August 18, 2006
Musings On the Katrina Judgment
So why did the federal judge side with the home insurance companies and rule that they did not have to pay for the flooding that destroyed tens of thousands of homes in Hurricane Katrina? After the initial rage at the decision has died down and we calmly think about it, the decision isn’t as flawed as it seems. Firstly, the insurance companies didn’t get an absolute victory. The judge rejected attempts by the insurers to cancel coverage for wind damage when it occurred in combination with the flooding.
This means homeowners whose claims have been denied may have the opportunity to present proof in court that at least some of the damage resulted from wind — which is the main protection provided by home insurance policies in hurricanes. What the ruling did was to uphold a longstanding practice of insurers of not covering flood damage, which is typically insured through the federal government. The insurance industry had stated that a ruling requiring insurers to pay all flood damage would have meant that the courts could rewrite their policies or contracts. This might have led some of them to withdraw from the home insurance business.
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