State Farm Flip-Flop Leaves Homeowners With Questions

The Pantagraph (Bloomington, IL)
May 1, 2006

Cindy Lamb expected State Farm Insurance Cos. to cover her destroyed Mississippi beach home following hurricane Katrina. She said a company insurance adjuster told her she was entitled to money.

But as the Bloomington native sought shelter in Farmer City following the storm, that adjuster relocated to Florida and State Farm changed its mind regarding her claim, Lamb said.

Now Lamb is among many Gulf Coast hurricane victims who are battling insurance companies in the wake of last year's devastation. Disputed claims have evolved into class action, civil and private lawsuits, as well as out of court negotiations. Lamb's claim falls into that category; she is among more than 1,000 State Farm customers in Mississippi using a mediation process to try to resolve her issues.

State Farm said it cannot comment on specific cases like Lamb's, but Claims Vice President Susan Q. Hood told The Pantagraph the company does not transfer adjusters just because it doesn't agree with their evaluations of damaged homes. Rather, they relocate because of manpower issues.

"That's part of the process. We have to have the ability to redeploy people because right after Katrina, Rita hit," she said. "When there's a handoff to another claims person, those transitions usually go smoothly.

"Do we make mistakes? Yeah, we make mistakes. Hurricane Katrina is unprecedented. Nobody has ever dealt with this before," Hood added. "Yeah, we make mistakes, but we are about doing the right thing."

Still, Lamb finds something fishy about one adjuster being relocated after approving her claim only to be replaced by another who denied her money.

Flood vs. wind

In letters to Lamb, State Farm told her and her husband, Dennis, they were not covered because flooding, storm surge and wave wash destroyed her home, not wind.

The point has become a pivotal one in many post-hurricane disputes. Flood damage n if homeowners purchase optional flood insurance n is covered by the government, not private insurance companies. Lamb did have flood insurance to cover about 70 percent of her home. State Farm should cover the difference, she said.

"What's the chance of a flood taking everything? I remember the '93 flood and very few structures were washed away by water," Lamb said. "Our house could have been completely gone before the water came in."

Other State Farm customers have made that same claim in court documents. State Farm faces several lawsuits, including one filed by U.S. Sen. Trent Lott, R-Mississippi, and a civil suit headed by Mississippi Attorney General Jim Hood, who is not related to Susan Hood of State Farm.

But State Farm and other insurance companies say the order of events doesn't matter.

In a letter to inform Lamb her damage was not covered, State Farm stated, "We do not insure for such loss regardless of whether other causes acted concurrently or in any sequence with the excluded event (flooding) to produce the loss."

It's part of the fine print on common homeowners' policies.

Susan Hood also pointed out only about 1,100 of about 84,000 of State Farm's hurricane claims in Mississippi went to mediation. A mediator will hear Lamb's claim in July, 11 months after Katrina.

It's uncertain how many others filed lawsuits.

"There really is a small number of disputes," she said. "There are a lot of claims, and we've closed most of them."

Litigation

To date, State Farm has paid about $6.3 billion on about 379,000 hurricane claims in the Gulf Coast, but an unknown amount of additional money hangs in legal limbo.

In the latest allegations, Attorney General Jim Hood accuses State Farm of fraudulently manipulating reports from contracted, independent engineering firms to avoid paying claims.

State Farm called the accusation absurd.

"I have complete faith in our adjusters. They are out there acting ethically. Any suggestions to the contrary are simply wrong," Susan Hood said. "I have an unbelievably trained group of people who want to take care of customers."

Plus, engineering firms do not have the final say on the cause of damage.

"We hire engineers when we believe we need an objective opinion as to what caused the damage to the property," Susan Hood said. "State Farm makes that ultimate decision as to what a policyholder is paid."

In court, however, plaintiffs likely will bring up other issues besides fraud, said Carson Varner, a licensed attorney and professor of finance, insurance and law at Illinois State University. For example, did insurance companies give ample notice to policyholders about the exclusion of flood coverage, Varner asked.

"I would guess they came up a little bit short," he said. "You hear a thousand times, read before you sign, but how many people read the fine print or understand it? Even as an attorney, I have a very hard time reading an insurance policy."

That notification issue likely will join fraud in the list of charges against State Farm, Varner said.

"When you're dealing with billions of dollars, you go for it. Anything is a legal issue if you can get it to a jury," he said. "I think this is going to take a lot of years. The wheels of justice, if you want to call it that, churn pretty slowly."

Susan Hood couldn't comment on the conversations State Farm agents and policyholders have had about flood insurance. But State Farm spokesman Fraser Engerman said homeowners must read the fine print.

"Homeowners have to be smart. They have to know what's in their policy," Engerman said.

Cindy Lamb's story

-- Against the recommendations of beachfront friends and neighbors, Cindy Lamb purchased a $300 flood insurance policy before Hurricane Katrina swept through Mississippi. State Farm never mentioned anything about flood insurance before she brought up the topic, Lamb said.

"We were one of the few that had it. … We were not in the flood zone. We did not have to have flood insurance (as sometimes mandated by the Federal Emergency Management Agency)," she said.

-- After Katrina, State Farm, among companies that administer the government's flood insurance program, sent Lamb a check "surprisingly" fast, she said. It did not request an itemized list of damages. The company also sent her a check for emergency living expenses.

-- A State Farm adjuster visited her beachfront property about a month later and told Lamb the company would cover the remaining damage, she said. Weeks later, she received a letter from State Farm informing her she was not covered.

-- Confused, Lamb called the original adjuster. The conversation was short.

"He simply said "I've been relocated to Florida,'" said Lamb, who no longer has the name and phone number of her original adjuster.

-- Lamb's pending claim will be heard by a mediator this summer, but she remains dedicated to State Farm.

"We've just been State Farm's customers for a very long time. Our parents were State Farm customers. All of the people at State Farm were very considerate of our situation. We have no plans to switch insurance companies."


Copyright 2006 The Pantagraph, Bloomington, Ill. Source: (KRT)



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