that special relationship of trust and a deep sense of betrayal

Insurance is a very special product. You pay and you pay and you pay premium dollars, often for your entire life. In return you only get a promise. A promise that if you ultimately have a covered claim, and you’re paid up, they must pay that claim. The problem is that they must have that money, for years and years, kept safely and invested legally in order to be able to pay your claim if they so choose. It’s that special relationship of trust that imposes on an insurance company an obligation of truthful financial reporting in their financial statements.

If you, too, consider insurance a very special product, as you read AIG CEO formerly headed up Allstate insurance company you will see how the industry’s conduct following Hurricane Katrina caused that special relationship of trust to become a deep sense of betrayal.

To many on the Gulf Coast, watching AIG chief executive officer Ed Liddy talk about the sanctity of contracts in defending the award of $220 million in bonuses to employees at the embattled insurer was an ironic moment.

If only Liddy held that same view of contractual obligations to policyholders after Hurricane Katrina when he was at the helm of Allstate, Louisiana’s second largest insurer.

“How about that?” quipped Bob Hunter, a New Orleans native who is director of insurance at the Consumer Federation of America and the author of a 2007 study documenting the decline of claims payout ratios at Allstate during Liddy’s tenure. “He’s always disregarded contracts to maximize profits.”

Liddy was appointed by the federal government in September to run AIG when the ailing insurer got its first installment of taxpayer bailout money, which now totals $170 billion.

Before caving to pressure on Wednesday and saying that he would ask those who received more than $100,000 in bonuses to return half of the money, Liddy argued that the money needed to stay where it was because contracts are sacrosanct.

That Liddy was forced to cave in to pressure is eye for an eye– justice to policyholders pressured to settle for less coverage than they purchased.  Many had to fight for even that; and, sadly, some still are. Continue reading “that special relationship of trust and a deep sense of betrayal”

ABA throws up recommendations for flood insurance reform

Rebecca Mowbray’s usual fine writing wasn’t enough to keep me from seeing Pepto Bismol pinks as I read American Bar Association recommends flood insurance reform after picking up the link posted with this suggestion on a finance message board:

This Tulane Law professor needs to teach a course in securities fraud, or better yet take one, maybe at the Reinsurance University of Bermuda!

However,  this “Tulane Law professor” turns out to be the former Dean of the Law School, not just a professor – a fact that does nothing to improve the recommendations but better explains the how they came about.

Edward Sherman served as Dean of Tulane Law School from July 1996 through June 2001…Professor Sherman is an expert on civil procedure, complex litigation, and dispute resolution and is co-author of widely-used casebooks and treatises on those subjects… He has been…active as an arbitrator and mediator.

Before I say more, take a look at Mowbray’s story (emphasis added).

The American Bar Association recommends that insurers offer customers the option of buying insurance policies that cover flooding from storm surge to help cut down on legal disputes after events like Hurricane Katrina.

The suggestion is part of a set of recommendations issued by the ABA’s tort, trial and insurance practice section after a year and a half of study.

“The insurance industry needs to get creative in offering all kinds of policies, rather than just saying, ‘No, we don’t cover it,'” said Ed Sherman, a professor at Tulane Law School who served on the task force and helped draft the proposals.

The majority of the 25-person task force represented an insurance company perspective.

As such, the report includes a number of proposals that companies have advocated, such as seeking a greater federal role in insurance regulation and giving insurers incentives to build catastrophe reserves over multiple years. Continue reading “ABA throws up recommendations for flood insurance reform”

The Jawbone of an Ass: Unbridled Arrogance and Regulatory Capture at the NAIC.

With the jawbone of an ass, heaps upon heaps, with the jaw of an ass have I slain a thousand men.

Let’s set this up with yesterday’s WaPo story on the extraordinary recent events at the NAIC:

Insurance regulators from across the country were scrambling yesterday to address a growing threat to insurance companies and the consumers who depend on them.

As the industry’s financial condition deteriorates, many companies have asked their home-state regulators for permission to change the way they measure and report their financial strength. Some regulators have expressed a willingness to grant it.

The requests have been pouring in since the National Association of Insurance Commissioners last week rejected the insurance lobby’s plea for blanket relief.

The public faces the chaotic prospect that insurance companies could be allowed to operate by different rules, and that rules meant to protect their financial stability could diverge sharply from state to state.

The situation is shaping up as a major challenge to the industry’s system of regulation, which is controlled at the state level.

The Consumer Federation of America and the Center for Economic Justice, an advocacy group for poor and minority consumers, yesterday told regulators that granting relief on a case-by-case basis could amount to regulators “anointing winners and losers” and could reward companies that managed their finances poorly at the expense of more successful competitors. Continue reading “The Jawbone of an Ass: Unbridled Arrogance and Regulatory Capture at the NAIC.”

Class versus Crass – Rigsbys legal team responds to State Farm's 1st set of dispositive motions

It seemed this personal perspective on qui tam that I wrote for Katrina’s 3rd was a fitting introduction for a post letting the rest of we the people know that the Rigsbys legal team honored us all with their response to the first set of dispositive motions filed by State Farm.

qui tam translates to [he] who sues for the King and himself.  In our country…We the people are King; and, our homes – humble, grand, or Katrina cottage – our castles. The proper title of the Katrina qui tam case would be Nowdy, Sop, Belle… ex rel Rigsby. Of course,  it would have to include another 300 million plus names and that’s just not possible.

Consequently, we the people are presented by the single name USA.

Not only did the Rigsbys’ counsel honor all of us, they honored Judge Senter as well. They filed their Response with State Farm still holding all of the documents they requested through normal channels of discovery – holding on even after the Rigsbys’ counsel filed an emergency motion with a scaled down the set of documents requested!

Class versus Crass

If you recall, there were three sets of dispositive motions detailed in this earlier post.  This Response is to the first set that seeks to dismiss the qui tam claim on the basis of lack of jurisdiction. One of the three statutory requirements related to jurisdiction is that the Relators must be an original source of the information provided the government.

Can you imagine having to make that case with the information still in State Farm’s possession? Continue reading “Class versus Crass – Rigsbys legal team responds to State Farm's 1st set of dispositive motions”

The Sun Herald Weighs in (Again) on Multi-Peril Insurance

Today we are greeted with an editorial in today’s Sun Herald regarding the Senate Banking Committee obstinance in fixing NFIP and solving the public policy problems that arise from the recurring wind-water controversies that result from the structure of the Flood program. Without fruther commentary on my part here is today’s Op-Ed.

Robert Hunter may be right. He is, after all, a former insurance commissioner for the state of Texas and a former director of the National Flood Insurance Program. He is now the director of the Consumer Federation of America and an advocate for change in the insurance industry. Continue reading “The Sun Herald Weighs in (Again) on Multi-Peril Insurance”

US Represenative Gene Taylor on Concurrent Causation

Following is yet another clip from Gene Taylor’s town hall meeting which touches on the heart of why so many people on the Mississippi Gulf Coast feel as though they have been swindled by their insurer: The Anti Concurrent Clause. Pictured in this New York Times story from 2006 that explains the concept is Marilyn Haverty, a lady I’ve known since I was a child growing up in Waveland with her children back in the 70’s and 80’s. Miss Marilyn and people like her are the reason this blog exists.

There’s no question that the anti-concurrent clause is bad for policyholders,’’ said Adam F. Scales, an associate professor who teaches insurance law at the Washington and Lee University School of Law, in Lexington, Va. “It’s not fair because it defeats policyholders’ reasonable expectations.’

Robert Hunter, former Texas Insurance Commissioner and Director with the Consumer Federation of America contends consumers do not understand such clauses buried in the fine print of their policies. George Dale seemed to agree in an interview he gave the Sun Herald that ran back in March 2006, when he claimed ignorance that insurers would use the clause to deny coverage: (The Sun Herald link is long gone but thanks to Anita over at the Did we survive Katrina or Not? blog we have this quote from the story.)

Q: So, you might not have realized how this was going to be interpreted when it was approved?

A: Oh, I’m admitting that with just the volume of the number of type policies – and there are hundreds of them in the course of a year that comes through my rating division – there may be other things that are in policies that would have gotten approved by my department by accident.That’s just the volume of the business that they do. Let’s hope it’s a minimal number of things that were approved.

I would submit that if this nation’s *longest serving insurance commissioner and his staff of lawyers had little clue to the meaning of this language then consumers had no chance of understanding the language. In fact most down here feel such language is a scam as the reason they bought the policy in the first place was to cover the one event insurers now claim it didn’t cover, a Hurricane.

[youtube=http://www.youtube.com/watch?v=fyhHP6Emgfk]

* – Mr. Dale was soundly beat in the party primary in August 2007 thus ending his term of service to the insurance industry.

sop