Affordable Housing Institute : US

What killed Gregory Rasputin?

 

“You’re kidding!  Somebody didn’t like me?”

 

That the charismatic controversial monk died is indisputable; that he was murdered equally so:

 

Rasputin didn’t die easily.  First, he resisted being poisoned with cyanide, then he was shot at close range.  Left for dead, he recovered and attempted escape.  He was then shot repeatedly, and … beaten savagely about the head with a dumb-bell handle.  Rasputin was then bound, driven to the Malaya Nevka River and thrown in through a hole in the ice.  [W]hen the body was recovered it became clear that even by the time he was thrown into the water, Rasputin was not dead, but still alive and was desperately attempting to free himself from his bonds and escape.  

 

“As we forgive those who bludgeon us with a dumb-bell …”

 

But what killed Rasputin, and what does that have to do with New New Orleans?

 

Civil litigation is nothing more than a fight about money.  What’s done is done –

 

The moving finger serves the subpoena, and having served, moves on ….

 

– and now the question is, Who pays How Much to Whom?

 

Insurance civil litigation takes this to its extreme. 

 

As the cleanup from Hurricane Katrina begins, a big fight could be brewing among insurers, policyholders, lawyers and regulators over who will shoulder the enormous cost of damage to thousands of homes.

 

Insurance is a curious bet.  When I take out an insurance policy:

 

1. I bet that Something Bad will happen to me
2. My insurance company bets it won’t. 

 

In New Orleans, Something Bad has surely happened.  But is that “Something Bad” as defined in the insurance policies?  And if multiple somethings bad happened, which one was fatal?  What destroyed the houses: hurricane, winds, or floods?  Who killed Rasputin? 

 

As the Wall Street Journal (subscription required) observes:

 

Most homeowners in the hardest-hit Gulf Coast states lacked any flood insurance at all, even in flood-prone neighborhoods.  Standard homeowners’ policies exclude flood coverage, which generally must be bought from the federal government and is capped at $250,000.  Katrina also sent flood waters deep into areas that hadn’t flooded before, in which many homeowners thought they didn’t need coverage.

 

The test has to be determined policy by policy, house by house, while the houses may not be there any more:

 

Intensifying the emerging debate will be the sheer logistical challenge of assessing hundreds of thousands of ruined structures.  That process is certain to stir up a series of thorny questions, such as whether flood or wind — which is covered under many homeowners’ policies — caused damage to homes.  Determining whether wind-driven rain or rising floodwaters caused damage can be tricky, especially in areas that suffered both.

 

Flood bad, wind good.  Got that?

 

 

Where there’s catastrophe, there are class-action lawyers:

 

Richard Scruggs, a well-known class-action attorney who made his name suing the tobacco and asbestos industries [Brother-in-law of Trent Lott. -- Ed.] … said he plans to urge Mississippi Attorney General Jim Hood to try to override flood-exclusion clauses in homeowners’ policies in that state in the interest of public policy, a move that could force insurers to pay many billions more toward rebuilding costs. 

 

Elected officials must then do the political calculus:

 

Through a spokesman, Mr. Hood said: “I’m reviewing these contracts to determine if there are unconscionable provisions.”

 

Insurers are likely to resist any such effort, though a fight could be a costly public-relations nightmare.  Industry officials argue that they can’t afford to take on flood risks because they haven’t been paid to do so.

 

“Where does that money come from?” said Allstate Corp. spokesman Mike Trevino.

 

 

“We didn’t collect any premiums that contemplated flood as an exposure that we would have to cover.”

 

Sorry, Mr. Trevino, I missed the part where insurance is limited to what the insurer thought about, as opposed to what the words say.

 

Vicar: It’s about this letter you sent me regarding my insurance claim.

Devious: Oh, yeah, yeah – well, you see, it’s just that we’re not… as yet … totally satisfied with the grounds of your claim.

Vicar: But it says something about filling my mouth in with cement.

Devious: Oh well, that’s just insurance jargon, you know.

 

Vicar: But my car was hit by a lorry while standing in the garage and you refuse to pay my claim.

 

Devious: (rising and crossing to a filing cabinet) Oh well, Reverend Morrison … in your policy… in your policy… (he opens the drawer of the filing cabins and takes out a shabby old sports jacket; he feels in the pocket and pulls out a crumpled dog-eared piece of paper then puts the coat back and shuts the filing cabinet)…. here we are. It states quite clearly that no claim you make will be paid.

Vicar: Oh dear.

Devious: You see, you unfortunately plumped for our ‘Neverpay’ policy, which, you know, if you never claim is very worthwhile … but you had to claim, and, well, there it is.

 

As Newton’s Third Law of Litigation emphasized, for every plaintiffs’ attorney, there is an equal and opposite defendants’ attorney:

 

“Does my policy cover gravity if I haven’t discovered it yet?”

 

Said Stephen Cozen, a Philadelphia attorney whose firm does extensive work for the insurance industry: “This is not a public-policy issue. This is simply an insuring agreement between two parties in plain English where there’s plenty of notice.”

 

So far, estimates for Katrina’s damage top $100 billion, with private-sector property-casualty insurers expected to pay anywhere from $14 billion to $35 billion of that.  At the high end, that would make the hurricane the nation’s costliest natural disaster, topping Hurricane Andrew in 1992 by more than 50% in dollars adjusted for inflation.  Still, $35 billion is a manageable amount [Easy for you to say! -- Ed.] for an industry that has had several profitable years and currently has more than $400 billion in assets to cover claims nationwide.

 

With that many Dirksens at stake, and the insurance industry always playing defense, we can expect them to stretch out the action across and extended front:

 

In cases in which there is both wind damage and flooding, homeowners who lack the specialized federal coverage might face challenges from insurers over how much they will pay, insurance-industry attorneys said.  “It will be an expert-driven process, on a case-by-case basis,” said Mark J. Bunim, director of risk management for Fortress Global Investigations & Security Corp. in New York and a former insurance attorney.

 

In all, the combination of widespread flooding and wind damage “creates an enormous gray area, which provides the insurance companies with an opportunity to delay or deny coverage, and it’s going to create a battleground for lawyers for years to come,” said Mr. Harckham.

 

And to parse words carefully:

 

In some cases, vague policy language may allow property owners to argue that flooding in New Orleans was caused not by rising water itself; for instance, some New Orleans policy owners could argue that the ultimate cause of damage wasn’t flooding, but breaches of the city’s levees from other causes. That arguably might be covered under some policies, said Finley Harckham, a partner at law firm Anderson, Kill & Olick PC, which primarily represents policyholders.

 

Faced with the certainty of massive tort roadblock, and with Washington cranking out the billions, there’s a politically quicker equation:

 

Some civil-rights groups and others say a victim-compensation fund is the best solution, despite big differences from the 9/11 attacks.  With the 9/11 fund, about 98.5% of eligible plaintiffs elected to take a payout rather than sue the airlines and security firms.  In return, they received an average of about $2 million with minimal delay.

 

Marc Moller, chairman of the plaintiffs’ executive committee for the 9/11 compensation fund, endorsed the concept. “The disastrous initial response to the Katrina situation by the federal government itself is a reason for the federal government to step in on an individual basis,” said Mr. Moller, of Kreindler & Kreindler LLP.

 

He said he generally opposes compensation funds when there’s a viable litigation alternative.  But in this case, he said, there’s little chance that victims of Katrina can successfully sue the government because of protection offered by the legal doctrine of sovereign immunity.

 

So who pays for all this?  The homeowners?  The insurers?  The states?  The Federal government? 

 

 

The taxpayers?

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