A federal judge’s ruling in Mississippi this week that an insurance company did not have to pay for damage caused by flooding in Hurricane Katrina could affect similar lawsuits in Alabama.
The case, filed by Paul and Julie Leonard of Pascagoula, Miss., was viewed as the first test of whether insurers must pay for damages caused by both wind and water. The couple claimed Nationwide Insurance owed them about $150,000 for damage by wind-driven “storm surge.” The couple also said the insurer misled them to believe that any hurricane damage – from wind or water – would be covered.
Federal Judge L.T. Senter sided with the company, saying storm surge was part of a water-damage exclusion from coverage in their homeowners’ policy. He said the company was responsible only for damage caused by wind.
Ragan Ingram, assistant commissioner in the Alabama Department of Insurance, said the judge’s ruling in the matter upheld what has been the industry standard for years.
“That has been the understood practice, that wind-driven water was considered flood damage, not wind damage,” he said.
The wind-or-water debate heated up in the wake of Hurricane Katrina, which hit the Gulf Coast a year ago. Thousands of lawsuits have been filed in Mississippi challenging the industry standard.
In Alabama, about 125,000 insurance claims have been filed as a result of damage caused by Katrina, Ingram said. ISO Inc., a Jersey City, N.J.-based risk analysis firm, estimates about 119,000 Katrina-related claims with a value of $1.3 billion were filed in Alabama.
Ingram said he has heard of only a handful of lawsuits in the state resulting from unsettled Katrina claims.
“I think folks were waiting to see what happened (with the Mississippi cases) before filing complaints,” he said.
Ingram was unable to say how many claims remain unresolved, but said the department believes it is a small number based on consumer calls and response to the department’s mediation program. The program, which was launched at the end of 2005, has had only 86 requests from Alabama homeowners with Hurricane Katrina claims, he said. More than one-third of those were settled before mediation and 10 have been settled through mediation. The remainder are awaiting some form of resolution.
Jay Aughtman, a partner with Montgomery law firm Beasley, Allen, Crow, Methvin, Portis & Miles, said the ruling in the Mississippi case won’t necessarily discourage Alabama homeowners from filing lawsuits against insurers. It may even encourage some filings because it clearly states that insurance companies must cover wind damage, he said.
“Homeowners (with unresolved claims) will plow ahead,” said Aughtman, who specializes in insurance litigation.