Jim Hood's Article from N.Y. Times

Op-Ed Contributor

A Policy of Deceit

By JIM HOOD

Jackson, Miss.

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.

Insurance companies have tremendous bargaining power when they sign contracts with policyholders, but that doesn't entitle them to contract away their customers' existing legal rights. The Mississippi Supreme Court has previously voided similar contractual clauses, like those that don't adequately notify consumers of arbitration provisions, as well as clauses related to punitive damages and statutes of limitation.

Nor will honoring the contracts they've signed with policyholders send insurance companies into bankruptcy, as some companies have misleadingly claimed. Reputable credit and insurance industry analysts have found that the financial stability of these companies is not at risk. One insurance analyst estimated that covering damage from Hurricane Katrina's storm surge would cost insurers an additional $2 billion to $4 billion. To put that in context, consider that the industry's net income for 2004, when Florida suffered extensive damage from four hurricanes, was $38.7 billion.

I have no desire to bring financial ruin on any company. My obligation is to the people of Mississippi, and I must do what the law and my oath require of me: protect the citizens of Mississippi from being victimized by contracts that contain illegal provisions, even if doing so curtails insurers' profits.

The residents of the Mississippi Gulf Coast have suffered enough from this hurricane. Their losses should not be compounded by the refusal of insurance companies to honor the contracts for which their policyholders paid premiums.

Jim Hood is the Mississippi attorney general.