[StBernard] No assurances on insurance

[Westley Annis]

BAY ST. LOUIS, Miss. -- First came Katrina to wipe out their homes, then
came the insurance adjusters to deliver the really bad news.

Because most of the damage in Bay St. Louis and Waveland was caused by storm
surge and flooding, the vast majority of homeowners and many business owners
are being told they were uninsured or underinsured for their losses.

While homeowners insurance pays for wind damage caused by hurricanes,
including damage from rain that comes in through broken windows and roofs,
major carriers are unanimously refusing to pay for destruction caused by the
massive wall of water that inundated the Mississippi coast and wrecked
thousands of homes.

Only flood insurance offered by the federal government is covering the water
damage, and few homeowners had it -- because few thought they needed it.

Since Katrina swept through the Gulf Coast Aug. 29, the multibillion-dollar
issue of wind vs. water damage has been a topic of intense discussion from
the Bay-Waveland area to Capitol Hill, where lawmakers are trying several
strategies to save homes from foreclosure and speed the rebuilding process.


They hope to act in time to help people like Waveland resident Honey Spoon,
28, a single mother who closed in May on her first home only to have it
destroyed three months later by Katrina. The manager of a popular Mexican
restaurant in Bay St. Louis, she worked for years to improve her credit
enough to buy a charming 1920s bungalow on 1.2 acres for $122,000.

Her mortgage company has suspended late fees for at least six months on her
$850 monthly payments, but she is not sure what she will do when the grace
period ends and already is talking about bankruptcy. 

"I just want my house," said Spoon, who now lives behind the restaurant in a
FEMA-issued trailer with her adorable 8-year old daughter. "I don't want
handouts. I work to make an honest living. But I don't know what's going to
happen."

Retired Marine Master Sgt. Pete Benvenutti, 80, had paid off the mortgage on
his wrecked 107-year-old home in Bay St. Louis and is trying to figure out
how to afford the $200,000 it will take to rebuild when he got only $50,000
from his insurance company.

"At 80 years old I'm not looking forward to a 30-year mortgage," Pete said.

Pat Murphy, a Waveland window salesman who leads a seven-piece jazz and
blues band, can repair his storm-gutted home but likely will need $100,000
and a new mortgage when he was only a few years away from paying off the old
one.

"I'll be 57 in February," he said. "This is not where I anticipated I would
be at 57 years old. This is something everybody is going through."

They and thousands of others are discovering that if they thought they had
"hurricane insurance," they were sadly mistaken. 

"There is no ambiguity whatsoever -- I don't know if I can make the
statement any clearer than that," said Bob Hartwig, chief economist for the
Insurance Information Institute, an industry trade group. "It was common
knowledge on the Gulf Coast . that flood is not covered, has not been
covered and never will be covered under a homeowners' policy."

Many local residents and political leaders argue that Katrina's enormous
storm surge does not fit the usual layman's definition of a flood.

"They are using the fine print in people's policies to take financial
advantage of them," U.S. Rep. Gene Taylor, a Democrat from Bay St. Louis,
said in an interview.

"A 30-foot wall of water that is pushed in by a hurricane is, I think, the
flimsiest of excuses that those people could ever find for not paying on
those claims," said Taylor. "It was not a flood. It was a hurricane caused
by wind, and they ought to pay."

Hartwig argues that the language is clear and unambiguous. The standard
homeowners policy approved by regulators in every state excludes any "loss
caused by, resulting from, contributed to or aggravated by flood, surface
water, waves, tidal water or overflow of any body of water, or spray from
any of these, whether or not driven by wind," according to sample language
provided by the trade group.

Nevertheless state Attorney General Jim Hood has filed suit against State
Farm, Allstate, Mississippi Farm Bureau and other carriers, trying to force
them to pay up for damage from Katrina. He argues that homeowners bought
their insurance "for the primary purpose of insuring against any damage that
could possibly result from hurricanes originating in the Gulf of Mexico."

In a civil complaint filed in September in state chancery court, he argues
that the flood exclusions are ambiguous, unenforceable and "procedurally
unconscionable."

An industry trade group responded that the attempt to "retroactively rewrite
policies" would, if successful, "destroy the viability of every insurance
policy in the state and undermine the integrity of every legal contract in
the nation." The industry is trying to move the case into federal court.

Private attorneys led by Richard Scruggs, who lost his own Pascagoula home
to the storm, also have filed suit, trying to force insurance companies to
pay. Other attorneys are taking a different tack, trying to negotiate by
bringing in engineers to show that homes were damaged or destroyed by
Katrina's winds before the storm surged finished them off.

Taylor has introduced a bill that would essentially allow people in the
affected area to buy flood insurance retroactively, giving them coverage
nearly up to the amount of their homeowners insurance if they agree to keep
the property insured for flood in the future.

Officials of the National Flood Insurance Program are strongly opposed,
saying it would discourage homeowners nationwide from buying flood
insurance.

But Taylor said he is optimistic that Congress will act on his bill or
similar proposals intended to bring direct relief to homeowners who carried
insurance, lived outside the so-called "flood plain" and are being denied
coverage by their carriers.

"I see this as the real make-it-or-break-it issue -- whether or not I can
help these people hang on to the homes and have something there to rebuild
their lives," he said.

Flood insurance is surprisingly cheap (as low as $233 for $100,000 in
coverage), but even many insurance agents acknowledge there is widespread
confusion about it. In the New Orleans area, some 60 percent of homeowners
had flood insurance because they lived in a known flood hazard zone.

But in Bay St. Louis and Waveland the situation was different. Only about 15
percent of southern Mississippi homeowners had flood insurance because
lenders only required it in the "special flood hazard area," generally for
those homes closest to the Gulf or in low-lying areas. 

The flood hazard area is determined by FEMA, which oversees the flood
insurance program and issues maps describing the so-called 100-year
floodplain and other hazards that determine whether lenders will require
flood insurance.

People on higher ground were not required to have flood insurance and
generally did not, reasoning that they did not need it because their house
stayed dry during Hurricane Camille in 1969, which made a direct hit on Bay
St. Louis and until now was the benchmark for the area.

Business and homeowners commonly describe their status outside the federal
special hazard area by saying they lived in a "no flood" zone. Many say they
were told by their insurance agent that they did not need flood insurance.

"A number of insured are very confused about all this," said Dave Treutel
Jr., a prominent Bay St. Louis insurance agent. "My philosophy has always
been, if you are in the three coastal counties, you are in a flood zone."

Yet he did not carry flood insurance on his Old Town office building, which
took on six feet of water.

Why not? "Because in the 300 years since d'Iberville and de Bienville
landed, there has never been water on that bluff," he said, echoing a
sentiment heard frequently in an area still reeling from what one resident
called "a 1,500-year storm."

Murphy, the Waveland band leader, is a fifth-generation Hancock County
resident who calls himself "about as local as you can get."

He has known his insurance agent since they attended St. Stanislaus High
School together some 40 years ago. He has been doing business with the
agent, whom he declined to identify, for 25 years and still considers him a
friend, although "there are things that need to be said. There was
miscommunication."

Just last year he met with the agent and bumped up the coverage on his
2,750-square-foot structure to $225,000 plus $70,000 for the contents. His
insurance company has offered him $16,000 for roof damage and additional
living expenses.

Some people are not quite certain whom to blame or what to do. Taylor and
others say the federal flood maps were partly culpable because they vastly
underestimated the potential flood zone. New advisory flood maps published
by FEMA after Katrina would put thousands more homes in the special hazard
area, meaning that lenders will require flood insurance in the future.

"The insurance agents are not the bad guy in this thing," said Pete
Benvenutti's son Chuck, an accountant and local civic leader. "I'm not sure
there is a bad guy."

He and others say they are just hoping for the type of aid that was extended
to victims of the 9/11 terrorist attacks, or previous disasters like
flooding in the Midwest and California earthquakes.

"Maybe we don't need to blame anybody," Chuck Benvenutti said. "Maybe we
need to say, 'Guys, we in south Mississippi need a hand. We need some help
from our family in the rest of the nation.' Otherwise we will allow
thousands and thousands of homes to go into foreclosure. We are not talking
recession, we are talking depression."