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December 02, 2006

Insurance firm to cancel all commerical policies in NOLA

Scout Prime of First Draft has some very bad news about New Orleans:

St. Paul Travelers Cos. Inc., Louisiana's largest commercial insurance provider, plans to cancel all its commercial property policies in the New Orleans area next year, sparking fears that other insurers will follow and slow the region's economic recovery.

The carrier's sudden decision not to renew any polices for businesses in Orleans, Jefferson, Plaquemines, St. Bernard or eastern St. Tammany parishes. Some firms in other parts of South Louisiana, including St. Charles and St. John the Baptist parishes, may also have a harder time getting insurance with St. Paul Travelers.

The company claims that it is pulling out because of the sorry state of the levees of New Orleans. (Not an implausible rationale, given the state of the levees.) However, cynics note that the pullout follows on the heels of a court decision giving flood insurance policy owners the right to seek flood-related damages through other kinds of policies. The company insists that the pullout has nothing to do with the recent legal clarification of policy-holders' rights.

Analysts worry that other insurance companies will follow St. Paul's lead and pull out of New Orleans.

This is a very serious situation. If businesses can't get insurance, many will close, or never reopen. If businesses close, New Orleans will lose jobs, goods and services, and tax revenues.

A commercial insurance coverage crisis could doom the reconstruction effort in New Orleans.

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Comments

This is possibly off-topic, since the condition of New Orleans is possibly unrelated to global warming. But what is the correct response to rising oceans? Off hand, I can only think of 3 policy respones: 1.) the government ensures people at risk, 2.) we legally mandate that the insurance companies have to ensure people at risk or 3.) we do not ensure people at risk. Both 1 and 2 force society to spend very large amounts of money to allow people to live in areas that will become increasingly prone to very serious floods as the oceans rise. Option 3 seems heartless and leaves some very vulnerable people at risk. I suppose there is a 4) option, which is to pay people to relocate?

Laurence

Its painful to say it, since I like New Orleans and the people from there that I've met, but all the low-lying areas of New Orleanas should never be rebuilt.

Forget about the (global) oceans rising. Whether that happens or not, I think that much of the landmass that New Orleans is built on is sinking slowly and has been doing so for a long time. Its pretty damned low now. Salvage what you can on the higher elevations, and prohibit any construction on the lowlands.

Options one and two are simply insane if they mean subsidizing those who build on lowlands -- or nationwide, near the beach in windstorm areas.

There will not be any national will to force insurance companies to subsidize NOLA lowlands building, and if the state of Louisiana tries to compel it, they'll just pull out of the state.

Insurance has been a tricky issue in Louisiana for ages. Some years back, I spoke to someone in the industry who said that "Louisiana was his favorite state" because "three of the past four insurance commissioners are in prison".

I'm not sure about the moral probity of the current insurance commissioners, but with a (reelected!yes!) Mayor Nagin and a Governor like Blanco, and a quirky legal system, and a sinking finger of land and a culture of corruption that far exceeds any other city and state, you tell me--if you were running a brand new insurance company, would you want to be doing business there?

St Paul Travelers is a conservative company--it is not necessarily true that the industry will follow them out of there.

I do expect to be in New Orleans in April.

What's really going on here is that St Paul/Travelers has decided that it can't write a policy wording that will work to bar flood damage. Read your link. Insurers always always exclude flood damage. If you need flood insurance you buy it at subsidized rates from the federal flood insurance program. But most people don't bother. Then when they're flooded out they look for ways to claim that the policy is "vague" in order to get the coverage they didn't pay for. This just what the judge in the article you link decided last week. Decisions like that make insurers throw up their hands and decide to get the hell out of a jurisdiction.

Here's the exclusion that the court said was "vague:"

We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.

* * *
3. Water Damage, meaning:

a. flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind;

Look vague to you? Well, the judge said that it wasn't clear whether this barred floods due to the failure of a man-made structure. According to this judge, an ordinary person wouldn't be able to tell that what happened in New Orleans was a "flood."

St Paul/Travelers isn't leaving NoLa because of the threat of further flooding. It's leaving because it's decided it can't write a policy that will be enforced in Louisiana.

PS: all that crappy lawyerly language in the exclusion - directly or indirectly, concurrently or in any sequence -- is there because other judges have ruled that simple language is "vague."

PPS: before someone writes in about the greedy insurance companies, the point is that they exclude flood coverage because most people don't need it and it's expensive. If they put it in your premium would have to go up, and you would shop around for some insurer that left it out. Most people don't live in flood plains. But decisions like this one, that make insurers pay for coverage they didn't charge premium for, make it impossible for insurers to calculate premiums going forward.

First, we are going to rebuild, and rebuild with the compensation we are owed for the bad design and construction of the Federal levee system. It's simply a question of how we get that money. The courts may by shut off to us, and it could take a generation.

I propose a few ideas here that the people of St. Paul, MN might find unpalatable if it means closing their riverfront to commerce, bankrupting the agri-businesses and making it economically infeasible to heat their homes (but that's their own fault for choosing to live in that climate): http://wetbankguide.blogspot.com/2006/12/times-are-still-not-good-here.html

The insurnace industry is in complete collapse. Their business model has become to collect money and pay out as litle as possible. When forced to pay out, they attemp to collect back what they have disbursed through premium increases. It has become a criminal racket: http://wetbankguide.blogspot.com/2006/11/our-state-only-insurance-we-really.html which should be disbanded and its assets seized through the RICO statues.

This is beyond the beyond.

I still can't get over the fact that the Bushies lost en entire American City, and one of the most beautiful and culturaly (not to mention historicly) signifigant areas of the United States. I'm shell shocked from it.

And now this.

We the people should form a collective insurance group, but oh horrors, that would be socialism, now wouldn't it?

Insurance Lawyer

I can add nothing to what you've said--you nailed it.

I notice that Mark Folse didn't contradict anything you said with any fact.

Insurance companies are no angels, including St Paul Travelers, are no angels. They'll hang you on an exclusion if they can. But they are by and large very honest when paying out on something that is covered.

I know this industry well also, and am quite familiar with St Paul Travelers. I've spoken with Jay Fischman, etc.

The industry is not in collapse, nor is it close to it.
Its looking to have a good 2006, after Al Gore's armada of hurricanes failed to show up.

It is an essential industry to state, national and global commerce. Extreme problems like this take place when the judge says "to hell with what the contract says, someone needs to reimburse my constituents!". That's fine if you're talking about a relatively small accident--but when very clear language is voided in a bad faith fashion by a judge in the context of an "occurrence" that is massive in its scope, then there is no choice but to leave the juristiction that produces judges like that.

St. Paul almost went bankrupt some years back when it used to write medical malpractice policies. It pulled out of that field, because they reached the conclusion that the verdicts were so large and so unpredictable that they could not possibly find a way to make money in that field, no matter what they charged in premium.

They've reached the conclusion that, in Lousiana, a contract is not a contract and that they can't make money no matter what they do, no matter what they charge, since the exclusions may or may not be enforced.

The most important factor for any insurance underwriter, even more important than the "risk" insured, is the ethics of the person/entity being insured. It's true in the industry's three centers- New York, London and Bermuda. It's true in Louisiana too.

Insurance crises like this do not, IMO, happen in Europe or Asia and other placese where contracts are respected.

St Paul Travelers owes Louisiana nothing. Hard to say it, since it is a state and NO is a city with unique and beautiful cultural treasures, but everyone reading this knows it to be true.

But they are by and large very honest when paying out on something that is covered.

Thanks to the availability of punitive damages in bad-faith suits, let it be added.

But yeah, as a yellow-dog Dem who works with a bunch of insurance-defense lawyers, that's a pretty lousy-looking decision. Good odds it'll be reversed by the 5th Circuit.

I'd like to add that in Baton Rouge, this is a non-story. Local news didn't cover it, it wasn't in section A of the paper, and the only widely-read entity that did cover the story is the Baton Rouge Daily Report - a right wing business e-newsletter.

Largely white, conservative Baton Rouge has always resented New Orleans, and no more than in the past year, when the flood of "those people" were blamed for everything that put a dent in the process of going to work, shopping, or church.

Living here for the past several months has been an eye-opener, that's for sure. I'm from Louisiana, and I don't remember it being this divisive or resentful toward others.

"We the people should form a collective insurance group, but oh horrors, that would be socialism, now wouldn't it?"

I don't think that would be socialism. Friedrich Hayek is considered an extreme libertarian, yet he wrote that social insurance was a legitimate function of government. This is from page 133 of his book The Road To Serfdom:

" Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are, as a rule, weakened by the provision of assistance - where, in short, we deal with genuinely insurable risks - the case for the state's helping to organize a comprehensive system of social insurance is very strong. There are many points of detail where those wishing to preserve the competitive system and those wishing to supercede it by something different will disagree on the details of such schemes; and it is possible under the name of social insurance to introduce measures which tend to make competition more or less ineffective. But there is no incompatibility in principle between the state's providing greater security in this way and the preservation of individual freedom. To the same category belongs also the increase of security through the state's rendering assistance to the victims of such "acts of God" as earthquakes and floods. Wherever communal action can mitigate disasters against which the individual can neither attempt to guard himself nor make provision for the consequences, such communal action should undoubtedly be taken. "

It really says a lot about how much our politics have shifted to the right that a man who, in 1944, was considered an off-the-charts right-wing libertarian extremist nowadays sounds like a Democratic moderate.

"We the people should form a collective insurance group, but oh horrors, that would be socialism, now wouldn't it?"

Actually, federal flood insurance is a collective insurance program. Your tax dollars pay for it. And it's a horror. By subsidizing flood insurance, it makes over-development on beaches and wetlands possible. Banks that wouldn't provide mortgages for monster beach projects without insurance are able to lend the money, and the million-dollar mansions predictably go up, are predictably destroyed every twenty years in hurricanes, and then are rebuilt with your money.

JR

Your comments are completely accurate.

And as was said above, every policyholder who filed bad-faith claims against St Paul Travelers had the option to buy Flood Insurance, but they didn't feel like it, because it seemed expensive. Until the property was destroyed in a flood, but then no biggie--just get the hometown judge to say its covered anyway by the insurance company who had excluded the "peril", and then go bullshitting about the "criminal racket" that expects it's policy wordings to be respected by judges.

The deep and fundamental dishonesty of this decision will win Louisiana few friends. Everyone knows what went down, and it isn't pretty.

"such communal action should undoubtedly be taken."

It was taken. As noted above, it was taken with the creation of the National Flood Insurance Program.

If a person or business chooses not to participate in this (subsidized) program, then why would they expect relief from the rest of us when there's a flood?


Boy, do I love these insurance weasels. We have seen how you short change your policy holders with theses exclusion. What about the man in Slidell who had 12 trees fall on his house -denied because the slab was cracked and the adjuster said it was soil subsidence. What about the homeowner denied because he had a step down into his living room - denied because that is considered a basement. DON"T BELIEVE A WORD THEY TELL YOU!!! It is a scam forced on us by the government and the banking industry. As Gene Taylor of Mississippi has stated, these people are in the same league as child molesters. There is a special place in hell for all of you. So what is the solution? Governemt is our only outlet. It is time to rise up and make these companies live up to their promises. In an aside, the "Allstate Sugar Bowl" will have LSU vs. Notre Dame. That means a largely Louisiana crowd there to "welcome" the Allstate representtive. The boos will be deafening.

doctorj

There's no weaselry going on here, except from the LA authorities and the LA judge. The policy said flood wasn't covered. So why the f*** did they pretent that they expected flood to be covered?

Why did the business/house owners choose not to participate in the GOVERNMENT Flood Program? Didn't feel like spending the money?

Why would that be the problem of St Paul Travelers? Why should anyone expect them to submit to that kind of crooked ruling a second time?

And who cares about your phony college football game.

That


doctorj

There's no weaselry going on here, except from the LA authorities and the LA judge. The policy said flood wasn't covered. So why the f*** did they pretent that they expected flood to be covered?

Why did the business/house owners choose not to participate in the GOVERNMENT Flood Program? Didn't feel like spending the money?

Why would that be the problem of St Paul Travelers? Why should anyone expect them to submit to that kind of crooked ruling a second time?

And who cares about your phony college football game.

That


Many did not have flood insurance because , according to FEMA maps, THEY DID NOT LIVE IN A 100 year FLOOD PLAIN, and were not required to get flood insurance by their banks. In fact, many were told by their lenders they didn't need it. Those that DID have flood insurance, had to wait months for pay outs because flood vs homeowners deathmatch of who would cover what. The horror stories are legion. SHAME! SHAME! SHAME!!!!

doctorj

Well, in the circumstance you describe, some would have a complaint against their bank, others may have a beef with the Flood Program.

But what does any of this have with St Paul Travelers selling policies which didn't cover flood, and said so? Why should they be subject to a hometown judge who says that they have to cover it anyway? And why should anyone have a complaint if they shake their head and decide to leave the state after all that?

I own a house and I do not buy flood coverage. I live on a fairly high elevation here in the Bay Ridge neighborhood of Brooklyn. I choose not to get it because yeah it is expensive and because I don't think a flood could hit me. If I'm wrong, who's to blame? Not my Homeowners Insurance company (Allstate), who say right up front that its not covered. Not the government at any level--it will be my fault, and noone else's.

I take no joy in saying any of this. And I feel bad for the problems people face.

And I am listening to Beausoleil as I type. Good stuff.

I am no expert on the levees but look at the damage they did last time when they failed. The city is under sea level and if they are not rebuilt to withstand a major hurricane you have to give Travelers some leeway for being concerned. Still, I feel badly for all those people left to find other coverage.

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