also have flood protection.

And that’s not counting the thousands who don’t have flood insurance at all, like Anne Herre of Venice.

Her home sits about 1,000 feet from the Gulf of Mexico, and she has a hurricane policy through Amica Insurance Company. But, as post-Katrina Mississippi is proving, there is no guarantee she would ever see a penny from that policy if a hurricane packing 15 feet or more of storm surge rips through the area.

In a home valued at more than half a million dollars, according to the county property appraiser, Herre nonetheless feels secure: The elevation of her lot is 12 feet, she has hurricane shutters, and Venice hasn’t been directly hit by a hurricane in decades.

“For some reason, it always seems to go north or south of here,” Herre said. “We’re in this little pocket.”

A looming court battle

Richard Scruggs, the billionaire Oxford-based attorney who beat the tobacco industry, has filed class-action suits on behalf of hundreds of policyholders against State Farm, Nationwide, Allstate and United Services Automobile Association.

Among those represented by Scruggs is U.S. Sen. Trent Lott, whose home in Pascagoula was destroyed, and Congressman Gene Taylor, Benvenutti’s neighbor on Beach Boulevard. Lott and Taylor are State Farm customers.

A spokesman for State Farm called the lawsuit unfounded, saying State Farm’s hurricane policies clearly exclude water damage.

“The flood exclusion is valid and legal,” Fraser Engerman said. “We want people to read their policies and know what is covered. We can’t pay people for things that are not covered.”

The court fight promises to be a nasty one, with an attorney no stranger to taking on and beating corporate giants on one side, and on the other the insurance industry, which has paid out more than $82 billion in claims from the past two hurricane seasons, believing it is fighting for its survival.

Bill Bailey, managing director of the Hurricane Insurance Information Center, told the crowd gathered at the National Hurricane Conference in Orlando last month that an unfavorable court ruling could “break the industry.”

Already, insurance companies have significantly reduced their coverage in high-risk markets such as coastal Florida. Some companies are leaving certain areas altogether. Allstate, for instance, is pulling out of Alaska because of the risk of earthquakes.

Bailey expects a new marketplace of high-end, high-risk insurance carriers to emerge into the void left behind by industry heavyweights such as State Farm, Nationwide and Allstate.

“It will take some time, but there will be an acceptance on a certain price level,” Bailey said. “Granted, it will be higher, but if you move to Florida and build a $7 million house on the water, it shouldn’t be a surprise to you. You’ll have a hell of a time claiming you had no recognition of the possibility of water damage when you moved here. But it will be costly.”

Taking a punch

Only a couple of the dozens of homeowners who live along the water are rebuilding; everyone else is spending day after day in their FEMA trailers, still trying to figure out their next move.

FEMA only adds to the pressure: The agency will start charging people $600 per month for their trailers in just nine months, which is likely not enough time for people to settle their disputes and build anew.

Not even congressmen are immune from the frustration. Rep. Taylor, a Democrat, joined the Scruggs lawsuit after State Farm denied his claim on his 2,500-square-foot Beach Boulevard home.

Taylor has asked for the inspector general of the Homeland Security Department to investigate whether the insurance industry’s denial of claims shifted its costs onto federal taxpayers. He also is one of the leading proponents of revamping the federal flood insurance program, legislation that is expected to hit the House floor this week.

When he does rebuild, Taylor says his new home will be one-third the size of his old one. He hears the same story from many folks here.

“You’re not seeing people want to stick their neck out to build a large house again,” Taylor said. “You want to get back on your property, but there’s not much money. And the insurance company, they screwed you once, and we’ll all get another carrier, but we don’t have a heck of a lot more confidence in the next company. You know, I got punched pretty hard, so do I want to get punched that hard again?

“And a lot are just sitting back because they’re still in shock.”

Taylor’s neighbor and friend Benvenutti doesn’t want to sue, because that will only delay his rebuilding. So he’s still sending letters to State Farm, trying to convince the company that his hurricane policy entitles him to a payout.

So far, he hasn’t even been able to get State Farm to send an engineer out to inspect his property. “Their response to me has been to get lost,” Benvenutti said.

For Benvenutti, as for many others, the frustration of the past nine months has been worse than the gut-wrenching sadness that overwhelmed them after Katrina.

“You get over that (initial) feeling, but then you’re not able to get on with your life,” says Benvenutti, a father of three. “I can’t explain the frustration of trying to go to work and raise a family and not getting from point A to point B.

“We’re just stagnant -- living in this trailer where we used to have a life.”

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United Policyholders is a non-profit organization founded in 1991 and dedicated to educating the public on insurance issues and consumer rights. UP publishes educational materials and serves as a resource for individual and business policyholders and residents of communities with insurance problems. UP’s Amicus Project provides information to courts of law to support policyholders’ legal rights. UP unites policyholders and their advocates by sharing information. Write to UP at 110 Pacific Ave., PMB 262, San Francisco, CA. 94111, call us at (510) 763-9740, or visit our website at www.unitedpolicyholders.org.

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