Schumer's propensity for publicity is the subject of a running joke among many commentators. He has been described as an "incorrigible publicity hound". Bob Dole once quipped that "the most dangerous place in Washington is between Charles Schumer and a television camera”, while Barack Obama joked that Schumer brought along the press to a banquet as his "loved ones". Schumer frequently schedules media appearances on Sundays both on legislative and non-legislative matters.…
Last Sunday, the good Senator did indeed hold a Sunday press conference, at which he warned the insurance industry “not to lobby to have Sandy reclassified as a hurricane in order to charge hard-hit homeowners higher deductibles.” (This is an issue on which we briefly touched here. ) So far, Sandy's been labeled a “post- tropical cyclone,” meaning the industry feels like it won’t be able to take advantage of these “hurricane deductibles.” Said Schumer, “Insurance companies shouldn’t try to alter reality to save money on the backs of homeowners."
Oh, Sen. Schumer, if only you knew the lengths to which these companies intend to do just that. In fact, you'd better step up your game. Because when it comes to the insurance industry’s response to Hurricane Sandy, you ain’t seen nothin’ yet. Wait until we get to the inevitable “wind vs. flood” squabble.
Homeowners policies contain provisions that exclude coverage for flood damage and while many Sandy homeowners carried separate flood insurance, which is underwritten by the federal government, probably most did not. Indeed, immediately following Katrina, the insurance industry was quick to deny responsibility for most of the damage its policyholders were suffering, saying it was “flood” damage. But here’s the problem. There is enormous ambiguity in these policies. While homeowners are often asked to sign “hurricane endorsements” with clearly labeled “hurricane deductibles,” at the same time, flood damage connected to hurricanes is excluded elsewhere in the policy.
Hurricane deductibles are usually for some percentage of the property value. This misleading language is often compounded by the fact that the flood exclusion is either never explained to policyholders, or that people may have even been told by their insurance agents that they did not need to purchase federal flood insurance because they their homes were not in flood zones.
Normally, policyholders have the initial burden of proving that damage to a property was caused by one of the perils covered in the policy. The burden then shifts to the insurer to prove that the cause of the damage was excluded under the policy as an affirmative defense. Reliance on flood damage exclusion clauses should not meet this burden. Where damage is caused by both a covered peril (wind) and an excluded peril (flood), the question will likely turn to which peril was the “dominant” or “efficient” cause of the damage. The existence of a flood exclusion clause in the insurance contract, which is contradicted by other sections of the same contract, should not release the insurers of liability. (See more here.)
And here’s another reason why it’s so critical to force the insurance industry to take proper responsibility for this “post-tropical cyclone.” The entire federal flood insurance program is in big financial trouble. Writes the New York Times today,
The federal government’s flood insurance program, which fell $18 billion into debt after Hurricane Katrina, is once again at risk of running out of money as the daunting reconstruction from Hurricane Sandy gets under way.
Early estimates suggest that Hurricane Sandy will rank as the nation’s second-worst storm for claims paid out by the National Flood Insurance Program. With 115,000 new claims submitted and thousands more being filed each day, the cost could reach $7 billion at a time when the program is allowed, by law, to add only an additional $3 billion to its onerous debt.
Congress, just this summer, overhauled the flawed program by allowing large increases in premiums paid by vacation home owners and those repeatedly hit by floods. But critics say taxpayer money should not be used to bail it out again — essentially subsidizing the rebuilding of homes in risky areas — without Congress’ mandating even more radical changes.
Here’s another mind-boggling tid bit. Explains the Times, [t]he program is still a moneymaker for the private insurance industry. Even though these companies bear none of the risk, they take, on average, $1 billion a year of the premiums the government collects, as compensation for help in selling and servicing the policies. Federal auditors argue the payments are excessive.”
Hoping to see Sen. Schumer out there next Sunday on this one!