Aiken V USAA Casualty Insurance Company Day 3: The Experts

In our first post on the trial, testimony revealed Rimkus Engineering supervisor James Jordan altered the onsite engineer’s report on the Aiken site favorably towards Rimkus client USAA without consulting the onsite engineer, Roverta Chapa in direct violation of Rimkus procedure. The following Sun Herald story recounts the testiomony of two plaintiff experts, a metorologist and structural engineer who both introduced evidence supporting the conclusions of Rimkus onsite engineer Roverta Chapa who also found strong evidence of wind damage to the property:

Experts assert pre-surge tornado damage

Testimony in trial against insurer USAA

By PAM FIRMINmailto:[email protected]

GULFPORT –Testifying as expert witnesses, a meteorologist and a forensic engineer Wednesday afternoon described why tornadic force rather than storm surge was most likely responsible for the Katrina destruction of David and Marilyn Aiken’s home in Henderson Point.

A lawsuit filed by the Aikens seeks damages and full payment of their $680,000 insurance policy with USAA Casualty Insurance Co., which paid them $178,000 in structural and contents damage. The suit claims USAA and Rimkus Consulting Group Inc., which was employed by USAA, conspired to to defraud them. Earlier testimony revolved around whether changes to a property report by structural engineer James W. Jordan were made to downplay wind damage so USAA would owe less money.

On Wednesday, Day 3 of the trial projected to last several weeks, presiding U.S. District Judge L.T. Senter Jr. frequently tried to move proceedings along, one time telling attorneys who haggled over details of intricate meteorological documents that it was “not necessary to go over every bit of the document” and later that “everybody’s tired of hearing his jabbering back and forth.”

Documents were provided by meteorologist Charles Barrere of Norman, Oka., formerly of the New Orleans area, who said they showed a tornado being tracked by the National Weather Service in New Orleans around 3 a.m. Aug. 29 most likely passed directly over the Aikens’ house hours before the waters rose. The eight jurors were able to look at these on monitors in front of their seats.

Dr. Charles Ivy, a forensic engineer from Florida, said it was significant that 90 percent of the nails on surviving beams at the Aiken property were bent in a direction from north to south and that four sturdy frames still standing were “whipped toward the west, leaning toward the direction the water came from. If water caused the destruction, they would have been leaning toward the east.”

Court begins today with cross examination of Ivy by USAA attorney Greg Copeland and Rimkus attorney David Ward.

Florida Insurance Commissioner Suspends Allstate Insurance Co.

Here is the text of the press release just issued by the Florida Office of Insurance Regulation.

Wednesday, January 16, 2008

TALLAHASSEE, Fla. – Florida Insurance Commissioner Kevin McCarty today announced that he is suspending the certificate of authority of Allstate Companies to write new insurance in Florida until they fully comply with the subpoenas served Oct. 16 by the Office of Insurance Regulation (Office).

Today’s decision by the commissioner follows Tuesday’s action when he abruptly halted the scheduled two-day hearing into the Allstate Companies’ reinsurance program, their relationships with risk modeling companies, insurance rating organizations and insurance trade associations.
“In view of Allstate’s ongoing, blatant disregard of our subpoenas, I have little choice but to take an action that will send a clear message about how seriously I am taking this issue,” said Commissioner McCarty. “Suspending their certificate of authority to write new business in our state should make my point.

“If Allstate is willing to pay $25,000 per day in fines to a Missouri court for its ongoing failure to provide similar documents, it’s obvious to me that it will take more than a monetary sanction to get them to comply with our subpoenas.”

Allstate was to have provided all appropriate company documents related to the above topics at or before Tuesday’s hearing, but failed to do so. Instead, the Office received 51 pages of objections to the subpoenas.

The suspension applies to Allstate Insurance Co., Allstate Indemnity Co. and Allstate Property and Casualty Co., and it only suspends the companies from writing new business in Florida.

Existing policyholders will not be affected. Allstate must continue to service them and the companies must make all required statutory filings including, but not limited to, audited annual financial statements, quarterly financial statements and rate filings.

“The duration of the suspension is up to them,” added McCarty. “It will be lifted when I am satisfied that we have received each and every document we need to properly investigate the important issues before us.

“It continues to trouble me that Allstate has not complied with our subpoenas and is not willing to explain to us their relationships with rating agencies, modeling companies and trade groups and how these relationships might have influenced the huge rate increases they have requested. This clearly cannot be in the best interests of Florida consumers.”

This is the first time the Office has suspended a company for failure to “freely” provide documents as required by Florida law.

A copy of the subpoena is available to review.

Allstate Floridian Indemnity and Allstate Floridian Insurance Company have requested rate increases of 28.3 percent and 41.9 percent respectively. Encompass Floridian Indemnity requested a 38.4 percent increase, and Encompass Floridian Insurance Company requested a 39.7 percent increase.

About the Florida Office of Insurance RegulationThe Florida Office of Insurance Regulation (Office) has primary responsibility for regulation, compliance and enforcement of statutes related to the business of insurance and the monitoring of industry markets. Business units within the Office are organized based on regulatory expertise and include the areas of life and health, property and casualty, specialty lines and other regulated insurance entities. It is within the Office that the mission of public protection is implemented through regulatory oversight of insurance company solvency, policy forms and rates, market conduct performance and new company entrants to the Florida market.

Sunday Bonus Post: Excellent Scruggs Coverage

We have been debating internally whether to cover certain aspects of the ongoing Dickie Scruggs saga as it relates to the insurance litigation here on the coast. To this point we haven’t necessarily had the opportunity, as Mr. Scruggs withdrawal from the old Scruggs Katrina Group occurred before our effort here commenced.

Keeping up with those events in detail is imperative however, due to the huge ramifications for current litigants, especially those using the re-formed law venture once fronted by Mr. Scruggs, the Katrina Litigation Group.

Events in the ongoing federal investigation are now moving forward quickly with the confirmation that Mr. Joey Langston has plead guilty and agreed to cooperate with federal prosecutors. Those keeping a closer watch already knew this bit of information well in advance due to the hard work and dedication of Lotus and her excellent group of knowledgeable Mississippi based commenters at the Folo blog.

For those interested in Scruggs mania and ongoing development in what could ultimately develop into one of the biggest cases of judicial and political corruption seen in this Nation’s history (I sincerely do not believe I am overstating that). I highly recommend pulling up a chair at Lotus’ cyber table and pouring yourself a cup of joe. Warning: The posts and commentary there is highly addictive.

sop

Saturday Two for the Price of One: Consumer Federation Report Blasts Insurance Industry Practices

The Consumer Federation of America released it’s 2007 study of industry profits along with it’s analysis of the reasons behind the numbers. Those of us on the Mississippi Coast can readily identify with the conclusions of the study, conducted by former Texas Insurance Commissioner Robert Hunter. This document is well worth reading and I highly recommend it for those wondering why the 2004 tort reform promise of cheaper insurance after passage has largely never materialized.

“State and national consumer organizations joined the Consumer Federation of America (CFA) today to release a new study concluding that the property/casualty insurance industry continued in 2007 to systematically overcharge consumers and reduce the value of home and automobile insurance policies, leading to profits, reserves, and surplus that are at or near record levels. The study estimates that insurer overcharges over the last four years amount to an average of $870 per household.

The report provides extensive data demonstrating that property/casualty insurance companies are paying out lower claims in relationship to the premiums they charge consumers than at any time in decades. The pure loss ratio, the actual amount of each premium dollar insurers pay back to policyholders in benefits, was only 54.6 cents in 2007. Over the past 20 years, the amount paid back as benefits has dramatically declined from over 70 cents per premium dollar, indicating a huge loss in the value of insurance to consumers.

“Consumers ultimately pay the price for the unjustified profits, padded reserves, and excessive capitalization that exist right now in the insurance industry,” said J. Robert Hunter, the Director of Insurance for the Consumer Federation of America (CFA) and author of the study. Hunter is an actuary, former state insurance commissioner, and former federal insurance administrator.

“The insurance industry reaped record profits in 2004 and 2005, despite significant hurricane activity,” said Hunter. “Profits in 2006 rose to unprecedented heights and 2007 may set a fourth consecutive profit record,” he said. “Unfortunately, a major reason why insurers have reported record-high profits and low losses in recent years is that they have been methodically overcharging consumers, cutting back on coverage, underpaying claims, and getting taxpayers topick up some of the tab for risks the insurers should cover,” said Hunter.

In the last several years, insurers sharply increased premiums for homeowners and commercial insurance and reduced or eliminated coverage for tens of thousands of Americans in coastal areas. Insurers have succeeded in convincing Congress to continue taxpayer subsidies for terrorism losses and are seeking additional subsidies for catastrophe insurance”

Insurance Commissioner to Open Office in Gulfport

I found this Sun Herald article interesting and refreshing. Mr. Chaney is opening an office in Gulfport which is a great move. I would urge the windpool to locate closer to it’s customers as well.

New commish aims at wind-pool rates
Chaney will open Coast office
By ANITA LEE[email protected]

Commercial and residential policyholders in South Mississippi could see a decrease this year in state wind-pool rates, plus policyholders will for the first time have a state insurance office on the Coast.

Mississippi Insurance Commissioner Mike Chaney said between meetings Friday he’s busy but tired after two weeks in office.

“It’s a lot of work,” Chaney said. “I think the people in the department are dedicated to the people that pay the policy premiums. It’s been a learning curve for me… I’m going to do my best.”

He said the job has already proven to him “how staggering a responsibility I’ve got to the people of Mississippi.”

Chaney said Friday he is working with state legislators, who convened their 2008 session Tuesday, and state wind-pool officials to lower wind-pool rates that increased 90 percent for homeowners and 162 percent for businesses after Hurricane Katrina. Chaney said it is too early to discuss details, but he has met with the Coast legislative delegation and is talking to other lawmakers about insurance needs in South Mississippi.

Chaney said his top priority is to stabilize the property and casualty market so insurance is available and affordable. Working to improve the wind pool, insurer of last resort for South Mississippi, also will help stabilize the insurance market statewide, he said.

He said lawmakers from other parts of the state are getting the message that South Mississippi needs stability in its insurance market for economic recovery from Katrina’s devastation.

The Republican commissioner defeated Democratic challenger Gary Anderson in the November election, after Anderson ousted longtime Commissioner George Dale in the party primary.

Chaney also plans to open a Coast insurance office, tentatively Friday. The office will be at 1701 24th Avenue, across from the Gulfport courthouse. Chaney said he is opening the office full time, primarily as a service to consumers who have questions or complaints about insurance.

Chaney said he also will lend support to a state policyholders’ bill of rights, with some revision, and is encouraging U.S. Senate candidates to support a multiple-peril insurance bill co-sponsored by U.S. Rep. Gene Taylor. The bill would add wind coverage to the federal flood insurance program, but would require rates be set at levels appropriate for the risks insured.

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

The Aftermath of Katrina and the Insurance Wars – Hard Feelings Worn on a Sleeve

The insightful commentary on my Happy New Years post is the reason we are linking to Dr McFarland’s presentation at Gene Taylor’s Town hall meeting held last August in Bay St Louis. The anger from being reduced to living in a camper trailer while State Farm was opinion shopping their engineers has naturally lead to some very strong feelings among those made homeless by Katrina. It sometimes spills over into the commentary at places like the Yahoo Allstate Stock Board and the video clip below. I am more than content to let our readership gauge the depths of the anger down here both in the linked post by Coastal Cowboy and the following Youtube clip. Originally we were not going to link Dr McFarland and I am not doing so to bash the insurance industry people reading this blog. Rather it I hope it illustrates the very real frustration that has accompanied Katrina and it’s aftermath and perhaps even lead to a greater understanding of all of the perspectives among the antagonists on this issue.

sop

[youtube=http://www.youtube.com/watch?v=Bl4Nt8qPF0E]

Happy New Year from the Mississippi Gulf Coast

When I agreed to take on this project the possibility it may fail crossed my mind, after all, the sum total of our collective experience on blogger could fit in a thimble. Motivated by those who are actively working against the people on the coast getting a fair shake from their insurer we began undaunted by the long odds that we could actually interest a potential readership in this very complex issue.

While the spillover from the “insurance wars” captivates the nation we continue to stick to our knitting of educating the public on the very real problems exposed by Katrina’s wind and water over two years ago. Though we have not been burning up the proverbial commentary meter, Coastal Cowboy summed up our goal best early on, “The measure of our success will not be the amount of comments we get or the number of readers we attract, rather it is having the RIGHT folks reading us.”

By that measure our first month online is a resounding success as we’ve attracted readers from 3 foreign countries as well as from across the US. We count people from diverse places like Washington DC, Lincoln Nebraska, and Bloomington Illinois to small towns like New Albany, Mississippi among our readership. We hope to continue educating all on our perspective, that of ordinary men and women here on the coast who struggle with the costs of insurance everyday and the related local fallout from insurance companies refusing to honor their contracts on the coast post Katrina.

So we thank our readers, even those who may disagree with our viewpoint, for spending time with us this past month as we too hope the New Year brings resolution to more of the good folks of the Mississippi Gulf Coast. God Bless us all in 2008.

sop

Another Great Editorial in Today’s Clarion Ledger

Here is another very well reasoned editorial from our friends at the Clarion Ledger in Jackson:

Insurance: Katrina demonstrates need for bill

Fourth District U.S. Rep. Gene Taylor says he will fight again in 2008 for a bill to add wind coverage to federal flood insurance for protection from another hurricane like Katrina.

But, if so, he’s going to have to find an ally in the Senate.

The House bill, which Taylor co-sponsored, with the support of House Speaker Nancy Pelosi, D-Calif., added wind coverage to the National Flood Insurance Program. But the wind coverage provision was not included in a bill the Senate Banking Committee approved, The Associated Press reported. Sen. David Vitter, R-La., has blocked a vote by the full Senate because optional wind coverage and higher coverage limits were not included.

The Senate bill was sponsored by Banking Committee Chairman Chris Dodd, D-Conn., and Richard Shelby, R-Ala. Taylor said he can understand Dodd’s objections because of the insurance interests headquartered in his state. “Shelby is the one I keep scratching my head over,” he said, because of his constituents in coastal Alabama.

Republican Mississippi Sen. Thad Cochran supports the multiple-perils bill. He should lobby his colleagues for it. Democratic Sen. Hillary Rodham Clinton had introduced a similar bill in the Senate.

Taylor’s bill had already been massaged by the House to meet potential objections. Pelosi led a 13-member congressional fact-finding mission to the Coast in August. Listening to victims at a town hall meeting in Bay St. Louis, she pledged to help, but even she acknowledged: “We’re up against a mighty force (lobbying efforts of the insurance industry).”

Pelosi helped push Taylor’s “multi-peril” Flood Insurance Reform and Modernization Act of 2007 through the Financial Services Committee in July, and it went to the Senate with full House backing as HR3121. It would allow flood insurance policyholders to purchase wind insurance or as a stand-alone policy, and increases limits.

Catastrophic insurance for hurricanes remains a need for U.S. coastal areas nationwide, so it could – and should – be resurrected. Mississippi is not alone in facing higher insurance premiums, if it’s available.

As has been noted in www.clarionledger.com/forums under “Katrina-related issues,” home insurance rates are skyrocketing in all the nation’s coastal areas. The experience with Katrina on the Coast, still waiting for insurance and government promised relief, is evidence for HR3121.

As one reader wrote: “My husband and I chose to stay here, even though we lost everything we owned, because of his business. It cost everything we had and then some to build a new home, miles away from the water and insurance was still astronomical. But … if we waited for progress to be made down here, we would be dead.”

HR3121 should not be allowed to die. The very life of the Coast could be at stake.

Purchasing Insurance: Market Transparency and Other Important Concepts

At the Mississippi Insurance Forum we have identified two main problems with Property and Casualty insurance in the aftermath of Hurricane Katrina:

1. Unfair and predatory claims handling as demonstrated by the unrefuted fact patterns in cases like McIntosh v. State Farm where State Farm threatened to fire their own engineers who found wind damage as the primary cause of the loss rather than flooding. State Farm actually ordered additional engineering reports until they received the “answer” they requested in such cases.

2. A lack of transparency in insurance product pricing, especially in the area of reinsurance.

While we will tackle both issues its worth noting the first has already received a fair amount of press attention while the second has not been addressed in detail except at a few web sites like this one. I suspect the reason the economic concept of market transparency has received such little attention is because it is complicated to explain and understand. I endeavor with this entry to start our readership along the path to understanding these important yet basic economic principles.

First we need to start with the decision to purchase a multi-peril homeowner’s policy and examine the criteria consumers use when selecting an insurer. Think about it, how did you choose your insurance agent and insurer? Did you let your fingers do the walking or perhaps you received a referral from a friend of the agent? Or maybe we thought the ad we saw during the football game was good and we feel safe knowing the local agent in the spot showed up when the house burned down. Maybe as a first time homebuyer you got a good tip from your mortgage broker on who to use. Another good question is why did you buy the policy? Because it was it required by the bank or mortgage company? What about the policy limits, were they set to only cover paying off the mortgage because it was cheaper than insuring the total value? How many times since you first purchased the policy have you evaluated the risks you are paying to insure?

These are all very important questions. My professional experience preparing post Katrina income tax returns with casualty loss is that most people literally are asleep at the wheel when it comes to assessing the risks that may impact them in the future. In fact I submit it is basic human nature to avoid thinking about such unpleasant possible future events. The end result of burying ones head in the sand is invariably bad for the consumer once disaster strikes.

Post disaster hindsight reveals the complete inadequacy of the original criteria we used to select an insurer. For instance, the fact your local State Farm agent is a good guy (mine is for certain) is meaningless when the “good neighbor” refuses to pay for an insured risk. And all the accumulated advertising we’ve seen never prepared us for the very real possibility the good neighbor will force many of it’s customers to use the court system to collect on the policy as a matter of internal claims handling policy.

Had we used good criteria originally to purchase insurance, we would have considered variables such as recent claims handing histories of these companies in our purchase decision. I’ve had people I know off the coast tell me they are not worried about State Farm covering windstorm risks because they are “too high to flood”. Human nature then takes over for a time, refusing to believe that State Farm refused to cover obvious wind damage in Oklahoma City after an F5 tornado struck there in May 1999 or that a jury there found, “that State Farm “recklessly disregarded” its duty to deal fairly with policyholders, doing so “intentionally and with malice” through the use of biased expert opinions after the 1999 tornado.” Perhaps we decide to switch to another insurer such as Allstate only to find out their internal documents describe treating a claimant/customer with “Boxing Gloves” instead of “good hands” and their record in customer treatment in automobile insurance claims appears abysmal. In fact we find out that according to the AM Best, “In the decade after Allstate instituted the McKinsey program in 1995, the amount of money it paid out per premium dollar in car accident cases declined from about 63 cents to 47 cents”. Most importantly we find out the lack of good information the consumer has to evaluate insurers is stunning.

Insurers on the other hand know a good bit about their customers. They know your credit score for instance and will rely on a computer model to determine how your claim is handled. In a previous post on this forum I detailed how insurers spend big money on weather modeling to assess the risk they face. In short most consumers use subjective, sometimes emotional criteria to purchase insurance while insurance companies use objective criteria in how they conduct business. The gap in market knowledge between insurers and consumers is referred to in economics as Information Asymmetry, and is defined as “A situation in which one party in a transaction has more or superior information compared to another. This often happens in transactions where the seller knows more than the buyer, although the reverse can happen as well. Potentially, this could be a harmful situation because one party can take advantage of the other party’s lack of knowledge.”

In future posts we will further examine the concepts of Asymmetric information and how it translates into premium pricing, especially in reinsurance.

sop