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Clowns to the left of me, jokers to the right...

There are decided benefits to being a registered independent voter. With no sense whatsoever of party loyalty, one is free to lambaste politicians who act up, regardless of their affiliation.

For example, Senator Trent Lott (R-MI). (Correction: R-MS. Dang typos and postal codes...)

Back during Hurricane Katrina, one of Senator Lott's three homes was destroyed. He turned to his insurer, State Farm, and filed a claim. State Farm, in return, pointed out that their policy specifically excluded flood damage, and he should talk with his flood insurance coverer -- in this case, the US government. (I understand Senator Lott has a passing familiarity with the institution in question.) Under that policy, he was covered up to $350,000 in losses.

Senator Lott didn't take that suggestion well, it appears, and swore vengeance on not only State Farm, but their entire industry, apparently under the theory that "we'll make you suffer by punishing your competitors, too.)

It seems that State Farm, even after avoiding the flood damage/wind damage dispute in many cases, had it's own water damage -- it took a bath in Katrina. And with Lott's heavy-handed demands and use of his clout in Washington, it ended up shelling out a lot of money that it was not contractually obliged to do so in order to avoid his wrath.

So, they decided to cut their losses, and minimize their future risk. State Farm -- along with several of its competitors -- have chosen to stop issuing policies in large areas that were mauled by Katrina. As is their right -- there is no law requiring them to do business there, and if they've found it too expensive to do so (thank you, Senator Lott), then they not only can decide to take their ball and go home, they have a legal obligation to their stockholders to do so.

So the private insurance market is pulling up stakes and evacuating the likely path of future hurricanes, cutting adrift the people who had been depending on that coverage. (I almost said "leaving them high and dry," but that wasn't quite the right metaphor.) So Senator Lott has his solution for them: an expansion of federal flood insurance to cover more of the damage hurricanes cost.

Well done, Senator Lott. You've turned your private vendetta against one company into a rallying cry for yet more federal control over something that had previously been a matter for private industry. You've replaced market-driven free enterprise with publicly-funded government bureaucrats.

You know, I defended Lott when he made his controversial remarks about Senator Strom Thurmond, under the "for god's sake, why not say something nice about the ancient guy? He's gonna croak soon anyway, so why not give him his political jollies" theory. The whole point of saying that "it might have been better if you'd been elected president back then" was to make the decrepit old fossil feel a little better before he finally kicked the bucket. It was not a ringing endorsement of Thurmond's platform of over half a century ago, merely a slightly premature "do not speak ill of the dead" moment. And I still think that Lott got a raw deal out of it.

But now I see that, for whatever reason, it's a good thing that he lost his leadership position. And, perhaps, even a good thing that his party has been relegated to the minority.

The damnedest shame of all of it is that Lott overwhelmingly won re-election just last November, and this move will most likely boost his popularity even more with his constituents, who see him as "sticking it" to the insurance companies they're already peeved at -- and not see the long-term costs of his jihad.


Comments (29)

Lott is an asset in leaders... (Below threshold)
Robert the original:

Lott is an asset in leadership, but a danger too.

As I've recounted before, Lott passed a law that required cruise ships docking in successive US ports to be US built.

In the Florida and Alaska runs it is easy to stop at a foreign port, in Hawaii it is impossible.

So his State gets to build two cruise ships for Hawaii at a cost three times market. Hawaii lives on tourism and there would be lots more of it without Lott.

Lott is from MS not MI.... (Below threshold)
KC:

Lott is from MS not MI.

If they think insurance is ... (Below threshold)
meep:

If they think insurance is too expensive when private companies were running it, just wait....it also doesn't help that this stupidity ("Insurance companies must operate at a loss! Or they're EEEEEEEEvil!") was started on the state level, too. Florida is going to have a mass exodus of property insurers, and have auto insurance get more expensive as a result too (because they passed a law requiring car insurers to provide homeowners insurance too... so there will be fewer competitors, which rarely translates into lower prices and most frequently into higher prices) and the Mississippi AG has made remarks about Statefarm et al being robber barons.

Insurance is regulated on a state level, premiums are set state-by-state, and if regulators are forcing you to operate at a loss in one state, one can simply withdraw from doing business there.

I live in Florida and the i... (Below threshold)
Michael:

I live in Florida and the insurance companies did the same thing
here after the 2004 hurricanes. I doubt Lott's actions had anything to do with the insurance companies actions...they were planning to
this anyway.

I don't know all the detail... (Below threshold)
Diane:

I don't know all the details, but I think Lott may be getting a more-than-deserved negative spin on the original article about this situation. I'm checking into it with the locals.

As a born & raised Mississippian (no longer a resident, however) I have many friends of different economic levels who were affected by Katrina. The insurance companies have been horrible--the "flood" damage received by homeowners was caused by the surge directly entering their homes. The surge was caused by the hurricane--right? Too bad, says the insurance companies---it was water damage, not wind damage, so thus a flood. This separation of hurricane damage--wind vs. water was NOT listed in their policies.

Hopefully Lott has not made insurance harder to obtain, etc. There are many things to be aggravated about with Lott, but I would trust him anyday over any insurance company.

Note on shipbuilding---right or wrong, most politicians "cleverly" work for economic advantages for their districts. It's also a savings to shipbuilders to be in MS--lower cost of living, so thus lower wages, etc. than employees would receive on east/west coast.

The upper guard of the Repu... (Below threshold)
jpm100:

The upper guard of the Republicans are a bunch of self-serving politicians.

Democrats relish is highlighting their corruption. But in fact, their self-serving has lead to RINOs, gang of 12 and Republicans that will side with Democrats against the President in Wartime. So its been a win-win for Democrats. Let's not forget entitlement spending, difficulty passing judges, & no fiscal responsibility.

And many Republicans haven't cared as long as it meant the Republican Nameplate had dominance. That gave them influence for moments like this. They gave up the big issues in return for a few tiny bobbles in their own little kingdoms.

This lead to the Republican defeat in '06. And now much of the same old guard (in and out of office) are still in charge. The public isn't going to sense any change when they hear all the same old name, not only in place, but returning to power. Republicans are going to get it handed to them again in '08.

As long as people keep buil... (Below threshold)
Robert the original:

As long as people keep building very expensive homes on the beach, it is going to cost someone a lot of money when they go down. I would just as soon this be the people who build there - in the form of higher insurance rates - rather than the taxpayer.

Same with NO. I was reading about the sad levies there twenty years ago. Instead of electing corrupt politicians and ceremonial levy boards they should get some real leaders in there to fix stuff like that to begin with.

Note to Diane, there is no shipbuilding in the US other than defense because the costs are just too high - even in MS. This is not "clever", it is naked corruption and rationalize it how you may.

I can assure you State Farm... (Below threshold)
Jim:

I can assure you State Farm and the other insurance companies handed out no more than they had too. Everyone assumes they took a bath in Katrina but the truth is most claims were denied because it was "flood" damage.

It's only now that several of the slab cases (which came first wind or water) have won claims in court that State Farm is having to pay out large sums of money and is offering to settle with more people.

Senator Lott is only taking care of his own, he just happens to be among the group that needed help this time. Any Senator from any other state would be doing the same thing if he was worth anything.

True, Mike but it happened ... (Below threshold)
VagaBond:

True, Mike but it happened way before that. After Andrew hit Homestead in 91, you couldn't buy a homeowner's policy from an insurance company because they ALL pulled out.

I don't blame Lott for goin... (Below threshold)
sammy small:

I don't blame Lott for going after insurance companies. Their standard practice is to triangulate everything to their favor if possible. After all, they are at risk for their money.

Companies like USAA have a policy owner participation like a "vesting" in premiums the company has accumulated. Each year, policy owners get a "share" of the excess vested funding returned to them in the form of a rebate. Favorable years yield good rebates (sometimes $200-$300), while years with high payouts yield little or no rebate. It seems to work well and keeps everyone sharing the good and bad years as a team.

From the article linked by ... (Below threshold)
Lee:

From the article linked by Jay:

Mr. Lott has proven as good as his word. Since Katrina, he's slipped legislation into a Homeland Security bill requiring the inspector general of that agency to investigate insurers. He's put forward a bill requiring insurers to "state clearly" on their policies' "front page" what they don't cover. He's dropped another bill that would compel insurers to release more information about vehicles damaged by Katrina. Word is he's even been looking into the industry's tax rates.

Oh, the horrors inflicted by Lott on those poor, poor insurance companies! They have to "state clearly" on their policies "front page" what they don't cover??? And on top of that they have to release information about vehicles damaged by Katrina???

Boy, Jay really nailed it when he called Lott's effort a "jihad".

Robert: "As I've recounted before, Lott passed a law that required cruise ships docking in successive US ports to be US built. In the Florida and Alaska runs it is easy to stop at a foreign port, in Hawaii it is impossible."

I thought the cruise companies were using Fanning Island and other outlying non-US islands near Hawaii to get around this...?

Let's not forget, Lott was ... (Below threshold)
kempermanx:

Let's not forget, Lott was a democrat BEFORE he changed parties to stay in office.

Lot is a self serving professional politician, ready to be bought by the highest bidder, er, contributor.
Look at his pork! He has never thought about anyone but himself and his state. That's why he was such a awful majority leader.

This is such an embarrassment that Bush or the national party should disown him.

Disgraceful!

Kemp

Too bad the Wall Street Jou... (Below threshold)

Too bad the Wall Street Journal didn't do more than a attack on Senator Trent Lott and Congressmean Gene Taylor. Perhaps then the American people would know that it isn't just an insurance problem in Mississippi, but one that affects property, health, and automobile insurance all across the nation.

The issue is more than a homeowner, who happens to be a Senator, outrage at his claim being denied. I've been posting about this for a year. Do a search on the 1999 Oklahoima City tornado and State Farm. There is a practice of insurance companies going back to the 1990's of using any means possible to deny rightful claims.

Trent Lott maybe on a warpath but that warpath may just help policy holders from Louisiana to Vermont, from New Jersey to California: in other words from coast to coast.

The capricious use of one's... (Below threshold)

The capricious use of one's power to wreak revenge in this manner is despicable and wrong. This does nothing but cost policyholders more and encourage more insurers to withdraw from difficult markets. When competition is eliminated, premiums go up or, at worst, no private insurer participates and the government is left to go into the insurance business -- as with flood insurance now.

Lott is one of the reasons ... (Below threshold)
AndyJ:

Lott is one of the reasons that the Democrats control the Senate. He is one good reason for Leiberman to remain in the Democrat caucus and give them control. Lott is not good for the Republican Party. He is an Olde-Style Politician of the Foghorn Leghorn variety. He needs to be sat down. Until he and a few other Olde-Style Republicans quit acting like Democrats there is NO REASON for anyone to vote Republican... It's gonna be another 40 years in the wilderness... The Democrats offer nothing better but they do not promise anything else nor are they expected to be different. Republicans were supposed to be different.

Jay now:"With no s... (Below threshold)
jp2:

Jay now:

"With no sense whatsoever of party loyalty..."

Jay earlier:

"And sooner or later, I WILL bring you around to not only tolerate, but embrace much of the Neocon agenda."

To be fair, it does leave with two party choices - the Republicans and CFL...

jp2:1) The bit abo... (Below threshold)

jp2:

1) The bit about the Neocon agenda was a mild ribbing of a friend.

2) Learn the difference between a "party" and an "agenda."

J.

Jay, jp2 isn't bright enoug... (Below threshold)
Jo:

Jay, jp2 isn't bright enough to recognize the difference.

Trent Lott a former democrat? Well, that explains it.

State Farm, Allstate and ot... (Below threshold)
CrackrJak:

State Farm, Allstate and others deliberately changed many of their own investigators assesments from "Wind damage" to "Flood damage". Several of their investigators were concerned about this, and when they tried to inform about it, they were fired.

Do a little more research on this, because thousands of homeowners who's home were very obviously destroyed by the high winds are now left with nothing. The insurance companies infantile reaction to "take their ball and go home" is not only against most of their stockholders wishes, but very short sighted.

Insurance companies make bets, they bet your home, car, life, or other property won't be stolen or destroyed. They lost the bet and are now welching on it. Lott is only offering gov't assistance because of the assine corporate behavior of these insurance companies.

"Lott is only offering g... (Below threshold)
Lee:

"Lott is only offering gov't assistance because of the assine corporate behavior of these insurance companies."

Yes, but because of Lott's "jihad" these crooks will no longer sell insurance to people that they will then shaft when they have an actual loss....

Uhm, wait a minute, why is that a bad thing?

And Lott is proposing that the Feds step in where the insurance crooks have failed and bailed? And as a result people will have insurance -- and not just be paying premiums to crooks?

I also fail to see where Lott is a bad guy in this.

The answer to every problem... (Below threshold)

The answer to every problem is not a Congressional investigation.

There are already laws -- federal and state -- on fair insurance claim practices. The typically provide for treble damages and attorneys fees for bad faith claim settlement practices. I'd be stunned if State Farm were not already the defendant in a class action lawsuit.

This is a job for John Edwards' law firm!!

#To cut to the cha... (Below threshold)
cubanbob:

#

To cut to the chase Lott and his brother in law are full of crap. They are cheap bastards who under insured their property. I live in South Florida and my house was the bullseye for Katrina and Wilma. And I live on the water. I suffered no damage other than shrubbery because I have a home that is built and reinforced to the top hurricane code in the US, the Miami-Dade County building code. Perhaps instead of blaming the insurance company they ought to blame their state for not having adequate building codes. As for flooding, those two deserve to get screwed for being cheap bastards. They should have bought excess flood insurance like I did. Instead they want the insurance companies to cover specifically excluded perils instead getting and paying for additional coverage. The real insurance scandal is the companies who refuse to honor real covered claims forcing the policyholders to settle for crappy settlements or the expense of prolonged litigation.

I'm sure facts won't get in... (Below threshold)
Bo:

I'm sure facts won't get in the way of opinions on this topic, but there are a few omissions in the post that I truly believe to be a case of ignorance, not bias.

First, State Farm made a decision prior to Katrina to not write any new homeowners' policies in Mississippi, citing it as a "high risk market." Our insurance commissioner did his usual job of doing absolutely nothing. You cannot pin State Farm's decision on Katrina, Lott, or anyone else other than State Farm.

Second, State Farm's net worth is at a record growth rate, currently over $57 billion. Gnaw on that awhile. Total damage from Katrina, which one would presume would be spread over numerous insurance companies, is estimated to be at $38 billion. In a recent Reuters report, estimates of State Farm losses from the pending class-action suit in Mississippi against State Farm might total $500 million.

Third, much of the damage in Mississippi was due to wind, not water. Water damage was pretty much restricted to the 1/4 mile-or-so swath between the coastline and a railroad track that runs parallel to Hwy. 90. There was wind damage to residences and businesses throughout the state. I'm about 160 miles from the coast, and there was heavy damage in my area, ranging from residential and businesses that had serious roof damage, to complete losses of barns and outbuildings. Seems our "state building code" just doesn't require folks to build hurricane-proof structures 150 miles inland.

Fourth, as stated previously, this wasn't a case of State Farm not being able to honor claims and remain financially viable, it was a case of them making a business decision to deny every claim possible, and to pay out as little as possible in every one that wasn't deniable. There is a certain "expectation of coverage" that's damned hard to prove legally, but it exists nonetheless, and an insurance company looking for every available loophole to avoid a reasonable payout after collecting premiums year after year from a client is inexcusable.

Fifth, homowners in "flood prone areas" are already exempted from being able to file claims on water damage, and they're required to carry federal flood insurance on their property. State Farm was using evidence of minor flooding in areas not deemed "flood zones" (and therefore not eligible for federal flood insurance) as an "out" to avoid paying for total losses. The courts seem to be leaning towards the truth that though there was some flooding, there was not enough flooding to have caused the complete destruction of the structure. There's also the "gray area" of whether water damage caused by wind-driven storm surge is truly "flooding" as expressly stated in the policies. Nonetheless, plainly written statements of coverage and exclusions to coverage is a much-needed thing, and the industry has flatly refused to take this simple step on its own.

We in Mississippi have been nearly completely ignored in the whole Katrina aftermath. But we don't care. We have lives to put back together, and we're not the sort of folk to sit down and wait for someone else to do it for us. After paying years and years of premiums to State Farm, residents here found that their first ever claim was an uphill fight. Insurance companies, as a whole, are grossly under-regulated, able to raise premiums, change coverage, and add exclusions to coverage at any whim, just to inflate their own "bottom line." While their product gets more expensive (and less useful) it remains necessary because of forces both governmental and financial. State Farm made a decision that stiffing their customers was better for business than paying out a significant portion of their assets after the most expensive natural disaster in American History. For deeming their own interests so much more important than the livelihood and well-being of those who they claim to serve, they deserve every ounce of negative fallout, and should be made an example of just as much as Enron, WorldCom, and Martha Stewart.

Jay, I'm truly disappointed. You usually do a lot better job of digging for the underlying facts before you post.

Who is John Galt?N... (Below threshold)
Mnemosyne:

Who is John Galt?

Need I say more?

A few points to clarify in ... (Below threshold)
DMcP:

A few points to clarify in State Farm's defense.

First, State Farm is a mutual company. That means that there are no stock holders and nobody gets rich when does well, and nobody goes broke when it has to cough up huge sums (e.g. after Hurricane Andrew, State Farm Property and Casualty nearly went out of business. It was only able to stay solvent by taking a huge loan from State Farm Auto). The entire company is literally owned by its policy holders. If it goes belly up, nobody is going to lose the State Farm stock they have in their portfolio, it will be the policy holders who pay, because State Farm would no longer be able to honor the policy contracts and pay their claims.

The second point is that the CEO and Chairman of the board is a guy named Ed Rust, Jr. Up until about 10 years ago, Rust, the CEO of America's largest auto insurer, was making $300,000 a year, while his counterparts at other insurers had multimillion dollar salaries, along with huge annual bonuses and stock options etc. The board, over Rust's disapproval, raised his salary to $600,000, where it remains today. That's it. $600,000. No bonuses, no stock options.

My point is that State Farm looks out for the interests of its policy holders by paying only what the insurance contract says they owe. Nothing more, nothing less. Of course it's sad when everything somebody owns gets washed away, but that doesn't mean that the other State Farm policy holders should paid for that out of the goodness of their hearts.

DMcP...You bring u... (Below threshold)
Bo:

DMcP...

You bring up good point, albeit backwards.

The reason those policyholders pay their premiums every month is so that if/when something happens, they're covered. The very idea of insurance is that the collective pool of monies collected will take care of those who need to make use of those funds. It's not a matter of the "goodness of their hearts," it's just the nature of the organization. Some will pay more than they use, others will use more than they pay.

Judging from their current assets, State Farm had ample funds to pay out for damages in Katrina without even needing to raise premiums elsewhere. You seem to be saying that paying in a fair manner and not exercising loopholes concealed in "legalese" from the average policyholder is their way of avoiding burdening the policyholders who have no need. I say the same behaviour is their way of adding a larger burden to their policyholders who do have a need.

I sincerely hope that the message State Farm is sending to Mississippians will inspire us to send them a similar message: If you don't want to be doing business here, we will be happy to oblige.

Bo,No doubt what y... (Below threshold)
Robert the original:

Bo,

No doubt what you say is true.

But isn't it also true that many people who live in flood-prone hurricane areas did not buy flood insurance? Those people are now looking for a handout, or political action to force payment.

Flood damage is always worse than wind damage. To hear some people tell it, there was no flood damage at all!

Both things are happening.

Bo, I largely agree with yo... (Below threshold)
DMcP:

Bo, I largely agree with you. What you are referring to is the law of large numbers. Essentially, insurance companies are looking to spread out the risk to as large a population (and geographic location, when it comes to home owners insurance) as possible. Insurance isn't gambling, as many people think it is. When one gambles, they create the risk by putting money on the line in the hopes that an outcome favorable to them will occur. They do have the option of not making the bet, which eliminates the risk completely. In insurance, the risk already exists, it's simply a matter of weighing that risk versus the cost of insuring against it.

The insurance policy defines the nature of the risk being accepted by the insurer. The policies themselves tend to be fairly complicated. Not because the insurer is playing a shell game, but because in order to accept a risk (and therefore price for it) you must completely understand the nature of that risk. If an insurer is going to be forced to pay to replace every house in a flood plain after a flood wipes everybody out just because they offered to put a policy in place to indemnify somebody for wind damage due to a tornado, that company won't be in business for long. Flood damage isn't the risk the accepted or priced for. They have an obligation to the owners of the company (the policy holders) to pay only to indemnify losses they accepted. I haven't seen the actual policies written with the Katrina victims, but I do know that those types of exclusions (flood damage as a non-covered loss) are glaringly obvious and repeatedly pointed out when the policy is sold.

It's not a matter of ability to pay. I can afford to buy a new hat for every poor hatless kid in my neighborhood. But I do not have an obligation to do so, and it would be a horrible abuse of trust if I were to use the money my buddy asked me to hold on to for him to do it. The same is true with a mutual insurance company, but on a much larger scale. It's a concrete matter of contract law. What risk did they agree to accept and does the damage fall into that accepted risk category? I really don't know what the policy states, but based on my experiences with State Farm, I'm willing to give them the benefit of the doubt, at least for now.

DMcP and Robert the origina... (Below threshold)
Bo:

DMcP and Robert the original...

One of the issues is that "flood prone areas" aren't flood-insurable through private insurance. You must go through the federal flood insurance program for that coverage. Areas not designated as such are not eligible for federal flood coverage.

The stories I've heard about the most atrocious "settlement offers" (like $30k on a $200k home) involve areas that got 1-2 feet of water, but a slab was the only thing remaining...areas not coverable under the federal flood insurance program. The question is whether the water caused the structure to collapse or whether the wind caused it and the surge simply swept the debris away. In absence of conclusive proof that had there been no water there wouldn't have been such complete damage, one would assume the homeowner who's been paying premiums for say, 25 years, would have the benefit of the doubt.

One would have been wrong.

I'm glad your experiences have been good with State Farm, DMcP, but I wonder if you've ever had a significant claim against your policy. My homeowners' policy through them was originally for the "full replacement plan" but through years of "revisions" was hardly worth the paper it was printed on had I lost everything in a storm, fire, or other catastrophe.

And don't get me started on auto insurance...




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