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					The Policyholder Advocate
              Policyholders of America                                                                      October, 2007 issue


BAD LAW
                                                                                                              Inside this issue:
           Appeals court strips more coverage from policies.
                     Wind damage now not covered if flooding also occurred.                 POA
                                                                                                      COURT SAYS WIND ISN’T        1-2
                                                  be cited in an effort to dodge coverage of any
                  The
                                                                                                      COVERED IF FLOODING IS
                        5th Circuit court (a      storm loss that occurs anywhere in the United       INVOLVED.
                  federal appeals court           States.
                  based in New Orleans) has                                                           MOLD TESTING UNDER           1, 20
                  dealt another blow to           This most recent ruling negates the ruling          THE MICROSCOPE
                  coastal homeowners, na-         given by U.S. District Judge L.T. Senter more
                  tionwide. They ruled in         than a year ago, in the case known as Leonard       SECRET TACTICS TO            3-5,
                  favor of the insurance          v. Nationwide, the first Hurricane Katrina case     CHEAT CUSTOMERS … ALL        15-20
                  company (Nationwide) that       to be tried in federal court in Gulfport, Missis-   IN A DAY’S WORK
                  wind damage is not cov-         sippi. In the “Leonard” case, Judge Senter
ered under the policy if it happens to coin-      said that the policy language dealing with          THE HOMEOWNERS DE-           6-7
cide with storm surge.                            “anti-concurrent causation”1 was “ambiguous         FENSE ACT AND THE MAN
                                                  and unenforceable”. After Senter’s ruling, in-      BEHIND IT
This ruling has insurance companies “high-        surers scrambled to settle similar claims.
fiving” one another because the decision will                                   continued on page 2   FEMA HIDES EVIDENCE OF       8-9
                                                                                                      TOXIC TRAILERS
TESTING A PROPERTY? The ups and downs of mold testing
                                                                                                      OVERCHARGING THE US          9-10
                                                                                                      TAYPAYER (FEMA)
Testing your property may          ♦    need to determine a        cause of the potential market
actually create a paper trail          proper scope of repairs     value hit a positive result may
that could negatively impact           after water damage but      cause — even at the risk of        LEVEE BREACH SUIT GOES       11
your property value if and             before an insurance         continued health concerns. It      BYE-BYE
when you elect to sell your            claim is filed, or          is for this reason, POA negoti-
property. Why? Because most                                        ated with a leading lab a test-    LOWBALL REPAIRS MAY          11
states require the seller dis-     ♦   currently listing or con-   ing option that does not re-
                                       sidering listing your                                          COME TO AN END
close known defects or envi-                                       quire a property address.
                                       property for sale.                                             (XACTIMATE)
ronmental problems prior to
                                                                   Are positive test results still
closing.                           Most analytical labs require                                       GOING WITHOUT COVER-         12-13
                                                                   required for disclosure pur-
There is a way to avoid creat-     an address of the subject       poses? Yes, however without
                                                                                                      AGE

ing an unwanted trail of evi-      property, leaving in the        a paper trail, the only one who    MS INSURANCE COMMISH 14
dence and property owners          wake, a lasting piece of        knows the result is you. POA       RACE — THE ONE TO
need to be mindful of the          evidence. And, if you retain    does not endorse or recom-         WATCH
options that exist and select      the services of a profes-       mend nondisclosure of a
the method of testing that is      sional testing company,         known problem however it is        LA APPEALS COURT AT          14
                                   they too retain records for
most appropriate.                                                  also not our role to play God.     ODDS WITH 5TH CIRCUIT
                                   an extended period of time.
                                                                   CLICK HERE for discounted          ON COVERAGE
Dodging the bullet
                                   A way around the evidence
                                                                   testing without the paper trail.   MOLD RELATED RESEARCH 21-24
If you fit into any of these       trail is to (a) conduct your
categories, you may want to        own sampling, and (b) send                                         AND NEWS
                                                                   Documentation happens
test without the paper trail:      the sample(s) to a lab that
                                   does not require the ad-        Sometimes, documentation
                                                                                                      SPILT COFFEE CASE REVIS-     25-28
♦   suspicious that mold is        dress of the subject prop-      (and a paper trail) is not only
                                                                                                      ITED
    causing health concerns                                        necessary, it is beneficial.
                                   erty.
    and/or need to weed out
    other possible causes,          There’s no denying that so                                        STATE WATCH: CA, FL,         29-35
                                   many homeowners do not                     continued on page 20    GA, LA, NY, SC, TX
                                   test their properties be-
                                                                                                                                              Page 2

The Policyholder Advocate                                                 October 2007 issue

                                                                                                                    IN PLAIN LANGUAGE
Appeals court strips more coverage…                                                   continued from page 1
                                                                                                                    What does this ruling mean
Nationwide promptly appealed         covers up to $250,000 in dam-        ance. Consumers and taxpay-               for you?
Senter’s ruling – taking the         age but that is usually woefully     ers need federal intervention.”
                                                                                                                    If you are to be paid for dam-
case to a more insurance-            insufficient coverage for many
                                                                          Melinda Ballard, POA’s presi-             age sustained in a storm, you
friendly audience sitting on the     coastal properties.                                                            must argue and prove that all
5th Circuit. There, they got their                                        dent, agrees but noted another
                                     The office of U.S. Representa-       dangerous fall-out, “The ruling           damage was caused exclu-
wish list granted.                                                                                                  sively by wind BEFORE the
                                     tive Gene Taylor (D-MS) issued       also forces many people to
So, what does this all mean for      a statement following the ap-        disregard evacuation orders               flooding occurred.
you? It’s simple: if you are to be   pellate ruling, saying the ruling    made prior to a hurricane’s               How do you PROVE wind did
paid for damage sustained in a       strengthens the case for the         landfall. Property owners who             all the damage?
storm, you must argue and            Congressman’s multi-peril pol-       cannot afford to take the loss
                                                                                                                    The homeowner or his/her
prove that all damage was            icy legislation which will be        will stay behind to document
                                                                                                                    agent must disregard any and
caused exclusively by wind           debated by Congress this ses-        the damage timeline in order to
                                                                                                                    all evacuation orders, put
BEFORE the flooding occurred.        sion.                                force insurers to honor the               their lives at risk and docu-
                                                                          policies. Whether or not the 5th          ment how and when the dam-
How exactly does one PROVE           According to Brian Martin, Rep.      Circuit realizes it, their ruling         age happened. Those who
wind did all the damage? In          Taylor’s policy director, “The       has terrible consequences.”               stay behind, while everyone
layman’s terms, the home-            appeals court is saying it is OK
                                                                                                                    else evacuates, will be called
owner or his/her agent must          for a company to sell a policy       CLICK HERE FOR THE RULING                 upon for their sworn testi-
disregard any and all evacua-        that is likely to be worthless for   1 Anti-concurrent causation is a          mony that all damage sus-
tion orders, put their lives at      a major hurricane if you also        provision in the policy designed to       tained to a property occurred
risk and document how and            have flood risk. If the wind in-     defeat or nullify coverage. The typi-     because of wind, not rising
when the damage happened.            surance does not cover wind          cal language in this provision leads      water. If photos are taken of
Those who stay behind, while         damage, that means it is im-         like this: “We will not pay for loss or   the damage before and after
                                                                          damage caused directly or indirectly      the storm surge, all the bet-
everyone else evacuates, will        possible to buy insurance and        by any of the following. Such loss or
be called upon for their sworn       know that you are covered.”          damage is excluded regardless of
                                                                                                                    ter. (POA actually offers pay-
testimony that all damage sus-                                            any other cause or event that con-        ment to those who cannot or
tained to a property occurred        Martin goes on to say, “The          tributes concurrently or in any se-       will not evacuate and are
because of wind, not rising          flood policy is not supposed to      quence to the loss.”                      willing to document a damage
water. All the better if photos      pay for wind damage. Congress                                                  timeline.)
                                                                          Rep. Taylor believes any insurer
are taken of the damage be-          should ban any company with          whose policies contain this provi-        But, because of a Louisiana
fore and after the storm surge.      an anti-concurrent causation         sion should be banned from partici-       Appeals Court ruling (see
                                     clause from participating in the     pating in the flood program.
(POA actually offers payment to                                           (Insurers who sell and service flood
                                                                                                                    page 14) policyholders have
those who cannot or will not         flood program. I think this also                                               some leverage to challenge
                                                                          policies get paid nearly 1/3 of each
evacuate and are willing to          helps our case that the anti-        premium dollar collected from the         the 5th Circuit ruling. The
document a damage timeline.)         trust exemption has to go and        National Flood Program. This is           debate will continue.
                                     the federal government needs         gravy for participating insurers.
If a flood policy is in effect, it   to take over regulation of insur-


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                    The Policyholder Advocate                                               October 2007 issue

                    Insurance Hoax: Property insurers use secret tactics to cheat
                    customers out of payments--as profits break records. By David Dietz and
                    Darrell Preston, Bloomberg Markets

                    Julie   Tunnell     remembers        casualty insurers, which cover     bottom line for the next quar-
                    standing in her debris-strewn        damage to homes and cars,          ter."
                    driveway when the tall man in        reported their highest- ever
                    blue jeans approached. Her           profit of $73 billion last year,   The industry's drive for profit
                    northern San Diego tudor-            up 49 percent from $49 billion     has overwhelmed its obliga-
                    style home had been inciner-         in 2005, according to Highline     tion to policyholders, says
                    ated a week earlier in the larg-     Data LLC, a Cambridge, Mas-        California Lieutenant Gover-
                    est wildfire in California his-      sachusetts-based firm that         nor John Garamendi, a De-
                    tory. The blaze in October and       compiles insurance industry        mocrat. As California's insur-
                    November 2003 swept across           data.                              ance commissioner from 2002
                    an area 19 times the size of                                            to '06, Garamendi imposed
                    Manhattan, destroying 2,232          The 60 million U.S. homeown-       $18.4 million in fines against
                    homes and killing 15 people.         ers who pay more than $50          carriers for mistreating cus-
                    Now came another blow.               billion a year in insurance pre-   tomers. "There's a fundamen-
                                                         miums are often disappointed       tal economic conflict between
                    A representative of State            when they discover insurers        the customer and the com-
 “The industry's    Farm Mutual Automobile In-           won't pay the full cost of re-     pany," he says. "That is, the
                    surance Co., the largest home        building their damaged or de-      company doesn't want to pay.
 drive for profit   insurer in the U.S., came to         stroyed homes. Property in-        The first commandment of
    has over-       the charred remnants of Tun-         surers systematically deny         insurance is, 'Thou shalt pay
                    nell's home to tell her the          and reduce their policyholders'    as little and as late as possi-
whelmed its obli-   company would pay just               claims, according to court         ble.'"
                    $220,000 of the estimated            records in California, Florida,
gation to policy-   $306,000 cost of rebuilding          Illinois,   Mississippi,   New     Although the tension between
                    the house.                           Hampshire and Tennessee.           insurers and their customers
    holders.”                                            The insurance companies            has long existed, it was in the
                    "It was devastating; I stood         routinely refuse to pay market     1990s that the industry began
                    there and cried," says Tunnell,      prices for homes and replace-      systematically    looking    for
                    42, who teaches accounting at        ment contents, they use com-       ways to increase profits by
                    San Diego City College. "I felt      puter programs to cut payouts,     streamlining claims handling.
                    absolutely abandoned."               they change policy coverage        Hurricane Hugo was a major
                                                         with no clear explanation, they    catalyst. The 1989 storm,
                    Tunnell joined thousands of                                             which battered North and
                    people in the U.S. who al-           ignore or alter engineering
                                                         reports, and they sometimes        South Carolina, left the indus-
                    ready knew a secret about the                                           try reeling from $4.2 billion in
                    insurance industry: When             ask their adjusters to lie to
                                                         customers, court records and       claims. In September 1992,
                    there's a disaster, the compa-                                          Allstate Corp., the second-
  The Gospel        nies homeowners count on to          interviews with former employ-
                                                                                            largest U.S. home insurer,
                    protect them from financial          ees and state regulators
                                                                                            sought advice on improved
 according to       ruin routinely pay less than         show. As Mississippi Republi-
                                                                                            efficiency from McKinsey &
                    what policies promise. Insur-        can U.S. Senator Trent Lott
                                                                                            Co., a New York-based con-
  insurance:        ers often pay 30-60 percent of       and thousands of other home-
                                                                                            sulting firm that has advised
                    the cost of rebuilding a dam-        owners have found, insurers
                                                                                            many of the world's biggest
Thou shalt          aged home--even when carri-
                    ers     assure     homeowners
                                                         make low offers--or refuse to
                                                         pay at all--and then dare peo-     corporations, according to
                                                         ple to fight back.                 records in at least six civil
                    they're fully covered, thou-
pay as lit-         sands of complaints with state       "It's despicable not to make
                                                                                            court cases.
                    insurance departments and            good-faith offers to every-        State Farm, based in Bloom-
tle and as          civil court cases show.              body," says Robert Hunter,
                                                         who was Texas insurance
                                                                                            ington, Illinois, and Los Ange-
                                                                                            les-based Farmers Group Inc.,
                    Paying out less to victims of                                           the third-largest home insurer
                                                         commissioner from 1993 to
  late as           catastrophes has helped pro-
                    duce record profits. In the past     '95 and is now insurance di-       in the U.S., also hired
                                                                                            McKinsey as a consultant,
                    12 years, insurance company          rector at the Washington-
                                                                                            court records show.
 possible.          net income has soared--even
                    in the wake of Hurricane
                                                         based Consumer Federation
                                                         of America. "Money managers                      continued on page 4
                    Katrina, the worst natural dis-      have taken over this whole
                    aster in U.S. history. Property-     industry. Their eyes are not on
                                                         people who are hurt but on the                               Page 3
                                                                                                             1990s, Allstate redesigned its
                                                                                                             claims practices to more effi-
                                                                                                             ciently and effectively handle
The Policyholder Advocate                                               October 2007 issue                   claims and better serve our
                                                                                                             customers," he says.

Insurers secret tactics to cheat …                                                continued from page 3      "Allstate's goal remains the
                                                                                                             same: to investigate, evaluate
                                                                                                             and promptly resolve each
McKinsey produced about             clients to the point of dropping    stretch as I've seen," says          claim based on its merits,"
13,000 pages of documents,          a challenge. "An alligator sits     Michael Chren, who manages           Siemienas says. "Allstate
including PowerPoint slides, in     and waits," Golden told the         $1.5 billion at Allegiant Asset      believes its claim processes
the 1990s, for Northbrook,          judge, as they looked at the        Management Co. in Palm               support this goal and are ab-
Illinois-based Allstate. The        slide describing a reptile.         Beach Gardens, Florida, and          solutely sound."
consulting firm developed                                               has followed the property-
methods for the company to          McKinsey's advice helped            casualty industry for 20 years.      McKinsey doesn't discuss any
become more profitable by           spark      a     turnaround    in   The industry's performance           of its work for clients, spokes-
paying out less in claims, ac-      Allstate's finances. The com-       during the past five years has       man Mark Garrett says.
cording to videotaped evi-          pany's profit rose 140 percent      been superb, even with pay-
                                    to $4.99 billion in 2006, up                                             Jerry Choate, Allstate's chief
dence presented in Fayette                                              outs for Katrina, he says. "All      executive officer from 1995 to
Circuit Court in Lexington,         from $2.08 billion in 1996.         the stars have been in align-
                                    Allstate lifted its income partly                                        '98, said at a news confer-
Kentucky, in a civil case in-                                           ment. There has been decent          ence in New York in 1997 that
volving a 1997 car accident.        by paying less to its policy-       pricing of products and an
                                    holders. Allstate spent 58 per-                                          the company's new claims-
                                                                        extremely attractive and very        handling process had re-
One slide McKinsey prepared         cent of its premium income in       low loss ratio."
for Allstate was entitled "Good     2006 for claim payouts and                                               duced payments and in-
Hands or Boxing Gloves," the        the costs of the process com-       Reducing payouts is just one         creased profit, according to a
tape of the Kentucky court          pared                                                   way       the    report in a March 1997 edition
hearing shows. For 57 years,        with 79                                                 industry         of National Underwriter maga-
Allstate has advertised its         percent                                                 has       im-    zine. Insurers can't make
employees as the "Good              in 1996,                                                proved           significantly more money just
Hands People," telling cus-         accord-                                                 profits.         from cutting sales costs, he
tomers they will be well cared      ing     to                                              Carriers         told reporters. "The leverage
for in times of need. The           filings                                                 have also        is really on the claims side,"
McKinsey slides had a new           with the                                                raised pre-      Choate said. "If you don't win
twist on that slogan. When a        U.S.                                                    miums and        there, I don't care what you
policyholder files a claim, first   Securi-                                                 withdrawn        do on the front end. You're
make a low offer, McKinsey          ties and                                                from             not going to win."
advised Allstate. If a client       Ex-                                                     storm-           The more cash insurers can
accepts the low amount,             change                                                  plagued          keep from premiums, the
Allstate should treat the per-      Com-                                                    areas such       more they can invest. This
son      with   good      hands,    mission.                                                as the Gulf      pool of assets--most of which
McKinsey said. If the cus-          The                                                     Coast      of    the companies invest in gov-
tomer protests or hires a law-      payout                                                  the      U.S.    ernment     and     corporate
yer, Allstate should fight back.    ex-                                                     and parts        bonds--is known as float.
                                    pense, called a loss ratio,         of Long Island, New York--to
"If you don't take the pittance     changes each year based on          lower costs and increase in-         "Simply put, float is money we
they offer, they're going to put    events such as natural disas-       come, says Amy Bach, execu-          hold that is not ours but which
on the boxing gloves and            ters; overall, it's been de-        tive director of United Policy-      we get to invest," billionaire
they're going to batter injured     creasing since Allstate hired       holders, a San Francisco-            Warren Buffett, CEO of Berk-
victims," plaintiffs attorney J.    McKinsey.                           based group that advises con-        shire Hathaway Inc., wrote in
Dale Golden told Judge Tho-                                             sumers on insurance claims.          his annual letter to sharehold-
mas Clark at the May 12,            Investors     have     noticed.     "What this says is that the          ers this year. "When an in-
2005, hearing in which the          Allstate's stock price jumped       industry has been raking in          surer earns an underwriting
lawyer       introduced      the    fourfold to $60.95 on July 11       spectacular     profits    while     profit, float is better than
McKinsey slides.                    from its closing price on June      they're getting more and more        free," he wrote in 2006.
                                    3, 1993, the day of its initial     audacious in their tactics," she     Omaha,          Nebraska-based
One McKinsey slide displayed        public offering. During the
at the Kentucky hearing fea-                                            says.                                Berkshire Hathaway gener-
                                    same period, the Standard &                                              ated 51 percent of its $11
tured an alligator with the cap-    Poor's 500 Index rose three-        Allstate spokesman Michael
tion "Sit and Wait." The slide                                                                               billion profit in 2006 from in-
                                    fold. State Farm's profits have     Siemienas says the company           surance.
says Allstate can discourage        doubled since 1996 to $4.8          won't comment on what role
claimants by delaying settle-       billion in 2006. Because State      McKinsey played in lowering
ments and stalling court pro-       Farm is a mutual company,           the insurer's loss ratio and
ceedings. By postponing pay-                                                                                              continued on page 5
                                    meaning it's owned by its poli-     boosting its profits. Allstate did
ments, insurance companies          cyholders, it doesn't have          change the way it handles
can hold money longer and           shares that trade publicly.         homeowners'            insurance
make more on their invest-                                              claims, he says. "In the early
ments-- and often wear down         "This is about as good a                                                                           Page 4
                          The Policyholder Advocate                                             October 2007 issue

                          Insurers secret tactics to cheat…                                                   continued from page 4


                          Claims payouts for the entire      offered. "The insurance indus-     tematically underpay policy-
                          property-casualty      industry    try can be justifiably proud of    holders without adequately
                          have decreased in the past         its performance," Hartwig          examining the validity of each
                          decade. In 2006, carriers paid     says. "It's in the insurance       individual   claim,"     former
                          out 55 percent of the $435.8       industry's best interests to       Texas insurance commis-
                          billion in premiums collected,     settle claims as fairly and as     sioner Hunter told the U.S.
                          according to the Insurance         rapidly as possible."              Senate Committee on Com-
                          Information Institute, a trade                                        merce, Science and Transpor-
  "The whole              group in New York. That com-       Companies have sharpened           tation on April 11. He also
                          pares with a 64 percent pay-       the use of technology in the       criticized Xactimate. "If you
purpose of in-            out ratio on $267.6 billion in     past 20 years to help tighten      don't accept their offer, which
                          premium revenue in 1996. As        claims payouts. Insurers fol-      is a low ball, you end up in
  surance is              companies pay less to policy-      lowing McKinsey's advice on        court," Hunter said. "And that
                          holders, their in-                                                               was the recom-
 evaporating              vestment gains are                                                               mendation         of
                          growing, according                                                               McKinsey." Com-
  before our              to the trade group                                                               puter Sciences and
                          and research firm                                                                Xactware declined
  eyes as we              A.M. Best Co. in                                                                 to comment.
                          Oldwick, New Jer-
                                                                                                             Farmers Group, a
  continue to             sey. The industry
                          has increased prof-                                                                subsidiary of Zu-
                                                                                                             rich Financial Ser-
 send checks              its by an annual
                          average of 46 per-                                                                 vices AG, agreed
                          cent since 1994,                                                                   in 2005 to stop
to the compa-             Institute data show.                                                               using Colossus to
                          In 2006, carriers                                                                  evaluate      claims
     nies."               invested $1.2 trillion                                                             filed by policyhold-
                          and recorded a net                                                                 ers who have acci-
                          gain of $52.3 bil-                                                                 dents with unin-
                          lion, up from $713.5                                                               sured or underin-
Douglas Heller, Founda-   billion invested for a                                                             sured drivers. The
 tion for Taxpayer and    gain of $39.1 billion                                                              move was part of a
    Consumer Rights       in 1994.                                                                           $40 million settle-
                                                                                                             ment in a class-
                          Insurance compa-                                                                   action lawsuit in
                          nies are no longer following       claims      processing    have     Pottawatomie County District
                          their mandate to take care of      adopted computer programs          Court in Oklahoma in which
                          policyholders' money and then      with names such as Colossus        the plaintiffs claimed the com-
                          pay it out when needed, says       and Xactimate. Colossus,           pany had repeatedly and
                          Douglas Heller, executive          made by El Segundo, Califor-       wrongly failed to pay enough
                          director of the nonprofit Foun-    nia-based Computer Sciences        for crash injuries.
                          dation for Taxpayer and Con-       Corp., calculates the cost of
                          sumer      Rights     in  Santa    treating people injured in auto    An internal e-mail introduced
                          Monica, California. "The whole     accidents, including the de-       in the Farmers lawsuit shows
                          purpose of insurance is            gree of pain and suffering         the company had pressured
                          evaporating before our eyes        they'll endure and any perma-      its adjusters, whom it calls
                          as we continue to send             nent impairment they may           claims representatives, or
                          checks to the companies,"          have, according to Computer        CRs, to pay out smaller
                          Heller says. "Insurers are         Sciences' Web site. Xacti-         amounts--and rewarded them
                          looking to shed their purpose      mate, made by Xactware So-         when they did.
                          as a risk bearer and become        lutions Inc. of Orem, Utah, is a   "As you know, we have been
                          financial institutions."           program that estimates the         creeping up in settlements,"
                                                             cost of rebuilding a home.         David Harding, a Farmers
                          That kind of criticism is unwar-
                          ranted, says Robert Hartwig,       Insurers sometimes manipu-         claims manager, wrote in an
                          chief economist at the Insur-      late these programs to pay out                   continued on page 15
                          ance Information Institute. He     as little as possible, lawsuits
                          says about 1 percent of policy-    have asserted. "Programs like
                          holders contest what they're       Colossus are designed to sys-
                                                                                                                           Page 5
The Policyholder Advocate                                             October 2007 issue

THE BILL AND THE MAN BEHIND IT. POA’s conversation with a rising star in
D.C.                                                                                          POA

                                   mocrat” – a fiscal conserva-       to serve as reinsurance for         US Representative Tim
                                   tive. He is a rancher and a        state-sponsored      insurance
                                   successful venture capitalist      funds. Any state wishing to          Mahoney won Mark
                                   who’s earned the reputation        participate, pools their insur-     Foley’s seat after Foley
                                   of being both an avid job crea-    ance funds with other partici-
                                   tor and supporter of small         pating states; participation is      was forced to resign
                                   enterprise. He represents          not mandatory. Private insur-       because of a sex scan-
                                   Florida’s House District 16,       ance companies are reinsured
                                   which includes Palm Beach          and these bonds help lower                    dal.
                                   County. He is a member of the      the cost of reinsurance for the
                                   House Financial Services and       carriers. There are caveats for
                                   Agricultural Committees and        insurance companies to qual-
                                   is also a member of the Blue       ify including:
An important Bill was recently     Dog Coalition – a small con-
                                   servative group dedicated to       ♦   the reinsurer must be a
introduced in the US House of                                             state-sponsored fund (not
Representatives called the         restoring fiscal responsibility
                                                                          a private carrier or a con-
HOMEOWNERS DEFENSE ACT             to Congress.
                                                                          sortium of private carriers
OF 2007. Debate has already        In September, 2006, voters             like what has occurred
begun on this Bill.                elected him to replace Mark            with various wind pools),
The Bill was introduced by two     Foley, the Republican de-
                                   stroyed by scandal. Congress-      ♦   the board of the fund
rising stars from Florida – U.S.                                          must include governmen-
Representatives Ron Klein          man Mahoney will seek re-
                                   election and has earned                tal officials who are ac-
and Tim Mahoney and already                                               countable to the public,
has earned the support of 35       POA’s endorsement. He con-
                                   tinues to prove he’s worthy of         and
other members from 20
states.                            our members’ support.              ♦   participating states must
                                                                          have passed laws that
The Bill is extremely signifi-
                                                                          enforce the provisions.
cant to POA members be-
cause it will reduce premiums                                         Rep. Mahoney also noted that
and increase the number of                                            the Bill also contains an insur-
carriers offering homeowners                                          ance stabilization mechanism
insurance in storm-prone ar-                                          by providing low cost federal
eas of the country.                                                   loans to states.
At first glance, the Bill ap-                                         Acknowledging that homeown-
pears to be a give-away to                                            ers are the first line of de-
insurers. It’s not. The authors                                       fense against a catastrophe,
                                   Rep. Mahoney describes the
of the Bill have taken great                                          the bill encourages sound
                                   Bill he co-authored as one
steps, and are prepared to                                            mitigation efforts and stresses
                                   that creates an institutional
take additional steps, to                                             the initiatives homeowners
                                   investment vehicle whereby
achieve their goal of available                                       can take to protect their own
                                   large investors (not retail in-
and affordable homeowners                                             homes, for example the instal-
                                   vestors) can invest in a new
insurance.                                                            lation of hurricane shutters,
                                   category of bonds called
                                                                      generators, storm windows,
POA’s legislative analyst sat      Catastrophic Bonds. He says
                                   it, in no way, replaces any        etc…
down with the man behind the
Bill – Rep. Tim Mahoney –          emergency funds provided by        Rep. Mahoney is also inter-
and gained tremendous in-          the federal government in a        ested in adding to the Bill a
sight into the Bill and the man    disaster; it’s simply a mecha-     concurrent clause that would
behind it.                         nism to take uncertainty (a        address the wind versus flood
                                   great excuse for private carri-    water issue. That debate may
Rep. Mahoney is a man of           ers to jack up rates) out of the   be better suited for the Flood
stark contrasts in that he’s       equation.                          Bill (HR 3121).
what we will call a “new De-
                                   These bonds only purpose is                      continued on page 7

                                                                                                                            Page 6
The Policyholder Advocate                                            October 2007 issue

The Bill and the Man…                                                         continued from page 6


                                      collected to sell and ser-         property. POA is shooting
                                      vice (adjust) the flood            for a 25-30% premium
                                                                                                           The Bush Ad-
                                      policies. When a claim is          discount cap.                     ministration
                                      made, the private insur-
                                      ance companies send out        ♦   POA believes Rep. Ma-
                                                                         honey should also investi-
                                                                                                            strongly op-
                                      THEIR OWN ADJUSTERS
                                      (loyal to that carrier) to         gate what sort of tax in-       poses this bill or
                                      adjust the claim, auto-            centive can be provided
                                      matically building into the        to residents in states that       anything that
                                                                         do not have state income
                                      claims equation an incen-
                                                                         taxes including Florida,        remotely resem-
                                      tive to dump onto the
                                      flood program (taxpayers)          Texas, Nevada, etc… It
                                                                         may be possible to allow
                                                                                                               bles it.
                                      all liabilities of a claim,
                                      even those that are con-           property owners dis-
POA has asked Rep. Mahoney
                                      tractually the liability of        counts on property taxes
to consider several other is-
                                      the private carrier. It is         in those states however,
sues:                                                                    at this time, the legality of
                                      estimated that more than
♦   Since private carriers            $9 billion worth of claims         that is unclear.
    benefit from lower rein-          were fraudulently paid by      “The bill recognizes that the
    surance rates resulting           the      taxpayer      after   single biggest investment for
    from the catastrophic             Katrina.                       most Americans is their
    fund, POA believes the
                                      Given this, POA believes       home. I have been proud to
    Bill should contain a
                                      it’s time for the National     work with Congressman Klein
    clause     that   requires
                                      Flood Program to conduct       to develop legislation that
    benefiting carriers to an
                                      a “cost/benefit analysis”      protects homeowners by mak-
    anti-cherry picking man-
                                      that would determine if        ing sure they have access to
    date. In other words, any
                                      now is the time to in-         affordable insurance.     This
    carrier benefiting from
                                      source (internalize) the       legislation would encourage
    lower reinsurance rates
                                      adjusting function for         responsible development and
    resulting from the fund
                                      flood claims. This would       risk mitigation while ensuring
    must offer all insurance
                                      not only eliminate the         that the American taxpayer
    products (home AND
                                      need to pay private carri-     will never have to fund a bail-
    auto) and not simply
                                      ers 33% of the flood pre-      out in the event of a natural
    cherry pick by offering
                                      miums collected, but it        catastrophe,” said Congress-
    auto while bailing out of
    the homeowners market.            would also eliminate           man Tim Mahoney.
    POA believes this would           dumping the carriers’          POA is excited to work closely
    most certainly increase           liabilities onto the flood     with Congressman Mahoney
    the availability of home-         program.                       and his staff on this and other
    owners insurance in ar-                                          legislation that benefits the
                                  ♦   POA would like for Rep.
    eas where they’ve other-                                         policyholder. We believe he
                                      Mahoney to increase the
    wise bailed.                                                     shares our goals of available
                                      discount insurers cur-
                                      rently allow for fortifica-    and affordable homeowners
♦   As most POA members
                                      tion of a property. This       insurance and is willing to do
    know, the government’s
                                      would include discounts        what it takes to achieve those
    flood insurance policies
    are sold by private insur-        for hurricane shutters,        goals.
    ance companies. For ex-           generators, and other          Interested in learning more
    ample, State Farm and             things that help mitigate      about this rising star and/or
    others sell their own poli-       damage done to a prop-         help ensure he stays in Con-
    cies as well as flood poli-       erty by storms. Currently,     gress and fight for you? Visit:
    cies issued by the federal        many insurers cap the          www.timmahoneyforflorida.
    flood insurance program.          discount percentage at
                                                                     com
    These insurance compa-            around 15% off of premi-
    nies are paid about 1/3           ums regardless of the
    of each premium dollar            fortifications made to a

                                                                                                                        Page 7
                     The Policyholder Advocate                                               October 2007 issue


                     Committee Probes FEMA's Response to Reports of Toxic Trailers
                                                         played after Hurricane Katrina.     clock is running on our duty to
                                                         Incredibly, FEMA has adopted        respond to them.”
                                                         the same attitude in address-
                                                         ing reports of high levels of       Another FEMA official wrote:
                                                         formaldehyde in FEMA trail-         the Office of General Counsel
                                                         ers.                                has advised that “we do not
                                                                                             do testing” because it “would
                                                         The nearly 5,000 pages of           imply FEMA’s ownership of
                                                         documents we’ve reviewed            this issue.”
                                                         expose an official policy of
                                                         premeditated ignorance. Sen-        Early in the process, due to
                                                         ior FEMA officials in Washing-      the perseverance of a preg-
                                                         ton didn’t want to know what        nant mother with a four-
                                                         they already knew because           month-old child, FEMA did
                      Henry A. Waxman, D-CA, Chairman,   they didn’t want the moral and      test one occupied trailer. The
                     House Committee on Government and   legal responsibility to do what     results showed that their
                                House Reform             they knew had to be done. So        trailer had formaldehyde lev-
                                                         they did their best not to know.    els 75 times higher than the
                     Today we begin two days of          It’s sickening and the exact        maximum workplace exposure
                     hearings on the Federal Emer-       opposite of what government         level recommended by the
                     gency Management Agency.            should be.                          National Institute for Occupa-
 FEMA’s lawyers      These hearings are part of a
                                                         My staff has prepared a brief-
                                                                                             tional Safety and Health.

blocked testing of   series of hearings in this Com-
                     mittee on how to make gov-          ing memo for members that           The mother evacuated the
occupied trailers    ernment effective again.            describes in detail what we
                                                         learned from our review of the
                                                                                             trailer. FEMA stopped testing
                                                                                             occupied trailers. And top offi-
  because once       In the 1990s, FEMA was a            FEMA documents. I ask               cials issued a statement that
                                                         unanimous consent to include        said: “FEMA and industry ex-
  tested, FEMA       model government agency.
                                                         the memo and the documents          perts have evaluated the small
                     But as Hurricane Katrina
would have a duty    showed, cronyism, under-            it cites in the hearing record.     number of cases where odors
                                                                                             of formaldehyde have been
   to respond.       funding, and lack of leadership
                     turned FEMA into the most           The FEMA documents depict           reported, and we are confident
                     ridiculed agency in the gov-        a battle between FEMA field         that there is no ongoing risk.”
                     ernment.                            staff, who recognized right
                                                         away that formaldehyde was a        In early July 2006, FEMA offi-
                     In these hearings, we will ask      serious problem, and FEMA           cials worked with EPA and
                     whether FEMA has learned            headquarters,        particularly   CDC to develop a testing pro-
                     the lessons of Hurricane            FEMA’s lawyers, who wanted          tocol for unoccupied trailers
                     Katrina and restored its ca-        to pretend it didn’t exist.         that would “determine formal-
                     pacity to protect the public in                                         dehyde concentrations ema-
                     disasters.                          In March 2006, news articles        nating from the trailer…under
                                                         reported high levels of formal-     living conditions.” EPA officials
                     Today we are going to look at       dehyde in FEMA trailers.            advised FEMA that “the levels
                     a narrow, but telling subject:      FEMA field staff urged imme-        we find after testing may well
                     FEMA trailers that exposed          diate action, saying: “This         be more than 100 times higher
                     our citizens to dangerous lev-      needs to be fixed today,” “we       than the health base level.”
                     els of formaldehyde. Then in        need to take a proactive ap-
                     two weeks, we will look at the      proach,” and there is an            After receiving this report,
                     broader topic of FEMA’s pre-        “immediate need” for a plan of      FEMA responded by changing
                                                         action.                             the testing protocols. Instead
                     paredness for the next disas-
                                                                                             of simulating actual living con-
                     ter. I commend my colleague,
                                                         But when the issue reached          ditions — which would show
                     Ranking Member Davis, for
                                                         FEMA’s lawyers, they blocked        high levels of formaldehyde —
                     asking for the preparedness
                                                         testing of occupied trailers.       FEMA directed that the trailers
                     hearing and for his bipartisan
                                                         One FEMA attorney ex-               be tested with their windows
                     approach to these issues.
                                                         plained: “Do not initiate any       open, their ventilation fans
                     Americans were repulsed by          testing until we give the OK.
                     the indifference FEMA dis-          …Once you get results…the
                                                                                                                       Page 8
The Policyholder Advocate                                                         October 2007 issue
                                          complaints from occupants               Yesterday, FEMA finally ad-            health of the victims of Hurri-
FEMA’S TOXIC                              about high formaldehyde lev-            mitted it made a mistake. It           cane Katrina.
TRAILERS                                  els, including at least two             announced it would begin a
              continued from page 8       complaints involving the death          program to test occupied trail-        It is impossible to read the
                                          of occupants. But the agency            ers for dangerous levels of            FEMA documents and not be
                                          brushed the complaints aside.           formaldehyde. This is exactly          infuriated. Americans don’t
running, and their air condi-             Over 100,000 families have              what FEMA’s field staff urged          mind paying their taxes if they
tioning units operating 24                lived in FEMA trailers and              over a year ago. But it took           get a government that works.
hours per day.                            manufactured homes. Yet the             this hearing — and the pros-           But when that bargain is bro-
                                          leadership of FEMA refused to           pect that Director Paulison            ken — and tax dollars are
A leading treatise on diagnos-            take even the most basic                would face tough questions—            squandered and health jeop-
ing indoor air quality calls test-        steps to protect them from              to spur FEMA to act.                   ardized — frustration rises
ing for formaldehyde under                toxic formaldehyde fumes.                                                      and trust in government
these          conditions                                                         FEMA exists to serve the pub-          erodes.
“meaningless.”                            "It is impossible to read the           lic. But it acts as though pro-
                                          FEMA documents and not be               tecting Director Paulison from         At our last hearing with Sur-
                continued on page 9
                                          infuriated."                            embarrassment is more im-              geon General Carmona, I
FEMA      repeatedly      received                                                portant than protecting the            said that good oversight



FEMA’s Management and Oversight of Payments for                                     reasonable estimates of actual         consistently as required by regula-
                                                                                    expenses because actual expenses       tion. FEMA regulations require
Insurance Company Services Should Be Improved                                       incurred by the companies for          each participating company to
(report highlights)                       GAO                                       their services to the NFIP are not     arrange and pay for these audits
                                                                                    considered. Although it has au-        by independent certified public
Extraordinary recent flood events           financial audits are performed.         thority to do so, FEMA does not        accounting firms. However, many
raise serious questions about the           The Department of Homeland              collect data on actual WYO flood       WYO insurance companies did
solvency of the National Flood In-          Security reviewed a draft of this       insurance expenses that could          not comply with the schedule in
surance Program (NFIP), which is            report and generally agreed with        provide a basis for insuring that      recent years. For example, for
administered by the Federal Emer-           our recommendations.                    the WYO payments are based on          fiscal years 2005 and 2006, 5 of
gency       Management         Agency                                               a reasonable estimate of actual        94 participating companies had
(FEMA). The NFIP is largely imple-          FEMA’s payments to WYO in-              expenses. FEMA officials said          biennial financial statement audits
mented by private insurance compa-          surance companies for operating         that they have not asked WYO           performed. FEMA officials said
nies that sell and service policies and     costs ranged from more than a           insurance companies to provide         they allowed some companies to
adjust claims under the Write Your          third to almost two-thirds of the       expense information due to con-        delay having the audits done be-
Own (WYO) Program. This report,             total premiums paid by policy-          cerns that the approach would          cause they were in the process of
prepared under the authority of the         holders to the NFIP for fiscal          increase FEMA’s administrative         contracting with new subcontrac-
Comptroller General, examines (1)           years 2004 through 2006. In fiscal      costs and cause a decline in WYO       tors to perform their financial
how much FEMA paid the WYO                  years 2005 and 2006, larger pay-        program participation. However,        reporting responsibilities. None-
companies in recent years for operat-       ments to WYO insurance compa-           some data on expenses WYO              theless, without the required bien-
ing costs and how FEMA deter-               nies were the result of settling an     insurance companies allocate to        nial audits, FEMA lacks an appro-
mined payment amounts; (2) how              unprecedented number and dollar         flood insurance are available.         priate internal control mechanism
FEMA’s approach to determining              amount of claims for damages            FEMA officials said that they          for effective program oversight.
operating costs assures that pay-           resulting from major hurricanes         cannot use this information due to
ments are reasonable estimates of           and flood events including Hurri-       reporting inconsistencies. Also,       CLICK HERE FOR FULL REPORT
companies’ expenses; and (3) how            cane Katrina. To determine the          there is some precedent in two
FEMA assures that financial and             amount of these payments, FEMA          similar public-private insurance
management controls are in place for        negotiated payment approaches           partnerships for collecting actual
the WYO program and operate as              with insurance industry represen-       expense information. FEMA’s
intended. To do these assessments,          tatives when it established the         decision to rely on long-standing
GAO interviewed FEMA and insur-             current WYO program in 1983             practices does not meet federal
ance officials, and analyzed statutes,      based on industry averages for          internal control standards that
regulations, payment data, method-          operating expenses for other lines      agencies be held accountable for,
ologies, and audits of WYO compa-           of insurance (such as homeown-          among other things, stewardship
nies.                                       ers, commercial, and fire), past        of government resources.
                                            practice, and discussion.
What GAO Recommends                                                                 Biennial financial statement au-
                                            The approach FEMA uses to de-           dits—FEMA’s primary mecha-
GAO recommends that FEMA take               termine operating costs for WYO         nism to provide assurance that it
steps to ensure that it has a reason-       insurance companies, rooted in          receives complete and accurate
able estimate of actual expenses            policies negotiated and estab-          financial management informa-
WYO companies incur to help deter-          lished about 25 years ago, cannot       tion from the WYO insurance
mine payments for services and that         ensure that payments are based on       companies—were not performed
                                                                                                                                                   Page 9
                     The Policyholder Advocate                                              October 2007 issue

                     Judge Unseals Katrina Damage Lawsuit                                    By MICHAEL KUNZELMAN, AP

The suit accuses     The U.S. Department of Jus-       several engineering firms that        E.A. Renfroe & Co., a Birming-
                     tice is weighing whether to       contracted with the compa-            ham, Ala.-based insurance
     insurance       intervene in a lawsuit that       nies are named as defen-              adjusting firm, assigned the
   companies of      accuses insurance companies       dants in the suit.                    Rigsbys to help State Farm
                     of overbilling the federal gov-                                         adjust Katrina claims. The
     pressuring      ernment for flood damage          The suit, which represents            sisters quit the firm after they
                                                       only one side of a legal argu-
   engineers to      from Hurricane Katrina, a
                                                       ment, accuses insurance com-
                                                                                             provided Scruggs - and state
                     judge who unsealed the case                                             and federal authorities - with
falsify reports so   on Monday said.
                                                       panies of pressuring engi-            reams of internal State Farm
                                                       neers to falsify reports so
  storm damage       A team of lawyers filed the so-   storm damage could be
                                                                                             claims records.
could be blamed      called "whistleblower" suit in    blamed on flood water instead         The sisters claim the docu-
                     April 2006 on behalf of two       of wind, which would shift the        ments show that State Farm
  on flood water     sisters who worked for a com-     financial burden to the Na-           manipulated engineering re-
 instead of wind,    pany that helped State Farm       tional Flood Insurance Pro-           ports so claims could be de-
    which would      Insurance Co. adjust policy-      gram.                                 nied, a charge that the Bloom-
                     holder claims on the Missis-                                            ington, Ill.-based insurer de-
      shift the      sippi Gulf Coast after the Au-    The companies say their
                                                                                             nies.
                                                       homeowner policies cover
financial burden     gust 2005 storm.
                                                       damage from wind but not              Renfroe sued the Rigsbys for
  to the National    But the suit was legally re-      rising water, including storm         distributing the documents.
                     quired to remain under seal       surge. Insurers sell separate         Last month, a federal judge
Flood Insurance      so the Justice Department         flood insurance policies that         presiding over that case in
      Program.       could investigate and con-        are subsidized by the federal         Alabama appointed two vet-
                     sider intervening in the case.    government.                           eran attorneys to prosecute
                                                                                             Richard Scruggs and his law
                     U.S. Magistrate Judge Robert      "By employing engineering
                                                                                             firm for criminal contempt.
                     Walker in Gulfport, Miss., or-    reports that reallocated losses
                     dered the case unsealed Mon-      to 'flood' instead of homeown-        U.S. District Judge William
                     day, even though the federal      ers, State Farm, Nationwide,          Acker ruled in June that
                     government had argued that        and other insurers essentially        Scruggs "willfully violated" a
                     its disclosure would              pushed off their responsibility       court order requiring him to
                     "compromise (its) ability to      to pay claims onto the federal        return all of the documents
                     conduct an adequate civil         government," the 35-page              that the Rigsby secretly cop-
                     investigation of this case."      lawsuit alleges.                      ied.
                     "The government gives no          Zach Scruggs, Richard                 Meanwhile, the Rigsbys' suit
                     explanation for how the inves-    Scruggs' son and law partner,         isn't the first of its kind since
                     tigation would be compro-         said that Justice Department          Katrina hit on Aug. 29, 2005.
                     mised by unsealing the case,"     intervention could make it a          In Louisiana, U.S. Attorney
                     Walker wrote in a one-page        stronger case.                        David Dugas decided against
                     order.                                                                  intervening in a whistleblow-
                                                       "I think it's going to be a           ers' lawsuit that also accuses
                     Justice Department spokes-        strong case, either way," Zach        insurers of overbilling the
                     man Charles Miller said he        Scruggs said. "It's their right to    NFIP for Katrina's flood dam-
                     would not comment on the          (intervene), but we are more
                                                                                             age.
                     suit or the judge's ruling.       than prepared and willing to
                                                       litigate this on our own, on          An attorney for a group of
                     A legal team led by high-                                               former insurance adjusters
                                                       behalf of the government."
                     profile litigator Richard                                               filed that suit last year in fed-
                     "Dickie" Scruggs filed the law-   State Farm spokesman Phil             eral court. A federal judge in
                     suit on behalf of Cori and        Supple said: "Given that the          New Orleans unsealed it in
                     Kerri Rigsby, sisters from        Rigsbys have been self-
                                                                                             May.
                     Ocean Springs, Miss., who         proclaimed whistleblowers for
                     worked for a company that         more than a year, it was not
                     contracted with State Farm.       surprising to see the existence
                                                       of this lawsuit, which gives
                     State Farm, Nationwide Insur-     them a potential monetary
                     ance Co., Allstate Insurance
                                                       incentive for filing it."
                     Co., USAA Insurance Co., and
                                                                                                                    Page 10
                           The Policyholder Advocate                                              October 2007 issue

                           5th Cir. Says ‘Flood’ Exclusions Bar Coverage for New Orleans Canal
                           NEW ORLEANS — The 5th              resulting from the negligent or     Insurer defendants in the con-
                           Circuit Court of Appeals on        intentional acts alleged to         solidated cases included doz-
                           Aug. 2 reversed a lower court      have caused the city’s levees       ens of companies, nearly all of
CLICK HERE FOR RULING BY   and ruled that “flood” exclu-      to fail during Hurricane Katrina    whom issued policies contain-
     THE 5th CIRCUIT       sions in standard homeowners       (See HarrisMartin’s Columns:        ing a standard exclusion pre-
                           policies issued by several         Mold, Dec. 2006).                   cluding coverage for “flood,
                           Louisiana insurers unambigu-                                           surface water, waves, tidal
                           ously bar coverage for dam-        The Circuit Court concluded,        water….”
                           age that occurred when New         “even if the plaintiffs can prove
                           Orleans canals were breached       that the levees were negligent      The Circuit Court said that any
                           during Hurricane Katrina. In       designed, constructed, or           differences in policy language
                           re: Katrina Canal Breaches,        maintained and that the             were immaterial to the appeal.
                           No. 07-30119 [Humphreys v.         breaches were due to this
                           Encompass Insurance Co.,           negligence, the flood exclu-        Counsel for plaintiffs included
                           No. 06-0169; Vanderbrook v.        sions in the plaintiffs’ policies   Joseph M. Bruno of Bruno &
                           State Farm Fire & Cas. Co.,        unambiguously preclude their        Bruno in New Orleans (liaison
                           No. 05-6323; Xavier University     recovery.”                          counsel); Daniel E. Becnel Jr.
                           of La. v. Travelers Property                                           of Reserve, La.; Calvin Fayard
                           Cas. Co., No. 06-516; and          “Regardless of what caused          of Fayard & Honeycutt in Den-
                           Chehardy v. State Farm, Nos.       the failure of the flood-control    ham Springs, La.; Hugh P.
                           06-1672, 06-1673 and 06-           structures that were put in         Lambert of Lambert & Nelson
                           1674] (5th Cir.).                  place to prevent such a catas-      in New Orleans; and Gerald
                                                              trophe,” the court said, “their     Meunier of Gainsburgh, Ben-
                           The ruling by the three-judge      failure resulted in a wide-         jamin, David, Meunier & War-
                           panel reversed a Nov. 27 or-       spread flood that damaged the       shauer in New Orleans.
                           der by Judge Stanwood R.           plaintiffs’ property. This event
                           Duval Jr. of the U.S. District     was excluded from coverage          Counsel for insurers include
                           Court for the Eastern District     under the plaintiffs’ insurance     Ralph S. Hubbard III of Lugen-
                           of Louisiana that homeowners       policies, and under Louisiana       buhl, Wheaton, Peck, Rankin
                           could reasonably interpret the     law, we are bound to enforce        & Hubbard in New Orleans
                           term “flood” to preclude cover-    the unambiguous terms of            and Judy Y. Barrasso of Bar-
                           age for naturally occurring        their insurance contracts as        rasso Usdin Kupperman Free-
                           events, but not for the damage     written.”                           man & Sarver in New Orleans.


                           NEW CAUSE OF ACTION MAY PUT AN END TO LOWBALL
                           TECHNIQUES USED BY INSURERS                POA

                           Some good news for attorneys       Farm and Xactimate. More            Mr. Watkins told POA. "This
                           and policyholders.                 importantly, the Judge held         ruling means that insureds
                                                              that in insured had antitrust       can potentially bring such ac-
                           Thanks to the good work of
                                                              standing to bring the antitrust     tions against carriers."
                           one of our professional mem-
                                                              claim, and only lacked suffi-
                           bers, Alex Watkins of Capitelli                                        Perhaps such cases will bring
                                                              cient facts to plausibly suggest
                           &     Wicker        (New    Or-                                        an end to the phony price fix-
                                                              a conspiracy.
                           leans),     lawyers across the                                         ing scheme (a.k.a. Xacti-
                           country can bring a new cause      Louisiana, like most other          mate)     that    has     al-
                           of action against an insurer       states, has a boilerplate anti-     lowed insurers to lowball re-
                           and their not-so-arms-length       trust statute mirroring the         pairs.
                           price fixing partner, Xactimate.   Sherman Act, on its books.
                                                                                                  CLICK HERE FOR THE RUL-
                           The new cause of action is a       Any policyholder in a state
                                                                                                  ING
                           Horizontal Price Fixing            having such a statute can
                           (antitrust) violation.             bring this type of action. Mr.
                                                              Watkins reported to POA that
                           In a recent case, Judge Duval
                                                              his firm has filed two other
                           ruled that the plaintiffs had
                                                              similar cases against Lafay-
                           stated sufficient facts to pur-
                                                              ette and Travelers Insurance.
                           sue fraud and breach of con-
                                                              We will report on those as
                           tract claims against State
                                                              soon as possible.                                          Page 11
The Policyholder Advocate                                                    October 2007 issue

As Premiums Rise, Homeowners Drop Wind Coverage
By LIAM PLEVEN Wall Street Journal

A small but growing number of          kind of home insurance, which         end of the day, it's the customer's
homeowners are taking an ex-           often includes wind coverage,         decision."
treme approach to insurance            according to the trade group In-
against hurricane winds: They're       surance Information Institute.        The federal government handed         Many consumers
going "bare" -- doing without the      Moreover, in some coastal states,     out at least $6.5 billion in grants
coverage entirely.                     wind coverage is typically in-        and aid money after Hurricane          who do not have
                                       cluded as part of a general policy,   Katrina hit in 2005 -- some of
Florida this year passed a law         making it harder to drop. Never-      which went to help people who           mortgages are
making it easier to opt out of
wind coverage amid a voter
                                       theless, people in the insurance
                                       industry say it occurs, and some
                                                                             didn't have government-backed
                                                                             flood insurance. But one of
                                                                                                                      going without
backlash over soaring premiums,        say they see an increase.             Katrina's consequences was a          homeowners cov-
and the practice is also appearing                                           sharp jump in premiums for wind
in other states, particularly those    "There's no doubt in my mind          coverage from private insurers,       erage because of
along the Gulf Coast hit hard by       that there are more people going      which doubled or tripled in some
recent storms.                         bare than in the past," says          coastal areas. Some homeowners        soaring premiums
                                       Robert Rusbuldt, chief executive      are doing the math and conclud-
                                       of the Independent Insurance          ing it can be more cost-effective      and fears the in-
                                       Agents & Brokers of America, an
                                       Alexandria, Va.-based organiza-
                                                                             to cover rebuilding costs out-of-
                                                                             pocket, rather than paying big         surer won’t pay
                                       tion that represents 300,000
                                       agents and brokers nationwide.
                                                                             annual premiums.                        when a claim,
                                       "They're betting against Mother                                               covered by the
                                       Nature."
                                                                                                                    policy, is made.
                                       Mr. Rusbuldt says a survey con-
                                       ducted for the group in May con-
                                       cluded that nearly three million
                                       Americans were dropped by their
                                       home insurers in the past two
                                       years -- more than two-thirds of
 A tree rests on a house in            them in 16 Southeastern states.
 Beaumont, Texas, after Hur-           The survey had an average mar-
 ricane Rita hit in 2005.              gin of error of 3.7%. "You have
                                       to assume" that some of those
                                                                              A house in Lake Charles,
                                       people did not get new wind
                                                                              La., with roof damage
While the option of doing with-        coverage, he says.
                                                                              after Hurricane Rita.
out wind coverage is generally
limited to people who don't have       After the devastating hurricanes
mortgages -- banks typically           in 2004 and 2005 caused more          Kathy Sansbury dropped cover-
require borrowers to carry insur-      than $150 billion in damages,         age on her Fort Lauderdale, Fla.,
ance -- even a slender increase in     much of which they had to pay         townhouse after the premium
those going uncovered could            for, insurers have increased rates    roughly doubled in December, to
have broader repercussions in the      dramatically while dropping           nearly $9,000. At that price, she
wake of another major storm. A         clients they consider high-risk.      and her husband concluded that
drop in insurance payouts could        Allstate Corp. -- which insures       after paying the higher premium
leave storm-struck areas with          nearly one out of every eight         for just 13 years, they would
fewer resources for rebuilding         homes in the U.S., according to       have spent enough to rebuild.
and shift some of the burden to        A.M. Best Co. -- has moved to
taxpayers. That more individuals       shed roughly 290,000 customers        "It doesn't make sense, as expen-
are opting to go without coverage      in hurricane-prone states since       sive as it is," she says.
also underscores the breakdown         Katrina, most of them in Florida.
of the insurance system in coastal                                           At the other end of the spectrum
areas.                                 Customers can choose to drop          are individuals who either can't
                                       wind coverage on their own. "We       afford soaring premiums, or who
Nobody tracks how many Ameri-          work with them to make sure           have concluded that their homes
cans are going without wind            they are appropriately covered,"      aren't worth enough to warrant
coverage, and it's likely still rare   says Mike Siemienas, an Allstate      the price of coverage at all.
-- most homeowners do have                                                                continued on page 13
                                       spokesman. But, he adds, "At the
mortgages and 96% carry some                                                                                                      Page 12
                      The Policyholder Advocate                                                  October 2007 issue

                      As Premiums Rise…..                                                                  continued from page 12
    There's also
                      "There's no incentive to have my     ple getting insurance through         insurance against hurricane dam-
  interest in self-   home insured," says Melissa          state-created insurers of last re-    age after storms the past few
 insurance pools.     DeStio, who owns a roughly 30-       sort. These insurers sell insurance   years. In a recent filing with the
                      year-old mobile home in Boynton      to people who can't get coverage      Securities and Exchange Com-
Homeowners are        Beach, Fla., that she estimates is   otherwise, often at much higher       mission, Disney blamed "recent
"looking for ways     worth up to $6,000. "The pre-        rates than they got in the private    weather events" for its inability
                      mium far exceeds the benefit,        sector. For instance, Florida's       to purchase as much wind insur-
     to bypass        after you pay the deductible."       insurer of last resort, Citizens      ance as it previously carried. As a
                                                           Property Insurance Corp., now         result, the company says it is
     insurance        Some insurance agents say they       insures more than 1.3 million         "carrying more self-insurance ...
companies," says      are seeing an increase in the        homes, more than any other com-       than we have in the past." Dis-
                      number of clients who have taken     pany in the state.                    ney's main property in a hurri-
  state Sen. Don      the plunge of going uncovered or                                           cane-prone state is the Walt Dis-
      Gaetz, a        discussed the option. Alex Soto,     Until recently, insurers in Florida   ney World theme park in Florida.
                      who heads InSource Inc., a Mi-       were required to include wind         But for some homeowners, drop-
 Republican who       ami insurance agency, estimates      coverage in all policies they sold,   ping insurance simply means
represents part of    that 2% to 3% of his clients have    except in particularly high-risk      taking on a big risk. Wendy
                      dropped wind coverage. Five          areas. But in response to anger       Avin, who lives in a mobile
    the Florida       years ago, he says, such a step      over rising premiums, lawmakers       home park in Gulfport, Miss., a
    Panhandle.        was almost unheard of.               passed new rules -- which took        town that was ravaged by Hurri-
                                                           effect July 1 -- letting insurers     cane Katrina, says she received
                      Earlier this year, a number of       sell policies without wind cover-     an insurance payout for damages
                      homeowners in the New Orleans        age to any Florida homeowner          to her home from that storm. But
       Large          area opted to go without wind        willing to sign a statement that      now, she says, she cannot afford
corporations have     coverage after being dropped by      they don't want it.                   the wind coverage and is going
                      their prior carriers and electing                                          without. "It really worries me,"
  long turned to      not to turn to Louisiana's insurer   There's also interest in self-        she says.
 self-insurance,      of last resort, says Marc Eagan,     insurance pools. Homeowners are
                      president of Eagan Insurance         "looking for ways to bypass in-       George Mastics, who lives near
 setting up their     Agency. He estimates that 500 of     surance companies," says state        the Atlantic Ocean in Palm
 own insurance        his agency's 9,000 homeowners'       Sen. Don Gaetz, a Republican          Beach, Fla., says the structural
                      insurance customers are currently    who represents part of the Florida    stability of his house, built in
 companies and        without the coverage. But Mr.        Panhandle.                            1935, factors into his decision not
paying premiums       Eagan adds that the market's                                               to carry wind insurance. "The
                      improving because no storms          Large corporations have long          walls are so thick," he says. "I
    to them, or       have struck the area so far this     turned to self-insurance, setting     can't imagine a hurricane tearing
                      season, and he expects more          up their own insurance compa-         it down."
 planning to pay      insurers will be willing to offer    nies and paying premiums to
 out-of-pocket if     coverage at rates that appeal to     them, or planning to pay out-of-      "Maybe I'm a gambler. I don't
                      customers.                           pocket if disaster strikes.           know," he adds. But he hasn't
 disaster strikes.                                                                               paid for wind coverage for a few
                      The recent upheaval in the insur-    Companies including Walt Dis-         years. "So far, I'm ahead of the
                      ance industry has led to a dra-      ney Co. and Wal-Mart Stores           game."
                      matic rise in the number of peo-     Inc. have said they now carry less




                                                                                                                           Page 13
The Policyholder Advocate                                        October 2007 issue
                                                                                                 tions from insurance com-
                                                                                                 panies and their “suits” but
MISSISSIPPI INSURANCE COMMISSIONER’S RACE HAS FAR-
                                                                                                 his ethics report filings tell a
REACHING IMPLICATIONS                           POA                                              different story. Moreover,
“Illness and fatigue” plagued   delay and lowball legitimate     cludes implementing several     his Senate voting record
incumbent Insurance Com-                                         programs that will reduce       gives us a glimpse of what’s
                                claims in Mississippi.
missioner, George Dale, who                                      skyrocketing premiums and       to come if he’s elected In-
was unseated in the Democ-      The State’s Democratic           give Mississippians a greater   surance Commissioner and
ratic Primary on August 7.      Party didn’t even want Dale      field of carriers from which    it’s not pretty.
Voters were just plain “sick    to run as a Democrat. They       to choose. He also will en-
                                felt the Republican ticket                                       Mississippi may be a pream-
and tired” of Dale’s pro-                                        force “best practices” for      ble to future races in states
insurance industry positions    suited him better.               claims handling. Anderson’s     impacted by severe
and wanted a more con-          Gary Anderson, a Jackson,        ethics reports filed with the   weather. As such, POA feels
sumer-friendly Commish.         MS resident, won the De-         state show he has honored       the need to weigh in on this
                                mocratic Primary and will        his promise to refuse cam-      important race.
Dale had held the position                                       paign contributions from
for 32 years but Hurricane      face Republican candidate
                                and State Senator, Mike          insurance companies and/or      Mr. Anderson gets POA’s
Katrina proved too tough a                                                                       endorsement.
                                Chaney, in the November          their executives.
test for the man who basi-
cally gave insurers permis-     General election.                Chaney on the other hand
sion to price gouge, deny,      Anderson’s    platform     in-   promised to refuse contribu-


Louisiana Appeals Court Decision at Odds with 5th Circuit on Coverage
The debate will rage on and on and on…                                              POA
A Louisiana state appeals        sponsible for the loss.          storm surge, which is
court has taken a some-                                           caused by wind, which is
what different view from         It sent the case back to         always a covered peril."
the views expressed by the       the trial court and said
U.S. 5th Circuit court in a      the insurer, Louisiana           Filo expects an appeal to
similar case and with the        Citizens Property Insur-         the Louisiana Supreme
same state law being in-         ance Co, bears the "clear        Court.
terpreted. The state ap-         burden" to show that un-
peals court ruled that peo-      covered perils, such as          Louisiana Citizens had
ple who lost their homes in      flood waters, were the           argued the typical
hurricanes are not neces-        "efficient and proximate         “switch” argument -- hold-
sarily entitled to recover       cause" of the loss.              ing the industry liable for
the full amount of their                                          total losses would burden
losses if their insurance        The case involved Mark           residents by making it
policies covered only some       and Barbara Landry, who          unattractive for carriers
perils but not others. This      lost their home in Hurri-        to operate in the state.
is a partial victory for in-     cane Rita in September
                                 2005. Their $57,200              The August 6 federal ap-
surers.                                                           peals court ruling, in a
                                 homeowners' policy cov-
The Louisiana appeals            ered losses from wind            case involving homes de-
panel said a lower court         and rain but not floods.         stroyed in Katrina and
erred in ruling that, under                                       Rita (reported on the
the state's Valued Policy        "I feel like the decision is     cover of this newsletter),
Law, homeowners could            very favorable to plain-         said insurers need pay a
recover in full for the total    tiffs," said Tom Filo, a         policy's full value only
destruction of their             lawyer representing the          when homes are ren-
homes, even if covered           Landrys. "It's certainly         dered total losses from
perils such as wind and          foreseeable that in every        covered perils.
rain were not solely re-         hurricane, there will be a
                                                                  The debate will continue.                             Page 14
                The Policyholder Advocate                                              October 2007 issue

                Insurers secret tactics to cheat …                                                 continued from page 5


                e-mail to employees on Nov.        Ford and Jimmy Carter, told         were covered. In another
                20, 2001. "Our CRs must re-        Congress that Allstate, with        case, Katzman says Allstate
                sist the temptation of paying      McKinsey's guidance, gave           wouldn't replace a fire-
                more just to move this type        the name Claim Core Process         damaged refrigerator--an ap-
                file. Teach them to say, 'Sorry,   Redesign to its strategy to         pliance she says was covered.
                no more,' with a toothy grin       change payout practices.            Katzman now runs Accurate
                and mean it." Harding praised                                          Estimating Services, an inde-
                a worker for making low settle-    As pervasive as computers           pendent adjusting company in
                ments. "It can be done as          have become in insurance,           Bloomfield Hills, Michigan.
                Darren consistently does," he      the key actor in settling claims    Allstate's Siemienas declined
                wrote. "If he keeps this up        is still the adjuster, the person   to comment on Katzman's
                during 2002, we will pay him       who talks to policyholders and      statements.
                accordingly."                      decides how much they
                                                   should be paid. Allstate has        Insurers sometimes order
                Farmers said in court papers       asked adjusters to deceive          employees to offer replace-
                that it didn't seek to pay less    customers, says Jo Ann Katz-        ment cost settlements that
  If claims     than customers were due.           man, who worked as a claims         have no connection to actual
                "The e-mail speaks for itself,"    adjuster for Allstate in 2002       prices of home contents, ac-
payouts were    Farmers wrote. "Plaintiff's        and '03. She says managers          cording to testimony in a civil
                characterization of it is de-      regularly came to her office in     trial. A jury in November 2005
                nied."                             Farmington Hills, Michigan, to      awarded Larry Stone and
kept down by                                       give pep talks on keeping           Linda Della Pelle $5.2 million
                Edward Rust Jr., CEO of State      claim payments down. They           in punitive damages and
lowballing or   Farm, testified in a 2006 civil    awarded prizes such as port-        $616,000 to construct a new
                case that his com-                                                             house after finding that
  denying       pany revamped its
                claims      handling
                                                                                               Fidelity National Insur-
                                                                                               ance Co. of Jackson-
                through a project
 legitimate     called ACE, or Ad-
                                                                                               ville, Florida, had un-
                                                                                               derpaid the couple by
                vanced Claims Ex-                                                              $183,000 when it of-
  claims,       cellence. McKinsey                                                             fered them $433,000 to
                suggested the use                                                              rebuild their two-story
 adjusters      of ACE, according
                to evidence pre-
                                                                                               Claremont, California,
                                                                                               residence.
                sented in the dis-
 would be       trict court of Grady                                                         During the trial in Los
                County, Oklahoma.                                                            Angeles        Superior
   given        "Technology     has
                                                                                             Court,          Ricardo
                                                                                             Echeverria, the cou-
                allowed us to really
 “goodies”.     streamline      our
                                                                                             ple's attorney, ques-
                                                                                             tioned Kenneth Drake,
                claim organization                                                           president of Canyon
                to be more efficient and re-                                           Country, California- based
                sponsive," Rust testified. He      able refrigerators to adjusters
                                                   who tried to deny claims by         RJG Construction Inc., who
                said the company wanted to                                             had been hired by Fidelity's
                cut expenses for claims. In the    blaming fires on arson without
                                                   justification, she says. "We        lawyers to evaluate damage
                Oklahoma case, Bridget and                                             estimates.
                Donald Watkins, whose Grady        were told to lie by our supervi-
                County house was destroyed         sors," says Katzman, 49, who        "Are you telling us that some-
                during a tornado in 1999, ac-      quit by taking a company buy-       times, because the insurance
                cused State Farm of misrepre-      out in 2003. "It's tough to look    carriers dictate what amounts
                senting the damage from the        at people and know you're           they are willing to allow for
                storm and won a $12.9 million      lying."                             unit costs, estimators then
                judgment in May 2006. Wat-         Katzman says an adjuster at         have to comply with that?"
                kins and State Farm agreed to      Allstate, on orders from a su-      asked Echeverria, according
                an undisclosed settlement          pervisor, told an 89- year-old      to the court transcript.
                after the judgment.                Detroit fire victim that Allstate                continued on page 16
                Hunter, who also headed the        wouldn't replace cabinets in
                federal flood insurance pro-       her home even though the
                gram under Presidents Gerald       insurance policy said they
                                                                                                                Page 15
The Policyholder Advocate                                            October 2007 issue

Insurers secret tactics to cheat….                                              continued from page 15


"That's absolutely true," Drake    wind and how much by water.       that someone had changed
said.                              Property insurance policies       his conclusion after his in-
                                   don't cover damage caused         spection.
"Do you think that's fair?"        by flooding; homeowners have
Echeverria asked.                  to purchase separate insur-       "If they defrauded me, how
                                   ance administered by the U.S.     many more did they defraud?"
"Fair or not, it's the name of                                       asks Hubert Smith, 88, a re-
our business," Drake said.         government. The wind/water
                                   issue has spurred allegations     tired chiropractor. "There's a
Drake declined to comment on       that insurers manipulated the     lot of crap going on."
his testimony. Fidelity is ap-     findings of adjusters and engi-   Six lawsuits against Rimkus
pealing the award.                 neers.                            allege the company altered
A New Hampshire case in-           Ken Overstreet, an engineer       engineering reports. "Those
volving a home destroyed in a      based in Diamondhead, Mis-        allegations are absolutely
fire exposed another insur-        sissippi, who examined de-        false," says Arch Currid, a
ance company tactic: chang-        stroyed Gulf Coast resi-          Rimkus spokesman. "There's
ing a policy retroactively. In     dences, says someone altered      no fact to those claims. We're
April 2003, the Rockingham         his findings on the cause of      going to vigorously defend
county attorney in Kingston,       the damage to at least four       ourselves in court, and we're
New Hampshire, found that a        homes. "We were working for       confident we will prevail."
unit of Hartford Financial Ser-    insurance companies, and          Ed Essa, a spokesman for
vices Group Inc. had deleted       they wanted certain results,"     Calabasas, California-based
the replacement cost portion       says Overstreet, who has          Countrywide Financial Corp.,
of the homeowner's policy of       been a licensed civil engineer    the parent of Meritplan, says
Terry Bennett after his five-      since 1981. "They wanted to       the company confidentially
bedroom house burned to the        get a desired outcome, and        settled a lawsuit with the
ground in 1993. Bennett, a         that's what they did."            Smiths in March.
physician, sued Twin City Fire
Insurance Co., claiming his        Overstreet, who was working       Another engineer involved in
home and its contents--            for Houston-based Rimkus          Katrina, Bob Kochan, CEO of
including antiques and fine        Consulting Group Inc., pre-       Forensic Analysis & Engineer-
art--were worth $20 million,       pared a report on the Gulfport,   ing Corp., says State Farm
not the $1.7 million the insurer   Mississippi, home of Hubert       asked him to redo his reports
paid him. After an 11-year         and Joyce Smith for Meritplan     because the insurer disagreed
battle, he settled with Hartford   Insurance Co. The engineer        with the engineers' conclu-
in 2004 for an undisclosed         found that both wind and wa-      sions. Kochan sent an Oct.
amount. "Fighting an insur-        ter had damaged the house.        17, 2005, e-mail to his staff
ance company is like staring       "The winds out of the east        saying State Farm executive
down the wrong end of a can-       would have racked the entire      Alexis "Lecky" King asked for
non," Bennett says.                structure to the west and sim-    the changes. "Lecky told me
                                   ply lifted the footings up," he   that she is experiencing this
An unprecedented number of         wrote.                            same concern with other engi-
people stared down that can-                                         neering companies," Kochan
non after Hurricane Katrina.       Meritplan declined to pay any-
                                   thing to the Smiths, telling      wrote. "In her words, 'They are
The August 2005 storm killed                                         all too emotionally involved
more than 16,000 people in         them that all of the damage
                                   was caused by water. The          and working too hard to find
Louisiana and Mississippi, left                                      justifications to call it wind
500,000 people homeless and        company sent the Smiths
                                   what it said was Overstreet's     damage.'"
cost insurers $41.1 billion.
More than 1,000 homeowners         engineering report. "Due to       Kochan says he complied so
sued their insurers in the wake    the extent of the structural      State Farm didn't cut its con-
of the storm--the largest- ever    damage to the residence, the      tract with his company. "They
number of insurance lawsuits       storm surge accounted for the     didn't like our conclusions," he
stemming from a U.S. natural       damage," the report they got      says. "We agreed to re-
disaster.                          said. The Smiths called           evaluate each of our assign-
                                   Overstreet and asked him to       ments."
For insurers, the multibillion-    look at what Meritplan had
dollar   question  regarding       sent them. Overstreet says he               continued on page 17
Katrina was how much of the        looked at both reports side by
destruction was caused by          side and then told the couple
                                                                                              Page 16
                       The Policyholder Advocate                                                October 2007 issue

                       Insurers secret tactics to cheat…                                                    continued from page 16


 U.S. Senator Trent    Randy Down, an engineer at
                       Raleigh, North Carolina-based
                                                          cyholders. Mississippi Attorney
                                                          General Jim Hood says a fed-
                                                                                                pany hired McKinsey in 1992
                                                                                                after the insurer was spun off
Lott has introduced    Forensic, wrote this Oct. 18,      eral grand jury is probing insur-     from what's now Sears Hold-
                       2005, e-mail response to Ko-       ance company claims handling          ings Corp. of Hoffman Es-
 legislation to have   chan: "I have a serious con-       after the hurricane.                  tates, Illinois, says David Ber-
                       cern about the ethics of this                                            ardinelli, a Santa Fe, New
 insurers regulated    whole matter. I really question    There was no criminal investi-        Mexico, lawyer who won ac-
                       the ethics of someone who          gation after State Farm offered       cess to view the McKinsey
 by the federal gov-   wants to fire us simply be-        just 15 percent of replacement        documents for a limited time
                       cause our conclusions don't        costs to Michele and Tim Ray,         during a lawsuit involving an
   ernment.. That      match theirs." The e-mails         whose house was wrecked by            auto accident. McKinsey ad-
                       were made public in a civil        a tornado in April 2006. A con-       vised the insurer to pay claims
would supplant a       case against State Farm in         tractor estimated the cost to         quickly at low amounts while
                                                          rebuild the Hendersonville,
  patchwork sys-       Jackson, Mississippi.
                                                          Tennessee, home at $254,000.
                                                                                                delaying payments for as long
                                                                                                as possible for those who
                       State Farm spokesman Phil          State Farm made three inspec-
tem of regulation      Supple says Kochan's e-mail        tions of the property, Ray says,
                                                                                                wanted large settlements,
                                                                                                Berardinelli says. "They're
 by states. Insur-     comments are out of context.       and sent the Rays a check for         capitalizing on the vulnerability
                       He says sometimes informa-         $36,000, which the couple             of people," he says.
    ance has no        tion in engineering reports        returned. A year after the
                       doesn't support the conclu-        twister, the couple remained in       Berardinelli says McKinsey
 body analogous        sions.                             the damaged home, with their          suggested that Allstate hold
                                                          tattered roof covered by tar-         so-called town hall meetings
     to the SEC,       One State Farm policyholder        paulins.     In   April,    after     with claims adjusters to urge
                       in Mississippi was Senator         Bloomberg News submitted              them to pay less to customers.
  which can refer      Lott, who lost his home in         questions to State Farm about
                       Katrina. He sued State Farm        the Ray case, the company             Shannon Kmatz, a former
cases to the Jus-      for fraud in U.S. District Court   inspected the house again.            Allstate claims adjuster, says
                       in Jackson, after the insurer      This time, it gave the Rays           she attended some of those
 tice Department       ruled that his home had been       $302,000. "We decided to call         sessions. She says managers
                       damaged by water and re-                                                 told employees to keep claim
    for criminal       fused to pay him anything. "It's
                                                          it a total loss and agreed to
                                                                                                payouts as low as possible.
                                                          pay the policy limits after de-
                       long overdue for this industry                                           "The leaders of those town
    prosecution.       to be held accountable," Lott,
                                                          ciding the damage was caused
                                                                                                hall meetings were always
                                                          by the storm," State Farm
    That doesn't       65, says. Lott and State Farm
                       agreed to a confidential settle-
                                                          spokesman Shawn Johnson               concerned that we were doing
                                                                                                our part to help the stock price
                                                          says.
  happen with in-      ment in April.                                                           by keeping claims down,"
                                                          State Farm won't discuss what         says Kmatz, 34, who worked
surers. The most       Lott has introduced legislation    role McKinsey played in help-         for Allstate for three years in
                       to have insurers regulated by      ing the insurer shape its ap-         New Mexico in the late 1990s
 that state insur-     the federal government. That       proach toward customers.              and is now a police officer. "It
                       would supplant a patchwork         Similarly, no official at any in-     was obvious from the get-go
    ance depart-       system of regulation by states.    surer that hired McKinsey is          that all they were concerned
                       Insurance has no body analo-       willing to talk about the con-        about was the bottom line."
  ments typically      gous to the SEC, which can         sulting firm.
                       refer cases to the Justice De-                                           Just once, at the May 2005
   do is impose        partment for criminal prosecu-     Privately held McKinsey, which        hearing in Lexington, Ken-
                       tion. That doesn't happen with     has 14,000 employees in 40            tucky, the PowerPoint slides
  civil fines when     insurers. The most that state      countries, has worked for             McKinsey       prepared      for
                       insurance departments typi-        many of the largest companies         Allstate were made public.
 companies mis-        cally do is impose civil fines     in the world, according to its        William Hager and his wife,
treat customers.       when companies mistreat            Web site. "We take pride in           Geneva, who suffered neck
                       customers. Such sanctions          doing what is right rather than       and back injuries after the
                       are weak and infrequent, says      what is right for the profitability   family's car was rear- ended in
                       Hunter, the former Texas in-       of our firm," Managing Director       a 1997 accident in Lexington,
                       surance commissioner. Before       Ian Davis says in a quote             sued the insurer, claiming the
                       Katrina, no state or federal       posted on the site.
                                                                                                             continued on page 18
                       prosecutor had ever investi-
                       gated a nationally known           McKinsey pioneered the over-
                       property-casualty company for      haul of the property casualty
                       criminal mistreatment of poli-     industry at Allstate. The com-                                 Page 17
The Policyholder Advocate                                              October 2007 issue

Insurers secret tactics to cheat…                                                 continued from page 17


company failed to cover her         ishment. The 7th Circuit Court     companies to live up to cover-
medical expenses. The case          of Appeals upheld the sanc-        age promises and pay the full
is scheduled to go to trial in      tion. Allstate then appealed to    cost to rebuild. The Southern
October.                            the Indiana Supreme Court,         California fires led to 676 for-
                                    which hasn't yet made a deci-      mal complaints to the state
One McKinsey slide prepared         sion.                              saying insurers offered pay-
for Allstate was called "Zero-                                         outs that fell far short of actual
Sum Economic Game," a               Lawsuits in California, Florida    costs and delayed on paying
videotape of the court hearing      and Texas have asserted that       claims.
shows. The slide explains that      McKinsey's work for Allstate
there are winners and losers,       helped the insurer cheat           One of the Scripps Ranch
and the insurance company           claimants. Records show that       houses that went up in flames,
can win by paying out small         through the company's Claim        a four-bedroom, gray- stucco
amounts. "There is a finite         Core Process Redesign pro-         home on a sloping cul-de-sac,
pool of money," Golden, the         ject, Allstate encouraged poli-    belonged to J.P. Lapeyre, a
plaintiffs attorney, told the       cyholders to accept small set-     division director at JDS Uni-
judge at the hearing. "Either it    tlements on the spot.              phase Corp., a Milpitas, Cali-
goes to the injured victim or it                                       fornia, maker of telecommuni-
goes to Allstate's pocket as        The redesign also became a         cations equipment.
surplus."                           blueprint for fighting more
                                    claims in court as Allstate in-    Lapeyre, 41, who is married
Allstate's attorney at the hear-    creased its legal staff, accord-   and has two children, says he
ing, Mindy Barfield of Lexing-      ing to a 1997 company news-        had no inkling as he viewed
ton, didn't say anything about      letter obtained by David           the remains of his house that
the McKinsey slides. She did-       Poore, a Petaluma, California,     his insurance would leave him
n't return phone calls seeking      attorney who has represented       $280,000 short of what he
her comments.                       homeowners       in     lawsuits   would need to rebuild. Repre-
                                    against carriers. "The bottom      sentatives of Pacific Specialty
Former federal flood insur-         line is that Allstate is trying    Insurance Co. of Menlo Park,
ance commissioner Hunter            more cases than ever before,"      California, told him the most
says the McKinsey approach          the newsletter said. "If the       the firm would pay out was
exploits          policyholders.    offer is not accepted, Allstate    $168,075, not even half of the
"McKinsey presented it as a         will go to court, if necessary,    estimated reconstruction cost
zero-sum game in which the          to prove the evaluation proc-      of $448,000.
winners would be Allstate and       ess is sound."
the losers would be the claim-                                         The Pacific Specialty repre-
ants," Hunter says. "I don't        McKinsey-style tactics have        sentative told Lapeyre in No-
think a claims system should        spread to insurers large and       vember 2003 that the insurer
be viewed in that light. It's       small--as homeowners discov-       would pay $75 a square foot
against any principles on how       ered after three wildfires rav-    (0.09 square meter) to rebuild
you should settle insurance         aged Southern California in        his 2,241- square-foot house.
claims. They should be settled      2003, including the one that       "What frustration," Lapeyre
on their merits."                   hit northern San Diego. While      says. "I had to try to prove to
                                    Katrina struck thousands of        them that it would cost $200 a
Allstate convinced the judge to     low- income families in New        square foot." That figure came
seal the McKinsey slides be-        Orleans, the San Diego fire        separately from two builders,
fore and after the Lexington        affected mostly affluent home-     Norton Construction and TLC
hearing. The insurer has re-        owners, who fared no better        Contractors, both of San
sisted attempts to make the         with their insurance compa-        Diego. In February 2005,
consulting firm's work public in    nies.                              Lapeyre filed suit in San Diego
courts across the U.S., argu-                                          County Superior Court against
ing it contains trade secrets. In   The fire obliterated large sec-    his insurer and the independ-
2004, the company was sanc-         tions of Scripps Ranch, a          ent broker who sold him the
tioned by the Bartholomew           community of 30,000 that sits      policy, alleging negligence,
Circuit Court in Indiana and        atop a sagebrush and euca-         breach of contract and fraud
fined $10,000 for refusing to       lyptus mesa, where homes           for leading him to believe that
turn over the records to attor-     can cost more than $1 million.
ney Richard Enyon, represent-       After flames swept through the                  continued on page 19
ing an auto accident victim.        area on winds of up to 50
Allstate held on to the docu-       miles per hour, residents say
ments and appealed the pun-         they expected their insurance                                Page 18
                  The Policyholder Advocate                                             October 2007 issue

                  Insurers secret tactics to cheat…                                                continued from page 18


                  he was properly covered. After    the case because its dealings       strength to stop them."
                  a fight of 19 months, Lapeyre     with policyholders are private.
     Cheating     dropped the suit when Pacific                                         Most homeowners take what
policyholders     Specialty told a mediator as-     "The system is set up to take
                                                    advantage of people when
                                                                                        insurers offer because they
                                                                                        don't realize they're being
      may be      signed to the case it wouldn't
                  raise its offer, he says. "We     they're at their weakest,"          deceived or conclude that
  robbery but     decided it was time to get on     Karen says. "We went to one         fighting is too costly and diffi-
  it’s rarely a   with our lives and move for-      of the most-expensive compa-
                                                    nies in the country because
                                                                                        cult, Bach says. "Virtually eve-
                                                                                        ryone who settles for what the
 crime. State     ward," says Lapeyre, who
                                                    we wanted to be ready for a         insurer offers is taking less
    insurance
                  borrowed money to build a
                  new house.                        rainy day. We asked for cover-      than they're owed," she says.
 departments                                        age that would replace the
                                                                                        Homeowners across the U.S.
       don’t      Karen and Bill Reimus, both
                  lawyers, fought their carrier,
                                                    house. We thought replace-
                                                    ment meant replacement."            have found themselves in the
   prosecute      Liberty Mutual Insurance Co.,     Scripps Ranch couple Leslie         same situation. Kevin Hazlett,
and currently,    when it told them it wouldn't     Mukau and Robin Seaberg             a lawyer, sued Farmers Group
                                                                                        after an April 2006 tornado
  the federal     pay the couple enough to re-      sued Allstate for alleged fraud
                                                                                        struck his home in O'Fallon,
 government
                  build their burned Scripps        and negligence for failing to
                  Ranch house. Karen, 40, says      pay the $900,000 that contrac-      Illinois. Farmers had offered to
      has no      an agent for Boston-based         tors estimate it would cost to      pay him $470,000 to rebuild
   oversight.     Liberty Mutual assured her        replace their two-story home.       the house. Royal Construction
                                                                                        Inc., based in Collinsville, Illi-
                  and her husband when they         Allstate offered the Seabergs
 Insurers aim     bought their house four           $311,000, according to the          nois, estimated the cost at
                                                                                        $1.1 million. Hazlett, 52, ac-
    to keep it    months before the 2003 fire
                  that their insurance would
                                                    2004 San Diego County Supe-
                                                    rior Court suit. Allstate says in   cepted a settlement for an
     that way     replace the home if it were       court papers the couple hasn't      undisclosed amount.
which is why      destroyed.                        shown the company was neg-          Hazlett says Illinois Farmers,
   they spent     In a December 2003 letter,
                                                    ligent and asked for dismissal      a subsidiary of Farmers, used
 nearly $100      two months after the fire, Lib-
                                                    of the suit, which is pending.      the Xactimate software pro-
   million on     erty Mutual offered to pay        The California Department of        gram to first determine what it
                                                                                        would pay out. "They're just
  lobbying in     $40,000 less than the limit of
                  the couple's policy, Karen
                                                    Insurance examined the prac-
                                                    tices of Allied Property &          pulling numbers out of thin
 Washington       says. In early 2004, San          Casualty      Insurance      Co.,   air," he says. "There's no
     in 2006.     Diego-based Gafcon Con-           AMCO Insurance Co. and              rhyme or reason." Farmers
                                                                                        spokesman Jerry Davies did-
                  struction Consultants deter-      Allstate in connection with the
                  mined the cost to rebuild was     California fires. It fined Allied   n't respond to requests for an
                  well above the limits of the      and AMCO, both based in Des         interview.
                  couple's policy.                  Moines, Iowa, a total of            Bo Chessor, owner of Royal
                                                    $20,000 for misleading nine         Construction, says he sees
                  The Reimuses began a phone        policyholders into believing
                  and letter campaign to con-                                           insurers refusing to pay cover-
                                                    they were insured for full          age limits all the time. "Most
                  vince the company its offer       value. The regulators cited
                  was too low, Karen says. "It                                          people just roll over and take it
                                                    Allstate for six rule violations,   because they don't have the
                  has now been almost seven         including that it ignored com-
                  months since the loss and we                                          money to fight it," Chessor
                                                    plaints that it underinsured        says. "What the insurance
                  are still not agreed as to the    homeowners. The state didn't
                  numbers," Karen wrote in a                                            companies are doing is purely
                                                    fine Allstate, which told the       robbery."
                  May 13, 2004, letter to Liberty   department it had done noth-
                  Mutual.                           ing wrong.                          It may be robbery, but it's
                  Two weeks later, Liberty Mu-                                          rarely a crime. State insurance
                                                    "Fines by state regulatory          departments don't prosecute
                  tual agreed to raise the cou-     agencies have been far too
                  ple's limits by $100,000,                                             insurance companies, and the
                                                    small and infrequent to deter       federal government has no
                  Karen says. "This is clear evi-   unfair business practices,"
                  dence that the original esti-                                         oversight. The insurance in-
                                                    United Policyholders' Bach          dustry wants to keep it that
                  mate was a low ball," she         says. "It's clear that cheating
                  says. Liberty Mutual spokes-      by insurers is a big, profitable                 continued on page 20
                  man Glenn Greenberg says          business and regulators can't
                  the company won't discuss         muster the will or political
                                                                                                                  Page 19
                          The Policyholder Advocate                                                October 2007 issue

                          Insurers secret tactics to cheat…                                                   continued from page 19

                          way. To make their voice             have been destroyed by catas-       other policyholders saying
It may interest read-     heard on federal regulation          trophes contend with low pay-       that it would no longer offer
ers to know that          and other government deci-           outs, higher premiums, soft-        full replacement coverage.
                          sions, insurers spent $98 mil-       ware programs that underesti-       "Policyholders, by regulatory
State Farm has            lion on lobbying in Washington       mate rebuilding costs and sud-      order, were sent prominent
thrown a complete         in 2006, according to Political-
                          MoneyLine, a unit of Congres-
                                                               den changes in policy values--
                                                               all of which have been calcu-
                                                                                                   notices of the coverage
                                                                                                   change at that time," he says.
hissy-fit over this ar-   sional Quarterly. That's the         lated methods for insurers to       Tunnell says she doesn't re-
                          second-largest amount spent          increase profits.                   call being notified. She says
ticle.                    on lobbying by any group, be-                                            her family debated hiring a
                          hind $114.4 million by pharma-       Tunnell, the San Diego ac-          lawyer and suing, and eventu-
They claim the me-        ceutical companies.                  counting teacher whose home         ally decided the battle would
                                                               burned to the ground, says she
dia is out to get         Property-casualty companies          thought State Farm had ade-
                                                                                                   be too stressful. The Tunnells
                                                                                                   took the $220,000 and bor-
them.                     do want something from the           quately insured her family          rowed money to build a new
                          government: bailouts. Insurers       when they bought their three-       house.
                          beseech states and the federal       bedroom house in 1992. She
Unfortunately, from       government to foot more of the       says the policy, destroyed in       "Why is this happening to
where we sit, POA         bill for rebuilding private homes    the fire, provided for "full re-    people over and over again?"
                          after natural disasters. Florida     placement coverage." It guar-       Tunnell asks. "State Farm
believes this article     has a catastrophe fund that          anteed to rebuild the house, no     keeps underinsuring people,
is a wonderful exam-      insures some homes to reduce         matter the cost, she says. The      and they get away with it.
                          payouts by carriers. The fund        company offered to pay              This is unthinkable." As long
ple of well-              paid out about $8.45 billion for     $220,000--which             was     as insurers make the rules
researched and fac-       storm damage in 2004 and '05,        $121,600 less than a $306,000       and control the game, Tunnell
                          according to its annual report.      figure her family got from State    and homeowners across the
tual reporting.           The federal flood insurance          Farm's own estimator, Hersum        U.S. won't know whether their
                          program covers $800 billion of       Construction Inc. of San Diego,     homes are fully insured, no
                          property      nationally,    which   for rebuilding the 1,700-           matter what their policies say.
                          helped the industry increase         square-foot house.
                                                                                                   David Dietz is a senior writer at
                          profits by 25 percent in 2005,                                           Bloomberg News in San Francisco.
                          the year of Katrina.                 State Farm spokesman Supple
                                                               says the company sent letters
                          Homeowners whose properties          in 1997 to the Tunnells and


                          Testing …                                                                           continued from page 1


                          If you fall into any of these         Any homebuyer, renter or            CLICK HERE for discounted
                          categories, documentation             person appealing the property       testing options that provide
                          must or needs to occur:               values needs documentation          property-specific evidence.
                                                                in order to negotiate with the
                          ♦   homebuyer who wants to            owner, landlord or County           If you decide to test a prop-
                              make certain you’re not           Assessor’s office, respec-          erty, go into it with both eyes
                              buying a lemon or if so,          tively. Anyone embroiled in         open, know the conse-
                              negotiate a lesser price to       litigation has no choice but to     quences of testing and
                              reflect the needed repairs,       make public the results if the      weigh the many benefits
                                                                suit involves mold because          before you bite off on it.
                          ♦   homeowner who wants to
                              use the defect as a means         testing results would be an
                              of reducing property taxes,       integral part of the case. A
                                                                policyholder who files a mold-
                          ♦   plaintiff in a lawsuit involv-    related water damage claim is
                              ing mold,                         subject to CLUE — a database
                                                                of claims loss histories, over
                          ♦   policyholder who has al-          the course of five years, on
                              ready made a mold-related         properties and policyholders.
                              claim, or                         Like it or not, a paper trail or
                          ♦   renter or occupant who is         evidence will exist.
                              not the property owner.
                                                                                                                             Page 20
                                                                                                         ABSTRACTS (New Research)


The Policyholder Advocate                                             October 2007 issue

Correction of central nervous system metabolic abnormalities, deficits in executive cognitive functioning and
elevated C4a: a clinical trial using low dose erythropoietin in patients sickened by exposure to water-damaged
buildings (WDB)          Ritchie C. Shoemaker, MD¹, Margaret S. Maizel¹ ¹ Center for Research on Biotoxin Associated Illnesses

Recent literature has demon-       symptoms, reduce C4a and           After 5 doses of epo, repeat       mate to glutamine were ab-
strated that erythropoietin        correct abnormalities in CNS       MRS was performed.                 normal in all cases, with re-
(epo) is a neuroprotective         metabolites measured by                                               duction to controls achieved
agent for peripheral and cen-      magnetic resonance spectros-       Epo use did not cause ad-          in 75%.
tral nervous system (CNS) that     copy (MRS); (3) provide data       verse effects: No adverse
specifically prevents apop-        that supports a testable hy-       effects of clotting, elevation     Use of low dose epo in mold
tosis of glial cells, improves     pothesis of the inflammatory       of blood pressure, polycythe-      illness patients is safe and
capillary hypoperfusion in CNS     origin of systemic and CNS         mia or development of iron         effective to improve symp-
and lowers elevated lactate in     symptoms in these patients.        deficiency anemia occurred.        toms, C4a and CNS markers
CNS.       Previous treatment                                         Symptoms of executive cogni-       of abnormal capillary hypop-
studies of patients made ill       32 patients with mold illness      tive function were reduced in      erfusion (lactate); and excita-
solely by exposure to WDB          provided informed consent for      cases after treatment, though      tory n eur o transm issio n
(“mold illness”) with refractory   an IRB-approved study. Symp-       still exceeding controls. C4a      (glutamate/glutamine).
executive cognitive symptoms       toms of executive cognitive        was reduced beginning after        These results suggest that
and persistently elevated lev-     function, C4a and MRS of 1         the second dose of epo,            the systemic inflammation in
els of C4a, a product of activa-   cubic cm areas of left and         achieving values equal to          mold illness caused by ele-
tion of complement, using epo      right frontal lobes and left and   controls in 91% of cases.          vated C4a may be treated
safely lowers C4a and re-          right hippocampus before and       MRS-determined values of n-        using epo and that the CNS
duces neurocognitive symp-         after treatment with 5 doses       acetyl acetate; creatine; cho-     correlates of cognitive dys-
toms. A prospective open           of 8000 units of epo given by      line and myoinositol did not       function has an inflammatory
label clinical trial was per-      the study physician over 2         change in cases and equaled        basis. A double blinded, pla-
formed to assess (1) safety of     weeks were compared to             controls. Lactate was ele-         cebo controlled trial is
epo in mold illness patients       known controls. Symptoms,          vated in all patients, with        planned.
who have elevated C4a; (2)         C4a and safety parameters          reduction after epo to con-
efficacy of epo to improve         were recorded at each visit.       trols in 88%. Ratios of gluta-


Defining mold illness in children: a chronic inflammatory illness with distinctive biomarkers
Ritchie C. Shoemaker, MD¹, Margaret S. Maizel¹ Center for Research on Biotoxin Associated Illnesses

Study of illness acquired fol-      dren may be unable to per-         ity to perform VCS testing, as     were found in 58% of cases
lowing exposure of children to      form VCS testing and hypo-         before age 8 most children         and in no controls; autoanti-
water-damaged buildings             thalamic/pituitary axis imma-      couldn’t perform VCS consis-       bodies to cardiolipin were
(WDB) has been hampered by          turity may be present. We          tently. By age 8, nearly all       found in 27% of cases and
absence of a case definition.       surveyed symptoms and lab          children could perform VCS.        in no controls. C4a > 2830
Adults are defined by a two-tier    results from known cases and       Levels of C4a, a split product     was found in 33/33 cases
model that includes (1) poten-      controls from one practice to      of complement activation           and in 1/8 controls.
tial for exposure, presence of      identify factors to correctly      were significantly different.
multiple symptoms from multi-       classify all cases and con-        Higher than 2830 ng/ml also        Using HLA, MSH, antibodies
ple organ systems and ab-           trols.                             were significantly different in    to gliadin or cardiolipin,
sence of confounders; and (2)                                          cases compared to controls.        MMP9, VCS, all cases were
presence of three of six objec-     144 known pediatric cases                                             identified and all controls
tive parameters including re-       with illness and 47 control        Symptoms were analyzed by          were identified correctly
duced level of alpha melano-        patients were analyzed by          logistic regression, correctly     (N=110). For those unable
cyte stimulating hormone            chart review. Significant dif-     classifying 189 of 191 pa-         to perform VCS, presence of
(MSH); presence of a particular     ferences in symptoms, MSH,         tients. VCS deficits (N=110)       2 or 5 criteria identified all
HLA DR haplotype; elevated          HLA DR by PCR and MMP9             correctly classified 102 of        cases and controls correctly
MMP9; presence of a particu-        were identified. Significant       110 patients. MSH levels <         (N=71). These Tier 2 re-
lar deficit in visual contrast      differences in incidence of        35 pg/ml were found in 127         quirements will possibly be
testing (VCS); and dysregula-       antibodies (IgA and IgG) to        of 133 cases and 2 of 23           enhanced by adding C4a
tion of ACTH/cortisol or ADH/       gliadin as well as autoanti-       controls. MMP9 levels > 332        values in those unable to
osmolality. Tier 1 also applies     bodies to cardiolipin (IgA, IgM    ng/ml were present in 100 of       perform VCS testing.
to children. Tier 2 criteria re-    and IgG) were identified.          105 cases and in 5 of 20
quired modification, as chil-       Cases were stratified by abil-     controls. Gliadin antibodies
                                                                                                                               Page 21
                                                                                                                    Abstracts continued...

The Policyholder Advocate                                                     October 2007 issue
Sequential upregulation of innate immune responses during acute acquisition of
illness in patients exposed prospectively to water-damaged buildings (WDB) Ritchie C.
Shoemaker, MD¹, Margaret S. Maizel¹ ¹ Center for Research on Biotoxin Associated Illnesses


Previous data demonstrated a          MMP9 (vi) VEGF (vii) Factor             decline increased daily during
pattern of innate immune              VIII (viii) vWF (ix) vWF Ag were        re-exposure, reaching base-
inflammatory responses fol-           carried out at (1) baseline; (2)        line levels after three days.
lowing re-exposure of patients        after first therapy with cho-           Patients (N=22) without recru-
made ill previously by expo-          lestyramine (CSM) (3) off               descence showed no changes
sure to a given WDB with evi-         CSM, without re-exposure for            and equaled controls. Build-
dence of amplified growth or          three days (4) after each of            ings with repeat illness pa-
toxigenic organisms, including        three days following re-                tients continued to have evi-
fungi. This report expands            exposure to suspected WDB               dence of ongoing water intru-
those observations, using a           (5) after second CSM treat-             sion; sites without reacquisi-
prospective model that con-           ment.        Results were com-          tion had no evidence of ongo-
firms causation of illness by         pared to known controls.                ing water intrusion.
exposure marked by upregula-
tion of innate response ele-          In patients (N=38) with illness         Re-exposure to WDB causes
ments measured daily follow-          recrudescence, upregulation             illness that can be identified
ing re-exposure including com-        of innate immune elements               by sequential changes in
plement activation product            was observed: C4a increased             symptoms, VCS and innate
C4a, leptin, MMP9, vascular           after 24 hours; leptin in-              immune responses. Use of
endothelial growth factor             creased after 24 hours;                 sequential observation of
(VEGF) and coagulation fac-           MMP9 increased after 48                 symptoms, visual contrast
tors.                                 hours; VEGF initially increased         sensitivity (VCS) and inflam-
                                      after 24 hours, falling after 72        matory responses following re-
Following consent, 60 pa-             hours. Factor VIII fell con-            exposure to WDB can not only
tients known to have a                comitantly with the rise in             supports a model of disease
chronic biotoxin illness              C4a; vWF fell after 72 hours.           mechanisms but can rapidly
caused by exposure to a WDB           Episodes of epistaxis or                determine safety for re-
followed a five step process:         hemoptysis were observed in             occupancy.
assessments of (i) symptoms           6 patients, coinciding with fall
(ii) VCS (iii) C4a (iv) leptin (v)    of vWF. Symptoms and VCS


Mold Remediation is tax deductible
Did you know that if you are a          and necessary business ex-              remediation is the part of a
landlord or a homeowner and you         pense. This is a requirement            renovation plan that includes
have to have mold removed from          that must be met before some-           the entire property, then the     family might incur while the
your home, it is tax deductible? It     thing can be deducted as a              cost is required to be capital-   mold remediation is taking
qualifies as a repair that has to       business expense: it must be            ized instead of deducted from     place may be deductible, as
be done to protect the invest-          both ordinary and necessary.            your taxes at the end of the      well. Contact whoever pre-
ment of your home.                                                              year.                             pares your taxes for you and
                                        Renovations that increase the                                             ask them if it may be deducti-
The costs that you will incur from      value of a home or other build-         So, just what is deductible? If   ble.
removing mold from your home            ing cannot be counted as busi-          you hire a professional ser-
or your business can be quite           ness expenses, but the re-              vice to do it for you, then the   If you play your cards right,
great, depending on the size of         moval of mold is necessary              total of whatever they billed     you should be able to deduct
the infection. Sometimes a quar-        because the health of the               you after the project was com-    most of the cost of your mold
ter, half, or even a whole wall or      workers and anyone else in the          pleted is what you would write    remediation, as long as it is
more has to be removed, not to          building will be affected, thus         down as your deduction at         not part of a larger renovation
mention the cost of the chemi-          affecting the flow of cash into         the end of the year. Also, any    of the property.
cals and personal protection            the business. Mold remedia-             building materials that you
equipment necessary to do the           tion does not add value to the          have to purchase after the
job safely.                             property, so it is fine to count it     mold removal are tax deducti-     Jim Corkern is a writer and respected
                                        as tax deductible at the end of         ble, as well. These are neces-    contributor to the Water damage
The Internal Revenue Service—                                                                                     restoration and mold remediation
                                        the year, even if it is not a busi-     sary to complete the repairs.     Industry.
IRS has concluded that the cost         ness that is being treated.
of mold removal and remediation         Unfortunately, if the mold              It is also possible any reloca-
are tax deductible as an ordinary                                               tion expenses that you or your                               Page 22
The Policyholder Advocate                                       October 2007 issue

Bankers' Group Revisits Effects of Mold on Real Estate
by Al Heavens

Concerns about mold and         After Hurricane Katrina, for    significant increase in the
its potential effects on in-    example, some real estate       availability of coverage for
door air quality and prop-      agents in areas of Louisiana    mold as more information
erty values appear to have      and Mississippi were report-    on it has become available,
taken a back seat to other      ing that many buyers were       according to the mortgage
real estate issues, but that    pulling out of deals if they    bankers team.
doesn't mean that someone       even minor exterior damage
isn't thinking about.           to homes that could result      Air quality issues "also may
                                in mold issues.                 act as a negative constraint
For example, the Mortgage                                       on a lender's or servicer's
Bankers Association last        In addition, as the MBA         decision to foreclose and
week published an update        white paper, points out,        resell, continue operations
of a white paper on the ef-     there are costs of litigation   or abandon property," the
fects of mold in the com-       with tenants, purchasers of     mortgage bankers' group
mercial    and multifamily      property or persons who         observed.
realm, "to reflect the most     claim to have been injured.
current information on mold                                     Even     before    Hurricanes
mitigation, standards for       The chief concern has been      Katrina and Rita, New Or-
conducting mold assess-         with black mold. While less     leans' mold problems were
ments, legal issues and in-     common than other molds,        out of control, owing to the
                                this one is more dangerous      region's    humid    climate.    Mortgage lending on
surance issues."
                                to humans because, given        With so much standing wa-       poorly repaired homes
Don Glitz, corporate insur-     the proper environmental        ter for so many weeks and
ance risk manager of Cap-       conditions, it can create       months, and no way to dry       is a house of cards. If
mark Financial Group, ex-       multiple toxic chemicals        things out quickly, "you're      insurers deny proper
plained that the update was     called mycotoxins. These        able to find just about every
"an attempt to eliminate the    toxic byproducts exist in the   variety of it," said Frank      repairs, the loans are
'misinformation' that exists    spores of the mold, as well     Panico, who is an expert on
with regard to the mold         as in the tiny fragments        flood and fire cleanup is-
                                                                                                  not worth the paper
issue."                         that can become airborne.       sues.                              they’re written on.
                                Of particular concern is the
The update, the bankers'        threat that humans will in-     That's why the best course
group cautioned, is only a      hale and ingest these toxic     of action when mold or          sure that the full extent of
"snapshot," since, as with      spores.                         moisture is found is to take    an outbreak is determined
many environmental issues,                                      care of the problem quickly,    and additionally to demon-
changes in the way mold is      According to the Centers for    the MBA said.                   strate that an outbreak is in
viewed and handled can          Disease Control and Preven-                                     fact limited in scope or se-
occur frequently with re-       tion, there are few case        Avoidance or reduction of
                                                                mold risks begins at the        verity.
search.                         reports that toxic molds
                                inside homes can cause          moment the first sketch for     Mold and materials technol-
The reason for the contin-      unique or rare health condi-    a new structure is put on       ogy continue to become
ued interest in mold by         tions such as pulmonary         paper and involves proper       more effective. There are
lenders is obvious. Mold and    hemorrhage or memory            selection and use of profes-    continuing developments in
dampness can directly dam-      loss. A causal link between     sionals,   contract  terms,     technology to detect hidden
age buildings and their con-    the presence of a toxic mold    contractors, subcontractors,    moisture as well as new or
tents, but there are other      and these conditions has        design and engineering pro-     improved building materials
repercussions, including a      not    been   proved,    the    fessionals, materials and       that are immune to or re-
reduction in cash flow          agency says.                    construction techniques, as     sist mold attack.
through lost rents or rental                                    well as ongoing inspection,
value and expenditures for      For the last few years, in-     documentation and a com-        This may lower remediation
remediation costs.              surance companies have          plete moisture-management       costs and increase confi-
                                become unwilling to write       assessment plan.                dence in the effectiveness
When mold issues are un-        new policies and have been                                      of the cleanup work that
covered in a building,          excluding coverage of mold      For existing buildings, mold    has been done.
whether residential or com-     from existing ones. Such        cleanup first requires elimi-
mercial, there is a percep-     coverage as is available is     nation of moisture that is       CLICK HERE FOR REPORT
tion that the structure has     underwritten as part of a       fueling the mold growth.
become unfit or unusable,       "stand-alone"     environ-      The next step is to conduct
and that can result in a loss   mental insurance policy.        a detailed visual inspection
of market value.                There has not been any          of the affected area to en-
                                                                                                                      Page 23
The Policyholder Advocate                                             October 2007 issue
                                                                                                        of Manchester in England to
                                                                                                        evaluate existing tests and
UF to lead research on life-threatening fungus                                                          develop new, more accurate
Tuesday,        July      31,      he said. About 15 percent of       of diagnosing these infections    and less invasive ones.
2007.GAINESVILLE, Fla. —           all bone marrow transplant         has been by growing the or-
Hear the word fungus, and          patients, for example, will        ganism from patient’s speci-      While more potent treat-
mushrooms and mold might           develop an infection from          mens in the laboratory and        ment regimens are improv-
leap to mind. But the Univer-      Aspergillus; of those, about       then having it identified by an   ing prospects for patients,
sity of Florida is about to        two-thirds die.                    experienced mycologist,” said     so-called emerging patho-
house the nation’s first re-                                          Barbara D. Alexander, M.D.,       gens — viruses, bacteria
search repository for one spe-     “We haven’t had good treat-        the project’s co-principal in-    and fungi — are a growing
cies that has nothing to do        ments, we haven’t had good         vestigator and director of        medical problem, Wingard
with pizza toppings or mar-        prevention methods and,            transplant infectious diseases    said.
bling blue cheese: Aspergil-       most importantly, we haven’t       services and the clinical my-
lus, which increasingly poses      had good diagnostic methods        cology laboratory at Duke         “With advancing medical
a major health threat to can-      to identify which patients         University Medical Center.        technology and more pow-
cer patients and transplant        have these infections,” Win-       “These conventional methods       erful antibiotics, patients
recipients.                        gard said. “Since we often         for diagnosing fungal disease     are living longer,” he said.
                                   don’t recognize that patients      are slow and lack sensitivity.    “We have a growing popula-
The National Institutes of         have aspergillosis until very      Furthermore, many times the       tion of patients who are
Health has awarded $9 mil-         late in the course of the infec-   patients are too sick to toler-   susceptible to very serious
lion over the next seven           tion, by the time we try to        ate the invasive procedures,      infections by viruses, bacte-
years to the effort. UF re-        treat the infection it is often    such as lung biopsy, in order     ria and fungi that in years
searchers are collaborating        so advanced we have very           to obtain the samples for         past were not medical prob-
with colleagues at Duke Uni-       poor prospects of bringing it      laboratory testing.”              lems.”
versity,      Brigham      and     under control.”
Women’s Hospital in Boston                                            Wingard said two-thirds of
and the Dana-Farber Cancer         A number of hospitals under-       the time tests are negative
Institute, who will funnel pa-     going renovations have ex-         even though patients have
tients’ respiratory, urine and     perienced outbreaks, in many       the infection.
blood samples to UF. The           cases after the organism con-
repository will support re-        taminated ventilation systems      “That’s the biggest challenge        The number of
search aimed at learning           or fireproofing materials. De-     — we may suspect patients
more about the fungus and          spite hospitals’ infection con-    have the infection but we                people
efforts to develop more accu-      trol measures aimed at mini-       can’t really know with cer-           contracting
rate tests to detect it in pa-     mizing risks, including special    tainty from currently available
tients.                            air filtration systems designed    tests whether they truly are          Aspergillus
                                   to filter out Aspergillus and      infected or not,” he said. “We
“Aspergillus is everywhere,        other infectious agents, facili-   end up making clinical deci-           infections
particularly in the air we         ties can still have problems       sions about using drugs that             jumped
breathe; all of us breathe it in   and sometimes have even            may be toxic or using the
all the time,” said principal      had to temporarily close their     wrong drugs in patients when         enormously in
investigator John Wingard,         patient-care units.                we are not sure whether they
M.D., director of UF’s blood                                          have this deadly infection.”
                                                                                                            the 1990s .
and marrow transplant pro-         “You and I have a good
gram and deputy director of        healthy defense, so while we       Officials are hoping to collect    Diagnosis is very
the UF Shands Cancer Center.       may be colonized by the or-        samples from about 200 pa-
“On a windy day, especially in     ganisms, we rarely get seri-       tients a year for the next
                                                                                                          difficult and is
a dusty environment or every       ous infections,” Wingard said.     seven years to better charac-       often mistaken
time some dirt gets moved          “But if we become immuno-          terize the fungus and improve
around, lots of these organ-       compromised, those organ-          the diagnostic accuracy and         for something
isms get aerosolized.”             isms can be deposited on the       speed of tests used to detect
                                   mucosal surface of nasal pas-      aspergillosis. The repository
                                                                                                                else.
The number of people con-          sages, the sinuses and the         will include samples from
tracting Aspergillus infections    bronchi, and they can start        patients with confirmed infec-      The wrong drugs
jumped enormously in the           invading and can cause very        tions that will be compared
1990s, Wingard said, and           serious, deadly infections.”       with samples from patients
                                                                                                             are often
those with weakened immune                                            whose diagnosis is less clear         prescribed.
systems are particularly sus-      Complicating the picture is        and with samples from pa-
ceptible. Aspergillosis is the     that aspergillosis is frequently   tients who are at high-risk
leading cause of death from        mistaken for bacterial pneu-       but not infected.
infection in bone marrow           monia, and tests for the in-
transplant and leukemia pa-        fection often are initially        Researchers also will work
tients, as well as among           negative.                          with Emory University, Indi-
those who receive certain                                             anapolis-based MiraVista Di-
other solid organ transplants,     “Historically, our only means      agnostics, and the University
                                                                                                                             Page 24
The Policyholder Advocate                                                    October 2007 issue

And Now, The Rest Of The Story . . . About The McDonald’s Coffee Lawsuit
By Kevin G. Cain


We have probably all heard            there was a frivolous lawsuit,         and her legendary lawsuit. And
someone say, “Watch out! That         this is it. Right? It’s coffee, it’s   yet many uninformed people
coffee is hot. You could have a       hot, and someone got burned.           have very strong opinions on
lawsuit on your hands.” Some-         Why should someone get rich            this case. Well, as Paul Harvey
how, somewhere along the way,         off of coffee being hot? Some          says, “And now, the rest of the
the McDonald’s coffee lawsuit         lady gets millions, and all I ever     story.”
became the poster child for           get for drinking coffee that is
frivolous lawsuits. Who hasn’t        too hot is a mild blister in my        Liebeck v. McDonald’s Restau-
taken a crack at this lawsuit for     mouth and the obligatory caf-          rants
the sake of furthering their own      feine buzz that I expect in the
cause? David Letterman and            morning with my coffee.” It            Seventy-nine-year-old        Stella
numerous other comedians              seems that nearly everyone has         Liebeck of Albuquerque, New
have exploited this case as the       an opinion about frivolous law-        Mexico, was sitting in the pas-
punch-line to countless jokes.        suits. This author recently re-        senger seat when her grandson
One of my favorite Seinfield          moved a box containing class           drove his car through a McDon-        Ms. Liebeck, a retired depart-
episodes      involves     Cosmo      handouts sitting on the floor in       ald’s drive through window in         ment store clerk, informed
Kramer suing Java World after         the middle of an entryway into         February 1992. Liebeck ordered        McDonald’s of her accident and
Kramer spills a cup of café latté     a Bible classroom and asked the        coffee that was served in a           requested that McDonald’s pay
on himself while trying to get a      person who put the box there if        McDonald’s       styrofoam    cup.    for her medical expenses total-
seat at a movie theater.              he minded my moving the box            After receiving the order, the        ing approximately $11,000.
Kramer suffers from minor             because someone could acci-            grandson pulled his car forward       McDonald’s refused. With no
burns that are easily remedied        dentally get hurt. The person          and stopped for his grand-            other recourse in sight, Ms.
after a single application of a       responded (knowing that I was          mother to add sugar and cream         Liebeck retained an attorney
balm given to Kramer by the           an attorney) by simply snorting        to her coffee. (The rumors of         from Houston named Morgan
Maestro. Kramer asks his favor-       as he walked away, “I think            Liebeck spilling her coffee while     Reed who had filed a similar
ite attorney, Jackie Chiles, if the   everyone who files a frivolous         driving were inaccurate. The          hot-coffee    lawsuit     against
fact that he tried to sneak the       lawsuit     should    be     shot.”    car was not moving, and she           McDonald’s in 1986. Mr. Reed’s
coffee into the theater is going      “Objection, non-responsive,” I         was not driving.) While parked,       prior case against McDonald’s
to be a problem in their lawsuit.     thought, but you get the point.        Ms. Liebeck placed the cup be-        involved a Houston woman who
Jackie responds, “Yeah, that’s        All too often there does not           tween her knees and attempted         suffered third-degree burns
going to be a problem. It’s           appear to be much we can do            to remove the plastic lid from        from McDonald’s coffee. In that
gonna be a problem for them.          to change people’s opinions on         the cup. As she attempted to          1986 case, Mr. Morgan deposed
This is a clear violation of your     this subject. Or is there?             remove the lid, the contents of       Christopher Appleton, a McDon-
rights as a consumer. It’s an                                                the cup spilled into her lap. The     ald’s quality assurance man-
infringement on your constitu-        “Just the facts ma’am; just the        coffee was estimated to be            ager, who testified that “he was
tional rights. It’s outrageous,       facts.” A line made famous by          somewhere between 180 to 190          aware of this risk . . . and had
egregious,         preposterous.”     Dragnet’s Sergeant Joe Friday          degrees.       Ms. Liebeck was        no plans to turn down the
When Kramer asks if this law-         may be the answer. Unfortu-            wearing sweatpants that day,          heat.” McDonald’s settled that
suit has a chance, Jackie re-         nately, people often refuse to         which absorbed the scorching          case for $27,500.
sponds, “Do we have a chance?         let the facts alter their points of    coffee, holding it next to her
You get me one coffee drinker         view. “I have my opinion, and I        skin. A vascular surgeon diag-        Before filing suit, Liebeck re-
on that jury, you gonna walk          won’t let truth, reality, or the       nosed Liebeck as having suf-          quested that McDonald’s pay
outta there a rich man.” Of           facts get in the way.” However,        fered full thickness burns (or        $90,000 for Liebeck’s medical
course, Elaine is less than sup-      if people really knew the true         third-degree burns) over her          expenses and pain and suffer-
portive when she finds out            facts about the McDonald’s law-        inner thighs, perineum, but-          ing. McDonald’s countered with
about Kramer’s latest lawsuit         suit, few would have the same          tocks, and genital and groin          a generous offer of $800. Ms.
and quips, “What I mean is who        opinion (or misconception) that        areas.      These third degree        Liebeck had never filed a law-
ever heard of this anyway? Su-        they carry around today. Let’s         burns extended through to Lie-        suit before in her life, and she
ing a company because their           be honest. Most people, attor-         beck’s subcutaneous fat, mus-         said she never would have filed
coffee is too hot? Coffee is          neys included, know little to          cle, or bone. While she was           this lawsuit if McDonald’s
supposed to be hot.” Obvi-            nothing about the infamous             hospitalized for eight days, Lie-     “hadn’t dismissed her request
ously, Jerry and company are          McDonald’s lawsuit other than          beck underwent skin grafting,         for compensation for pain and
taking their own shots at the         the last joke they heard about         and later underwent debride-          medical bills with an offer of
McDonald’s lawsuit in particular,     it.    A woman spilled some            ment treatments. Liebeck was          $800.”
and at frivolous lawsuits in gen-     McDonald’s coffee on herself,          permanently disfigured and
eral.                                 got burned, and got millions of        disabled for two years as a re-                   continued on page 26
                                      dollars. That is about all most        sult of this incident.
“I mean, come on!         If ever     of us know about this woman
                                                                                                                                            Page 25
                     The Policyholder Advocate                                                   October 2007 issue

                     McDonald’s Coffee Lawsuit…                                                          continued from page 25

                     Ms. Liebeck brought suit against       Q: It is hazardous at this           fee was served at 180 to 190
    Why did          McDonald’s in 1993 alleging that     temperature?                           degrees. However, this argu-
                     the coffee she purchased was                                                ment has some serious flaws
McDonald’s make      defective because of its exces-         A: At that high temperature         that the plaintiff exploited.
                     sive heat and because of inade-      the coffee is a hazard. . . .          Charles Baxter, Liebeck’s expert
                     quate warnings. Punitive dam-                                               in thermodynamics as applied to
 their coffee so     ages were also sought based on          Q: If customers attempt to          skin burns, testified that liquids
                     the allegation that McDonald’s       swallow that coffee, isn’t it a        can cause full thickness (third-
      hot?           acted with conscious indiffer-       fact that it will scald their throat   degree) burns to skin in two to
                     ence for the safety of its cus-      or esophagus?                          three seconds at 190 degrees,
  McDonald’s         tomers.     As the trial date                                               in 12 to 15 seconds at 180 de-
                     neared, Liebeck’s attorney of-          A: Yes, under those condi-          grees, and in 20 seconds at 160
requires that its    fered to settle the case on her      tions, if they could get the cof-      degrees. Obviously, if Liebeck’s
                     behalf for $300,000 and report-      fee in their throat, that could        coffee had been served just a
                     edly would have settled for half     happen, yes. . . .                     little less scalding, vital seconds
    coffee be
                     that amount. A mediator rec-                                                could have been added to her
                     ommended a $225,000 settle-           The same McDonald’s quality           response time to allow her to
  prepared at        ment on the eve of trial, but        assurance manager continued            get out of her grandson’s car
                     McDonald’s again refused any         to testify, illustrating McDonald’s    and disrobe to prevent more
    scalding         attempt to settle.                   culpability:                           serious burns from occurring.
                                                                                                 Unfortunately, Ms. Liebeck had
 temperatures,       At trial the evidence was simply         Q: So. . . when somebody           only about two or three seconds
                     damning. It was learned that         buys a cup of coffee and it’s          before third-degree burns set
  based on the       McDonald’s was aware of more         sold to them at McDonald’s and         in, and the instantaneous dam-
                     than 700 claims brought against      they go to sit down and drink it       age was already done. Plain-
recommendations      it between 1982 and 1992 due         in less than five minutes, it’s not    tiff’s warnings expert, Lila Laux,
                     to people being burned by its        fit for consumption to drink, if       testified that while people know
    of coffee        coffee. Some of these claims         consumption means to drink?.. .        that coffee is hot, they do not
                     involved third-degree burns that                                            know how severe (i.e., third-
consultants and      were substantially similar to the       A: It’s perfectly fit to open       degree) these burns can be and
                     burns suffered by Liebeck.           the top and add cream and              how quickly the burns can set
                     Moreover, McDonald’s had pre-        sugar and really dilute the prod-      in.
industry groups                                           uct as far as temperature goes
                     viously spent over $500,000 in
                     settling these prior coffee-burn     and it probably would be very fit      An obvious question needs to
which claim that     claims. In spite of the knowl-       for consumption . . . .                be asked at this point. Why did
                     edge of these claims and this                                               McDonald’s make their coffee so
hot temperatures     inherent danger with its coffee,        Q: If you don’t mind getting        hot? If this danger of scalding
                     McDonald’s refused to change         burned it’s fit for consumption.       customers was known and could
are necessary to     its corporate policy and serve its   My question is, is it fit to be        be easily remedied, then why
                     coffee at a safer temperature.       drunk, actually fluid going down       not simply reduce the tempera-
fully extract the                                         your esophagus?                        ture of its coffee? That ques-
                     McDonald’s own quality assur-                                               tion was answered at trial.
full coffee-flavor   ance manager testified that             A: I think I already answered       McDonald’s requires that its
                     McDonald’s enforced a policy         that.                                  coffee be prepared at scalding
   during the        requirement that all coffee be                                              temperatures, based on the
                     served at 185 degrees, give or         Q: And the answer is no, it’s        recommendations of coffee
brewing process.     take five degrees. He also ad-       not, isn’t it?                         consultants and industry groups
                     mitted that its coffee was not                                              which claim that hot tempera-
                     “fit for consumption” because it        A: Yes, we answered that.           tures are necessary to fully
                     would cause scalding injuries to                                            extract the full coffee-flavor
                     the mouth and throat if drunk        While coffee at various tem-           during the brewing process.
                     by the consumer.                     peratures has the capacity to          McDonald’s     operations   and
                                                          inflict burns, the problem with        training manual states that its
                        Q: [Y]ou know, as a matter        McDonald’s coffee is the fast          coffee must be brewed at 195
                     of fact, that coffee is a hazard,    rate at which it could cause           to 205 degrees and held at 180
                     selling it at 180 to 190 degrees,    such serious burns. McDonald’s         to 190 degrees for optimal
                     don’t you?                           own expert testified that coffee       taste. Keep in mind that water
                                                          served above 130 degrees could
                        A: I have testified before, the   produce third degree burns;                           continued on page 27
                     fact that this coffee can cause      therefore, McDonald’s argued, it
                     burns.                               did not matter whether its cof-
                                                                                                                           Page 26
The Policyholder Advocate                                                  October 2007 issue

McDonald’s Coffee Lawsuit…                                                           continued from page 26

boils at 212 degrees Fahren-            Q: So a fair way to assess         something be done to sell this
heit. Hence, the reason for          your reasoning is, “A few people      coffee at a lower temperature?
preparing the coffee at near         are being seriously burned with
boiling temperatures was to          deep second and third degree             A: No, I don’t have a number
optimize the taste. Besides,         burns requiring hospitalization,      in mind.
one billion annual McDonald’s        but out of the billions of cups of
coffee drinkers cannot all be        coffee we sell, there’s not been      At trial, McDonald’s argued that
wrong, can they?                     enough burned to where we             Liebeck contributed to her own
                                                                                                               nues amounted to approxi-
                                     need to stop selling it that hot?”    injuries by placing the coffee
                                                                                                               mately $1.34 million. These
McDonald’s knew that its coffee                                            cup between her legs and by
                                                                                                               exemplary damages repre-
was being served at extremely           A: There’s a very low prob-        not removing her clothing
                                                                                                               sented about two days worth
hot temperatures, but market         ability of an accident as a result    promptly after the spill. McDon-
                                                                                                               of McDonald’s coffee reve-
research told them that McDon-       of using the product and we           ald’s further alleged that the
                                                                                                               nues. However, a fact that
ald’s customers “want hot cof-       know that the customers want          severe nature of the burns suf-
                                                                                                               rarely ever makes headlines
fee, they want it steamy hot,        the product hot so we’re at this      fered by Ms. Liebeck were
                                                                                                               (in this case, or in any alleg-
and they expect to get it that       time continuing with our current      worse than usual because of
                                                                                                               edly “fraudulent” lawsuit) is
way.” McDonald’s indifference        practice. . . .                       her older skin making her more
                                                                                                               that the punitive damages
to customer safety is evident in                                           vulnerable to more serious inju-
                                                                                                               were reduced by the trial
the following testimony from            Q: Mr. Appleton, do you            ries. A McDonald’s executive
                                                                                                               court to $480,000 (three times
McDonald’s quality assurance         know how McDonald’s Corpora-          testified that McDonald’s had
                                                                                                               the compensatory damages)
manager:                             tion informs itself of the severity   chosen not to warn its custom-
                                                                                                               for a total award of $640,000.
                                     of the burns that are recorded        ers of the possible severe burns
                                                                                                               Judge Robert H. Scott, who
   Q: Isn’t it a fact that back in   on Plaintiff’s Exhibit No. 3? Do      its coffee could cause because
                                                                                                               presided over this trial, stated
1988, when I showed you the          you know what they do to as-          “(t)here are more serious dan-
                                                                                                               in regard to the reduced puni-
pictures of the young lady that      certain how serious those burns       gers in restaurants.” McDon-
                                                                                                               tive damages award:
was burned in that situation,        are?                                  ald’s human factors engineer
that you were appalled and                                                 admitted that the number of hot
                                                                                                               I think that there was evi-
surprised that coffee could             A: I’m not intimately familiar     coffee     burns    suffered   by
                                                                                                               dence and argument about
cause that kind of burn?             with the process. I believe it’s      McDonald’s       customers    are
                                                                                                               the Defendant’s knowledge
                                     handled through our insurance         “statistically insignificant” in
                                                                                                               that the coffee could cause
  A: Yes, I had never seen           company.                              comparison to the one billion
                                                                                                               serious, third degree, full tis-
photographs like that before.                                              cups of coffee sold by McDon-
                                                                                                               sue burns.     The Defendant
                                        Q: So for you to say that you      ald’s each year.
                                                                                                               McDonald’s knew that the
   Q: All right. In those six        haven’t formulated a conclusion
                                                                                                               coffee, at the time it was
years, you still have not at-        that there have been enough           After seven days of evidence,
                                                                                                               served, was too hot for human
tempted, yourself, or know of        severe burns to warrant turning       testimony, and arguments of
                                                                                                               consumption . . . .
anyone within the corporation        down the temperature on your          counsel, the jury retired to de-
that has attempted to find out       coffee, you are speaking with-        liberate. The jury determined
                                                                                                               The written transcript is not
the rate of speed, the lack of       out knowledge of the extent           McDonald’s was liable on the
                                                                                                               going to reveal the attitudes
margin of safety in serving          and severity of the burns that        claims of product defect, breach
                                                                                                               of corporate indifference pre-
coffee at this temperature           were reflected in those com-          of the implied warranty of mer-
                                                                                                               sented by demeanor or of the
right...                             puter printouts, is that right?       chantability, and breach of the
                                                                                                               witnesses for the Defendant
                                                                           implied warranty of fitness for
                                                                                                               McDonald’s as well as their
  A: No, we have not.                   A: I think that I don’t think      particular purpose.    The jury
                                                                                                               employees, but the jury was
                                     we have a good measure of the         further determined that Ms.
                                                                                                               exposed to it and I think that
McDonald’s continued to dem-         severity of each of these.            Liebeck’s injuries merited an
onstrate this same corporate                                                                                   they properly considered it in
                                                                           award of $200,000 compensa-
indifference. McDonald’s hu-            Q: Well, I’m curious because                                           their deliberations. And let me
                                                                           tory damages.     However, be-
man factors engineer, Dr. P.         I’ve shown you recordations                                               say that with knowing the risk
                                                                           cause the jury found that Ms.
Robert Knaff, testified that the     here of some 700 people here                                              of harm, the evidence and
                                                                           Liebeck was 20% at fault, that
number of hot coffee burns           that have been burned. Obvi-                                              testimony would indicate that
                                                                           award was reduced proportion-
that occur are “statistically in-    ously, to you 700 people burned                                           McDonald’s consciously made
                                                                           ately to $160,000. Finally, the
significant” when compared to        is not a significantly high                                               no serious effort to warn its
                                                                           jury awarded Ms. Liebeck $2.7
the billion cups of coffee           enough number to turn down                                                consumers by placing just the
                                                                           million in punitive damages
McDonald’s sells annually. This      the heat. Do you have in mind a                                           most simple, adequate warn-
                                                                           based on its finding of willful,
callousness was further demon-       number of how many people                                                 ing on the lid of the cup in
                                                                           reckless, malicious, or wanton
strated by the testimony of          would have to be burned for                                               which the coffee was served…
                                                                           conduct. The amount of $2.7
McDonald’s quality assurance         you to become so concerned            million was arrived at based on                 continued on page 28
manager, who stated:                 that you would insist that burn       evidence the jury heard that
                                     specialists be consulted and          McDonald’s daily coffee reve-
                                                                                                                                       Page 27
                         The Policyholder Advocate                                                  October 2007 issue

                         McDonald’s Coffee Lawsuit…                                                             continued from page 27

                         This is all evidence of culpable      really think that $480,000 is        Restaurants.     You will have
                         corporate mental state and I          going to sting and deter the         begun a dialogue that will help
                         conclude that the award of pu-        McDonald’s empire the way that       change the misconceptions of
The McDonald’s cof-      nitive damages is and was ap-         $2.7 million would? This is not      our profession and our legal
fee case is not a        propriate to punish and deter         about getting rich; it is about      system. Each of us owes this
                         the Defendant for their wanton        shocking back to life the con-       duty to our profession in the
frivolous case, as
                         conduct and to send a clear           science of a corporate giant that    face of the attacks that we have
most     uninformed      message to this Defendant that        could not be bothered with peo-      unfortunately grown all too
people believe.    In    corrective measures are appro-        ple who are victimized by their      accustomed to.
                         priate.                               negligence and callous indiffer-
fact, Ms. Liebeck had                                          ence. The facts demonstrate          I am reminded of Alexander
a very strong case       Judge Scott ordered the parties       that this case was far from          Hamilton, who wrote concerning
                         to engage in a post-verdict set-      frivolous.                           the judiciary in the Federalist
against a very un-                                                                                  Papers of “the effects of those
                         tlement conference which re-
sympathetic corpo-       sulted in a settlement of the         Second, we as attorneys can          ill humors, which the arts of
rate defendant. An       case for an undisclosed amount        and must do our part to help         designing men, or the influence
                         (less than $600,000) which            change the public perception of      of     particular  conjunctures,
argument can obvi-       remains confidential. Ms. Lie-        our legal system. Far too many       sometimes disseminate among
ously be made that       beck’s case was dismissed with        have the misconception that if       the people themselves, and
                         prejudice on November 28,             any insignificant, trivial misfor-   which, though they speedily
the punitive dam-                                                                                   give place to better information,
                         1994.                                 tune happens to you, then you
ages should not have                                           can manipulate the legal system      and more deliberate reflection,
been decreased, es-      McDonald's has taken some             until you finally strike gold.       have a tendency, in the mean-
                         remedial measures in the after-       That simply is not the case.         time, to occasion dangerous
pecially in light of     math of the Liebeck lawsuit.          Our legal system has numerous        innovations in the government,
the purpose of puni-     Many McDonald’s drive-thrus           checks and balances and control      and serious oppressions of the
                         now have a sign warning,              measures in place that deter         minor party in the community.”
tive damages.            “Coffee, tea and hot chocolate                                             The ill humors surrounding our
                                                               and penalize frivolous lawsuits
                         are VERY HOT!” Also, the lids         and curb excessive jury ver-         profession will give place to
Far too many have        of McDonald’s hot beverage            dicts. Our legal system works;       better information and deliber-
the    misconception     cups are now embossed with            and those who degrade and            ate reflection; I hope that this
that if any insignifi-   the words “HOT! HOT! HOT!” It         twist our profession by spread-      article can serve as a starting
                         is debatable whether the coffee       ing half-truths and distorting       point for that better informa-
cant, trivial misfor-    at McDonald’s is served any           reality sadly align themselves       tion.
tune happens to you,     cooler than the coffee that in-       with those who have exploited
                         jured Ms. Liebeck.           Some     the ignorance-induced fear of        To conserve space, POA took
then you can ma-         sources indicate that McDon-          others throughout history. It is     out all of the footnotes and
nipulate the legal       ald’s current policy is to serve      truly amazing how the truth can      references. To read the entire
system until you fi-     coffee between 175-195 de-            change perspectives.                 article CLICK HERE.
                         grees Fahrenheit. The industry
nally strike gold.       standard still calls for near boil-   “But what if they won’t listen to    Kevin G. Cain is senior counsel
That simply is not       ing temperatures for the best-        me?” Just like Moses at the          with the law firm of Martin, Dis-
                         tasting coffee. Hence, the cur-       burning bush, we may need a          iere, Jefferson & Wisdom, L.L.P. in
the case. Our legal      rent reaction to coffee lawsuits      little extra ammunition for the      the         appellate     section.
system has numer-        is to do a better job of warning,     mission ahead. Well, here it is.     cain@mdjwlaw.com

ous checks and bal-      but maintain the temperature          The next time someone is in-
                         for better tasting java.              dulging in the latest pastime
ances and control                                              sport of “lawyer-bashing,” chal-
measures in place        So, what can we take from all         lenge that person by saying, “I’ll
                         this? First, the McDonald’s cof-      bet you probably think that the
that deter and pe-       fee case is not a frivolous case,     McDonald’s coffee lawsuit was a
nalize frivolous law-    as most uninformed people             frivolous lawsuit, don’t you?”
                         believe. In fact, Ms. Liebeck         After they accept the challenge
suits and curb exces-
                         had a very strong case against        to your seemingly indefensible
sive jury verdicts.      a very unsympathetic corporate        position, you can then begin to
                         defendant. An argument can            (politely) dismantle their per-
                         obviously be made that the            ception of the poster child, cor-
                         punitive damages should not           nerstone, and personification of
                         have been decreased, especially       frivolous lawsuits by informing
                         in light of the purpose of puni-      them of “the rest of the story”
                         tive damages.      Does anyone        behind Liebeck v. McDonald’s                                   Page 28
The Policyholder Advocate                                              October 2007 issue

Farmers Insurance Fined $2M in Calif.                                                            AP


Farmers Insurance refunded         gered by consumer com-              "We caught it when they
$1.4 million to thousands of       plaints, also found that            caught it," Farmers spokes-            Farmers
California homeowners and
agreed to pay $2 million in
                                   Farmers lacked the proper
                                   guidelines to determine
                                                                       man Jerry Davies said.                claims a
                                                                       "We fixed the computer sys-
penalties to settle com-
plaints the company over-
                                   whether to renew a policy-
                                   holder based on the num-            tem four years ago, all the         “computer er-
                                                                       customers were paid and
charged policyholders, offi-       bers of times that person
                                                                       have received apologies," he          ror” is to
cials said.                        filed a claim, Kerns said.
The settlement came after a        Such a guideline is needed
                                                                       said.
                                                                                                               blame.
California Department of           to prevent "use it and lose         As part of the settlement,
Insurance investigation            it," a practice that regulators     Farmers agreed to work with
found the insurer was classi-      said had led many Califor-          the department to develop
fying some homes as having         nians to lose homeowners            better guidelines to assess a
a high fire risk when those        insurance after filing legiti-
                                                                       home's fire risk and deter-
homes should have been             mate damage claims on
classified as having a lower       their houses.                       mine whether or not to can-
fire risk, said department                                             cel policies.
spokeswoman Jennifer               Farmers denied wrongdoing,
                                   saying a computer error
Kerns on Wednesday.
                                   caused the company to over-
The probe, which was trig-         charge 6,000 customers.


Bill to lower insur-                billion available to the author-
                                    ity for up to 12 years.
                                                                        posal goes in the opposite
                                                                        direction."
ance industry sup-                  Machado said most insurers
                                                                        State Treasurer Bill Lockyer
                                    don't want to provide earth-
port for earthquake                 quake coverage themselves.          predicted the deal would force
                                                                        the California Earthquake
coverage                            If passed, the result could be      Authority to raise its rates,
AP                                  higher rates for the more than      which now average about
                                    760,000 homeowners who              $700 a year, by another 8.5
SACRAMENTO—California               have quake coverage through         percent.
homeowners who buy earth-           the authority, California's
                                    largest provider of earthquake      He urged lawmakers to ex-
quake insurance through a
                                    insurance.                          tend the industry's $2.2 billion
state-run authority could see
                                                                        obligation until the authority
their premiums rise under a bill
                                    The legislation was approved        has $6 billion in cash re-
that recently passed an Assem-
                                    by the Assembly Appropria-          serves. Currently it has only
bly committee over opposition
                                    tions Committee, even as            $2.7 billion, he said.
from the state treasurer and
                                    some committee members
consumer advocates.                                                     The authority has about 72
                                    expressed reservations about
                                    the change and indicated they       percent of the homeowner
When the California Earth-
                                    might oppose it when the bill       earthquake insurance market
quake Authority was estab-
                                    comes up for a vote in the full     in California.
lished in 1996 two years after
the Northridge earthquake,          Assembly.
                                                                        Only about 13 percent of
participating insurance compa-                                          homeowners have earthquake
                                    "The chief policy objective
nies were required to provide                                           coverage, either through the
                                    should not be, 'What legisla-
$2.2 billion to help underwrite                                         authority or a private insurer.
                                    tion does the industry sup-
it. They were to keep that                                              Those going without coverage
                                    port?'" Doug Heller, executive
money in reserve through Dec.                                           apparently prefer to run the
                                    director of the Foundation for
1, 2008.                                                                risk of major losses rather
                                    Taxpayer     and    Consumer
                                    Rights, a Santa Monica-based        than pay rates that can run
That arrangement is about to
                                    consumer group, told the            several thousand dollars a
expire and insurance compa-
                                    committee.                          year, depending on the loca-
nies want out of it. Sen. Mike
                                                                        tion, size, value, age and con-
Machado, D-Linden, wants to
                                    "The    only question (should       struction of the house.
replace it with a new one in
                                    be),   'What makes the CEA
which insurance companies
                                    more    stable and CEA policies
would be required to keep $1.2
                                    more     affordable?' This pro-                                                  Page 29
The Policyholder Advocate                                        October 2007 issue
FL Insurers Breaking New State Law to Avoid Rate Cuts                                POA


Gov. Charlie Crist thinks that   phe Fund so it could cover      premium increases. USAA,
some insurers operating in       more of the underlying risk     for example, has filed a re-
Florida may be deliberately      for big storms. That backup     quest for a statewide aver-
breaking a new state law         (or reinsurance) coverage is    age rate increase of nearly
that requires them to buy        provided at a lower rate than   54 percent.
cheaper reinsurance and          private reinsurance. Insurers
pass the savings on to con-      were told to pass those sav-    Floridians had been clamor-
                                                                 ing for relief from homeown-
sumers.                          ings to consumers.
                                                                 ers insurance rates that
Crist believes insurers are      Many companies aren’t do-       have dramatically increased
dodging ordered rate reduc-      ing that, and are filing for    - more than doubling for
tions by buying more private     higher rates – basically        many customers - after
backup coverage than they        thumbing their noses at the     back-to-back bad hurricane
need. Crist has been stead-      Governor.                       seasons in 2004 and 2005.
fast in his rate reduction
goal and that has bothered       State insurance officials       The industry pulled out its
                                 estimated that the new law      predictable boilerplate re-
insurers to no end.
                                 would yield an average sav-     sponse to all of the hoopla
The Florida Legislature          ings of 24 percent. Since       by claiming that Florida’s
passed the law in January to     then, many insurers have        “hostile” position makes
lower wind coverage premi-       not only pocketed savings       insurance companies less
ums, by increasing the           that were to be passed onto     likely to do business in Flor-
state's Hurricane Catastro-      customers, they filed for       ida.




                                                                                       Page 30
The Policyholder Advocate                                               October 2007 issue
Ga. Court Orders Judgment for Insurer on Negligence Claim
Harris Martin—Columns Mold

ATLANTA — Georgia’s Court of        The Hunters say they began to       on the negligent repair claim,
Appeals on July 30 ordered          experience illnesses after the      finding issues of fact as to
summary judgment for an in-         repairs were made and re-           whether GuideOne was negli-
surance carrier after finding the   tained American Contamination       gent in recommending repairs,
carrier had no duty to approve      Control to test the house for       in failing to warn the Hunters or
a home contractor or warn resi-     mold in January 2003.               Simpson, or in failing to test for
dents of the possibility of mold    ACC reported high levels of         mold.
after storm damage was re-          mold from moisture intrusion
paired. GuideOne Mutual Insur-      due to a roof leak. GuideOne        In reversing, the Court of Ap-
ance Co. v. Hunter, et al., No.     eventually paid ACC $38,000         peals found no evidence that
A07A1158 (Ga. Ct. App.).            for mold remediation and re-        Simpson relied on GuideOne to
                                    pairs.                              choose a contractor or that
The appellate court reversed a                                          GuideOne assumed a voluntary
trial court order denying Guide-    The Hunters sued Simpson and        duty to delegate a contractor.
One Mutual Insurance Co.’s          GuideOne, however, seeking
motion for summary judgment         damages for alleged negligence      “The evidence, viewed in a light
on a negligent repair cause of      and breach of contract. In as-      most favorable to the Hunters,
action brought by tenants of        serting the breach-of-contract      does not show that GuideOne
GuideOne’s insured.                 action, the Hunters claimed         through Harrison undertook to
                                    they were third-party beneficiar-   do anything more than inspect
Michael and Melissa Hunter          ies of the home insurance con-      the property in discharge of its
sued landlord Christopher           tract.                              obligation to pay the actual
Simpson and GuideOne in                                                 cash value of damaged prop-
2003, claiming illness from         GuideOne, meanwhile, filed a        erty or to defray the repair and
mold that appeared after the        separate declaratory judgment       replacement costs,” the Court
house was damaged in a No-          action, contending that the         of Appeals concluded.
vember 2002 storm.                  policy’s rental exclusion pre-
                                    cluded coverage during the          John M. Hawkins of Weinberg,
The Court of Appeals said in its    time the Hunters rented the         Wheeler, Hudgins, Gunn & Dial
case summary that GuideOne          home from Simpson. That court       in Atlanta represented Guide-
sent adjuster Randy Harrison to     agreed, granting summary judg-      One Mutual Insurance Co.
investigate the storm damage.       ment to the insurer.
He was accompanied by a rep-                                            Eugene C. Brooks IV of Savan-
resentative of J&G Metal Tops,      Following that ruling, the trial    nah and Gerald Davidson Jr. of
Simpson’s chosen roofing con-       court in this case granted sum-     Mahaffey Pickens Tucker in
tractor. GuideOne paid J&G          mary judgment to GuideOne on        Lawrenceville, Ga., represented
$6,700 for repairs to the roof,     the Hunters’ breach of contract     appellees Simpson and the
drywall and carpets.                claim, but denied GuideOne’s        Hunters.
                                    motion for summary judgment

A NEW LOW:                                                              The two private detectives
                                                                        allegedly posed as a married
PROGRESSIVE HIRES INVESTIGATORS TO                                      couple wanting to join the
SPY ON POLICYHOLDERS IN CHURCH POA                                      church. They weaseled their
                                                                        way into a private confes-
Georgia’s Insurance Commis-          Oxendine, ordered a market         sional at a member's home
sioner has begun an investiga-       conduct examination into           and recorded potentially em-
tion of Progressive Insurance        recent allegations of inva-        barrassing details from sev-
for allegedly spying on policy-      sion of privacy, fraud and         eral people there.
holders who filed a suit. State      other misdeeds by Progres-
investigators say Progressive        sive Insurance Co. and or-         The company's president is-
sent private investigators into      dered Progressive to pre-          sued an apology on Progres-
a church confessional to spy         serve "all documents, data         sive's website.
on a couple — Bill and Leandra       and tangible things related
Pitts — who were involved in a       to all losses or claims in-        Company spokesman Shawn
car crash and later sued the         curred or reported involving       Fergus did not return POA’s
company.                             or related to Georgia policy-      calls.
                                     holders since Jan. 1, 2003.
Insurance commissioner, John                                                                     Page 31
                         The Policyholder Advocate                                           October 2007 issue

                         Foti sues insurers over Katrina flood exemptions
                         Attorney General Charles Foti     ciated with hurricanes," the      gram.
                         has filed a bold and broad        suit says.
                         class-action lawsuit against                                        "The general trend we have
                         nearly every private insurance    That argument fell flat last      observed for the overwhelm-
                         company in the region, claim-     month before the 5th U.S.         ing majority of insured is that
                         ing they misused flood exemp-     Circuit Court of Appeals, which   the flood payments did not
                         tions in their homeowners         ruled a flood is a flood, re-     adequately compensate the
                         policies to deny claims for       gardless of the cause. The        victims of the storm for their
                         about 150,000 hurricane           ruling reversed a decision by     property losses," Foti said.
                         victims, thereby shifting the     U.S. District Judge Stanwood      "Had the homeowners and
                         burden to the Road Home           Duval that said insurers, other   wind insurers paid their limits
   He’s da Man!                                            than State Farm Fire & Casu-      of coverage, the insured
                         program.
                                                           alty Co., had ambiguous poli-     would have been made whole.
     Louisiana AG        "The state is thus entitled to    cies regarding flooding           But they were not."
    Charles Foti, Jr.    recover billions of dollars in    caused by failed levees.
                         funds expended or to be ex-                                         While daring, the attorney
   says Louisiana is                                       Wants it in state court           general's lawsuit comes late
                         pended under the Road Home
 entitled to recover     program to assist recipients                                        in the game, nearly two years
                                                           On Thursday, Foti, in a written   after Mississippi Attorney Gen-
   billions of dollars   with their recovery efforts,      response to questions, said
                         which should have been paid                                         eral Jim Hood filed suit
 from virtually all of                                     the case belongs in state         against insurers. And the Lou-
                         for in whole or in part by the    courts, which have been more
the carriers operat-     insurance company defen-                                            isiana lawsuit's overarching
                                                           favorable to the wind vs. flood   scope and reliance on indis-
   ing in the region     dants," reads the lawsuit filed   argument than federal courts
                         last week in Orleans Parish                                         criminate generalizations wor-
 because the insur-                                        have. Two cases that have         ries even those who believe
                         Civil District Court.             reached the state appeals
   ers should have                                                                           the state should sue insurers
                         The suit claims that the insur-   court level so far have upheld
                                                                                             to recover Road Home funds.
    paid but didn’t.     ance companies drafted            the idea that insurance poli-
                         "vague, ambiguous and un-         cies were too ambiguous           "I hope he (Foti) gets as much
Their refusal to pay                                       about coverage of floods          money for the state as we
                         clear limitations on coverage,
shifted the financial    thereby violating the rule that   caused by levee failure or        deserve; the insurance com-
burden to the Road       exclusions must be clearly        storm surge.                      panies, they're bad eggs," said
                         and explicitly drafted." The                                        Allan Kanner, who is coordi-
    Home program.                                          If the Louisiana Supreme          nating insurance litigation at
                         state, however, has based its     Court upholds that position in
This program assist      sweeping claims on an argu-                                         the Louisiana Association for
                                                           those cases, "the industry will   Justice, formerly the state trial
  recipients with re-    ment already knocked down         face billions of dollars of
                         by the federal courts: that all                                     lawyers association. "But you
    covery efforts.                                        claims by both the insureds       have to take them on with
                         damage from the 2005 hurri-       and the Road Home," Foti
                         canes be declared the result                                        your A-game every day. And I
                                                           said.                             would have hoped our chief
                         of "windstorm," rather than
                                                           The case also tests a new         legal officer would have had
                         flooding.
                                                           legal argument by alleging        more of a scalpel than a shot-
                         The suit contends that insur-     that insurance companies          gun."
                         ance companies sold the           directed adjusters to maxi-
                         same basic policies to levee-                                       Time running out
                                                           mize the amount of damage
                         protected New Orleanians          from flooding -- covered by       The broad-brush strategy
                         that they sell throughout the     federal flood insurance -- and    could result more from logis-
                         country -- without explicitly     minimize the damage attribut-     tics than legal logic: Though
                         excluding hurricane damage,       able to wind, which private       state officials identified poten-
                         storm surge or flooding from      insurers must cover. In that      tial insurance underpayments
                         levee failures. And so they       scenario, if homeowners           more than a year ago, the
                         "knew or should have known        lacked enough flood insur-        attorney general agreed to
                         that their policies as drafted    ance, such a shift by adjusters   take on the cases less than a
                         provided coverage for natural     would have put a heavier bur-
                         as well as man-made or third-     den on the Road Home pro-
                         party fault occurrences asso-                                                   continued on page 33


                                                                                                                      Page 32
The Policyholder Advocate                                              October 2007 issue

Foti sues insurers….                                                           continued from page 32

month ago, and so probably          every single one of these carri-   their losses, for whatever rea-
wouldn't have had the time to       ers wrongfully withheld            son. The lawsuit, he said, now
prepare a more specifically         money, which is clearly not        assumes any such gap in cov-
targeted case before meeting        the case."                         erage stems from insurance
Friday's filing deadline.                                              company wrongdoing rather
                                    LaCost questioned the basis        than homeowners simply not
The legal statute of limitations    the attorney general had for
                                                                       buying enough coverage.
for Katrina claims was ex-          such strong claims against all
tended from one year to two         168 defendant companies.           The attorney general appar-
by legislative act and insurers     First, he wondered how the         ently named as defendants
signed agreements to abide          suit could claim billions of       every major casualty insurer
by it.                              dollars in underpayments           in the state, including big na-
                                    when the LRA's own analysis        tional and international firms
Foti said the lawsuit is still in   showed insurance payments          such as Allstate Insurance
the early stages, and more          were less than $900 million        Co., Travelers Insurance Co.,
details will come out during        below anticipated levels. Also,    State Farm General Insurance
the course of pre-trial motions     the LRA analysis warned that       Co., Hartford Insurance Group,
and during the trial itself.        it would be difficult to deter-    Fireman's Fund Insurance Co.,
Meanwhile, the state made no        mine how much of the lower-        Lloyd's of London, Farmers
effort to negotiate a settle-       than-expected insurance pay-       Home Group and Hancock
ment or gather information          ments were because of fail-        Metlife Insurance Agency.
from insurers despite recent        ures by homeowners to up-
                                    date coverage levels as their      Among the Louisiana compa-
offers of cooperation from the                                         nies named is Louisiana Citi-
companies, said insurance           home values increased.
                                                                       zens Property Insurance
company industry spokesman          Shifting the responsibility        Group, the state-funded in-
Greg LaCost.                                                           surer of last resort.
                                    "How much investigating did
"The carriers approached me         the AG's office do? Did they
last month and said, 'We're         interview all of these appli-
willing to meet with the AG,'       cants?" LaCost said.
and none of that happened.
There was no outreach as far        He said the whole point of the
as I know," LaCost said. "Now       Road Home program was to
the state is sending this mes-      fill in the gaps when home-
sage by filing the lawsuit that     owners failed to fully insure




                                                                                                         Page 33
                       The Policyholder Advocate                                   October 2007 issue
                       Newsday Editorial:
                       Kudos to state on insurance problem
                       As far as the state Insur-    industry still reeling from   owner policies and is re-
                       ance Department is con-       losses due to Katrina, An-    viewing others that were
                       cerned, you're not in good    drew and other hurri-         canceled. Overall, more
  Insurers are         hands with Allstate. The      canes, fear that Long Is-     than 15,500 policyhold-
known to use fear      same for Liberty Mutual,      land, New York City and       ers have found them-
                       the second insurer ac-        Westchester are well          selves scrambling over
    tactics…           cused of breaking a law       overdue for a catastrophic    the past year, after receiv-
                       aimed at protecting con-      storm.                        ing nonrenewal notices
In NY, like in many    sumers from coercive                                        from several insurers.
                       sales tactics. As State In-   This page has defended
other states, insur-                                                               That's scary, considering
                       surance Superintendent        the insurers' right to re-
                                                                                   that Long Island has hun-
   ers threaten to     Eric Dinallo demanded,        duce their exposure - as
                                                                                   dreds of miles of coast-
                       the firms must stop ex-       long as they follow laws
drop homeowners                                                                    line, and a home is usu-
                       ploiting fears over losing    that bar forcing consum-
                                                                                   ally a family's most valu-
policies if custom-    homeowner coverage to         ers to buy one policy if
                                                                                   able asset.
                       sell auto insurance poli-     they want another and
   ers doesn’t buy                                   that limit the number of      Now, regulators must do
                       cies.
  their more lucra-                                  homeowners whose cov-         their best to assure that
                       Dinallo deserves kudos        erage can be dropped in       homeowners have other
 tive auto policies.   for responding quickly to     any given year. The state,    sources of coverage, and
                       complaints from consum-       as it should, has found       at reasonable rates. Fami-
                       ers after Newsday re-         evidence of the former        lies can't be left high and
                       vealed Allstate and Lib-      and remains vigilant on       dry the next time they are
                       erty Mutual's decisions to    the latter.                   down and damaged if - or,
                       cut their numbers of                                        as forecasters say, when -
                       homeowner insurance           As a result of the state's
                                                                                   the next Big One hits.
                       policies. The firms, in an    diligence, Liberty Mutual
                                                     has reinstated 380 home-


                                                                                    related insurance are
                        S.C.: Audit Requested of Insurance
                                                                                    accurately calculated.
                        Rates                              AP


                        COLUMBIA, S.C. - A state     Charleston, asked the
                        Senate leader is asking      state watchdog group to
                        the Legislative Audit        review eight areas involv-
                        Council to review prac-      ing the agency.
                        tices at the state Insur-
                        ance Department that         Those include whether
                        may have let insurance       the agency is using accu-
                        companies raise rates        rate information and ac-
                        without adequate over-       counting for insurers' in-
                                                     vestment income prop-
                        sight.                                                         SC Senator, Glenn
                                                     erly. McConnell also
                        Senate President Pro         wants to know whether             McConnell wants an
                        Tem Glenn McConnell, R-      rates for hurricane-              audit.



                                                                                                        Page 34
Just imagine how insurers would behave if we weren't here.

15 Orange Street
                                  Policyholders of America (“POA”) is a nonprofit, members-run association
Charleston, SC 29401
                                  serving consumers of homeowner and auto insurance. We assist members, at
                                  no charge, with claims so that our members have a far better chance of re-
Phone: 888-648-8823
                                  ceiving what’s due under the policy. This puts us at odds with the insurance
Fax: 888-648-8823
                                  industry.
                                  We are not advocates of litigation and are not associated with trial lawyers,
The best way to reach             public adjusters or any other group that feeds off of the misfortunes of policy-
us is by E-mail:                  holders. Our only loyalty is to the policyholder.
info@policyholdersofam            POA is nonpartisan however we do take a stand on political issues, candi-
erica.org                         dates and policies relating to insurance for one simple reason: You cannot
                                  separate insurance from politics.

                          We’re on the web at: www.policyholdersofamerica.org

HOUSTON CHRONICLE EDITORIAL                                         some of the highest insur-       steadily climbed to $63.7
                                                                    ance rates in the nation.        billion last year. Rather
Brazen move       Texas insurance
                                                                    This isn't the first time
                                                                                                     than return some of its
commissioner must fight Allstate's efforts to                                                        largesse    to  customers,
                                                                    Allstate has put revenues
                                                                                                     Allstate is reaching for
get away with excessive rate hike.                                  above its responsibilities as
                                                                                                     more.
                                                                    a good corporate citizen.
Judging by its latest stealth     hours later. Geeslin and Public   The American Association of      Having been hoodwinked
rate increase, Allstate is now    Insurance Counsel Rod Bor-        Justice recently published a     once, Commissioner Gees-
employing its self-proclaimed     delon denounced the increase      study entitled "Pattern of       lin    prudently     revoked
"good hands" to pick the pock-    as unjustified and excessive.     Green 2007: How Insurance        Allstate's right to use a file
etbooks of Texas homeown-         The commissioner issued an        Companies Put Profits Over       and use system to imple-
ers.                              order disallowing the raise.      Policyholders." It found that    ment future rate increases
                                  Allstate lawyers then went to     in the aftermath of Hurri-       without prior approval by
Defying Texas Insurance Com-
                                  state district court in Austin    cane     Katrina,     Allstate   the state. Counsel Bordelon
missioner Mike Geeslin, the
                                  and secured a temporary re-       dropped nearly 5,000 Lou-        is calling for $25,000 pen-
company enacted a 5.9 per-
                                  straining order pending a         isiana customers for alleg-      alties for each homeowner
cent increase on policies
                                  hearing next week.                edly not showing intent to       policy Allstate sells with the
statewide this week, with an
                                                                    repair their properties. An      new rates.
additional 2.1 percent for cus-   The insurance giant is coming
                                                                    investigation by the state's
tomers in high-risk coastal       across as a corporate bully                                        With its latest grab, Allstate
                                                                    insurance officials found the
counties.                         trying to intimidate industry                                      has breached trust both
                                                                    cancellations were unjusti-
                                  regulators while taking advan-                                     with Texas insurance regu-
Allstate initially sought an                                        fied. In Texas, Allstate and
                                  tage of thousands of Texas                                         lators and its customers.
even bigger rate increase of                                        five other insurers canceled
                                  homeowners. While an Allstate                                      Rather than just a slap on
6.9 percent for its 917,000                                         more than 100,000 home-
                                  spokesman claimed actuarial                                        those well-known hands, it
Texas policyholders but with-                                       owner policies to avoid risk.
                                  data justified the new rates,                                      deserves serious penalties,
drew the proposal when it
                                  the previous attempt to insti-    Even with 2005's onslaught       including mandated refunds
became clear state officials
                                  tute even higher increases        of   hurricanes,   property      and rate rollbacks.
would reject it. The company
                                  indicates the company is try-     casualty insurers reaped a
then raised rates Monday and
                                  ing to boost record profit lev-   record profit of more than
filed notice with the Texas
                                  els on the backs of Lone Star     $44 billion in that year.
Insurance Department 10
                                  customers who already pay         Since then, profits have
                                                                                                                          Page 35

				
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