Remember Those "Nice" Insurance Companies?

A few posts below, we referenced the earnings of "Big Oil" in comparison to those "nice" Insurance Companies. The insurers report a LOT more earnings than Big Oil, per dollar of sales.

Now we know why:

RESIDENTS of the Mississippi Gulf Coast withstood a devastating blow from Hurricane Katrina. Now, as they face the enormous task of rebuilding, they are threatened with yet another crippling misfortune - this time at the hands of insurance companies, which are trying to deny coverage. That's why the State of Mississippi has filed suit to get the courts to clarify that insurance companies must cover the water damage that policyholders sustained from the hurricane.

For years these companies have sold policies that insure Gulf Coast residents against loss from the effects of hurricane winds. The people who bought these policies reasonably believed that they were covered for damage ranging from a blown-off roof to a four-foot surge of water in the house. But now that the homes and businesses of many policyholders have been destroyed or seriously damaged, these insurance companies are denying coverage on the ground that their policies excluded water damage.

It's true that many of these policies exclude specific types of water damage unrelated to hurricane winds, like the damage caused by tidal waves or windblown rain. But to extend such exclusions to the damage caused by a storm surge, which is the direct consequence of hurricane winds, is unconscionable and illegal, at least here in Mississippi.

No one, except perhaps insurance company executives, seriously disputes that without the hurricane, there would have been no widespread water damage. And there has never been a hurricane that did not cause water damage. Mississippi law provides that when one incident is a direct or contributing cause of loss, then the insurer of such loss is obligated to pay for the resulting damage. A contract between private parties is void and unenforceable when it abrogates state policies like this one. Only the legislature or the courts have the power to invalidate the law.

Moreover, Mississippi law has long held that insurance companies cannot write insurance contracts that purport to provide coverage for certain losses in one section and then exclude that coverage in another section. That is in effect what these companies do when they issue hurricane insurance and then claim that the policies' water damage exclusions extend to the storm surges that result from hurricane winds.

The letter is signed by Jim Hood, the AG of the State of Mississippi.

HT: Sed Contra