A member of the House whose insurance claim was denied after Hurricane Katrina accused insurers of “massive fraud” during a February 28 hearing before the Financial Services Subcommittee on Oversight and Investigations. Rep. Gene Taylor (D-Miss.), who recently settled a suit against State Farm over his own Katrina claim, said that insurers had committed “massive fraud” against homeowners and taxpayers by systematically assigning all damage from the storm to flooding, making the National Flood Insurance Program (NFIP) responsible for all losses. Rep. Taylor said that insurers also took advantage of their exemption from federal antitrust laws to contact each other and devise a system to avoid paying claims. The law allows an insurer to call others and say “if you don’t pay claims, and you don’t pay claims, then I don’t have to pay claims,” he said. “It’s wrong as all get-out and it should be illegal.”

Rep. Taylor’s assertions were vigorously disputed in testimony by Insurance Information Institute President Robert P. Hartwig. Hartwig disputed the idea of an insurance company conspiracy to avoid paying claims, saying that companies make “every effort” to pay claims according to the terms of the contract.  Panel member Rep. Maxine Waters (D-Calif.) disputed an industry assertion that 95 percent of claims had been settled by the one-year anniversary of Hurricane Katrina. Under questioning, Hartwig admitted insurers did not include claims in that number if they felt they were barred by language in policies, prompting Rep. Waters to say, “We consider that a claim. You evidently don’t.”

Although not among those testifying, State Farm’s vice president of public affairs Mike Fernandez said in a statement that Rep. Gene Taylor’s claim of a conspiracy among insurers was “absurd.” Fernandez also rejected testimony from Mississippi Attorney General Jim Hood that State Farm was the only insurer to “zero out” on home foundation slab claims. Mr. Hood’s statement “we believe implies we did not pay anything on those claims. In reality, State Farm paid for covered damage on nearly 800 claims in which the foundation was all that remained after the storm,” he said.

House Katrina Panel Puts Insurers on the Hot Seat (National Underwriter 3/5/07)

FEMA Official Unaware Of Insurance Fraud After Katrina (Insurance NewsNet 3/2/07)

March 6, 2007