High Tide In Mississippi

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.