Insurers Win a Landmark Case

In the first of many cases that were pending, a judge in Gulfport, Mississippi ruled that a couple will not be paid damages for their home, which was destroyed in the aftermath of Hurricane Katrina. The reason? The wording of the insurance policy. It seems that Nationwide Mutual Insurance Co.'s policies do not cover wind-driven water damage.

Now, I don't know about you, but it seems to me that if you have coverage for water damage caused by flood, that should be sufficient. However, in the world of legalese, we now have a new "type" of water damage called wind-driven water damage, and this could let insurers off the hook for millions.

In fact, in this particular case (and for all Nationwide customers with similar policies), customers could collect for wind damage, but they would have to prove that the damage was caused by wind only -- not wind-driven water.

In fairness to Nationwide, the claimants did not have flood insurance. According to them, their agent said they didn't need it. Therefore, the couple suing attempted to have Nationwide take responsibility for the actions of its agent, and be held responsible for their full claim because they would have purchased flood insurance without the agent's recommendation.

Obviously, this is a warning to people who are buying insurance to study their policy themselves, and get a second opinion on whether to buy a particular coverage if they have any questions.

Insurance companies are heaving a sigh of relief after this ruling. From their point of view, it means that contract language has to be specific, and if damage cannot be specifically attributed to a cause that is part of the insurance policy, they are off the hook. In fact, the market took this ruling as such a good sign that the shares of many insurers rose on the US stock market.

It may mean something else again for the states most devastated by Katrina: perhaps it will be a long time before many storm damaged homes are rebuilt -- if ever.

MLA

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