Finally, the
discussion about Hurricane Katrinas aftermath has turned to the
Mississippi coast. Since the advent of the storm, devastated
Mississippi communities have received sparse coverage compared to
the spectacle in New Orleans. Unfortunately, the media have chosen
to tout Mississippi Attorney General Jim Hood, trial lawyer Dickie
Scruggs, and their efforts to strong-arm the insurance industry with
lawsuits. Consumers should be bothered by both the publicity and
likely consequences.
To draw the medias obsession away from New Orleans, it
took a cynical lawsuit filed by the attorney generals office
against insurance companies, accusing them of an unfair or
deceptive trade practice. In plain terms, those companies plan on
enforcing their homeowners insurance policies. The uncomfortable
part is that those policies belong to hurricane victims who might
not be covered for flood damage. Although insurance companies are
taking their time to assess the damage and serve their paying
customers, trial lawyers want to put the armored cart in front of
the horse.
Flood insurance, while purchased from a private broker,
is subsidized and administered by the Federal Emergency Management
Agency. Why? Because the private sector cant bear the risk of a
catastrophic flood or hurricane without charging exorbitant
premiums. As such, insurance companies make sure to advertise up
front, almost ad nauseum, that homeowners insurance does not cover
flooding. Brochures, fact sheets, and other materials presented to
consumers all underscore the necessity of buying separate flood
coverage. Its as plain as the hood ornament on Dickie Scruggs
Bentley.
Since the facts are clear, the media have chosen to tug
at our heartstrings instead of reporting on the motivations behind
the trial lawyers cynical money grab. Elliot Blair Smiths
September 22 USA Today article breathlessly fawned that Scruggs took
the fight versus insurers personally (emphasis added). Although
the article detailed Scruggs losses, it failed to mention that he
has no idea how USAA, his insurer, will respond to his claim. The
trial lawyer was loaded for bear before the adjuster could even
survey his house.
Smith also cast Scruggs as some sort of gallant hero.
Moments after salvaging a chandelier and a 1982 bottle of Moet &
Chandon from neighborhood wreckage, he was virtually mobbed by
friends and neighbors imploring him to sue. After allowing the
insurance industry some ink for an explanation, Smith offered
Scruggs the final smear. The trial lawyer called flood insurance
offers of $250,000 chump change and claimed, Thats how cynical
these insurers are.
Network news coverage was no better in choosing to side
against insurance companies by choosing compassion over
contracts. A September 16 report on ABCs World News Tonight set
up a stark contrast by saddling insurance companies with decisions
that could mean a new home or bankruptcy for homeowners wiped out
during Hurricane Katrina. Prompted by sympathetic news coverage,
hurricane victims like Paul Leonard parsed the damage to his home:
Its not a flood. It is tide coming in from the Gulf and wind
pushing it. In that same report, Scruggs agreed, Its a
hurricane-driven storm surge. Thats what it is. Jim Avila
concluded his report on the flooding by asking, Was Katrinas path
of destruction caused by wind or water?
While journalists wonder aloud whether a bulldog is
more bull or dog, consumers and hurricane victims are left
uninformed about an important responsibility of home ownership. In
this case, its not just a matter of reading the fine print, but
taking the highly visible and repeatedly recommended steps to
protect your home from loss.
No matter how tragic the circumstances on the coast
are, the most essential cornerstone of commerce is a contract or
business agreement between two parties. If that contract is subject
to the whims of trial lawyers, government, or a cynical media, both
parties are capable of being harmed.
Though the media cant grasp the ramifications these
lawsuits could have for both the insurance industry and the Magnolia
State, the threat is clear: insurance companies will cease to do
business in Mississippi if the state refuses to honor their
contracts. This fact is especially important considering the massive
rebuilding of homes and infrastructure the state faces. If
contractors cant get insurance, they wont build. If no one builds,
Mississippi will never recover. All the FEMA grants and
million-dollar jury awards in the world wouldnt make a difference.
In light of the recent progress of tort reform and job creation by
foreign auto manufacturers, this is a disquieting prospect for a
state that has tried in earnest to create a business-friendly
environment.
Charles Simpson is theBusiness & Media Institute's research analyst.