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Handling of Hurricane Ike Insurance Claims Sparks Complaints

Dec 5, 2008 | Parker Waichman Alonso LLP

Insurance regulators in Texas say they have already received at least 1700 complaints stemming from Hurricane Ike insurance claims, the Houston Chronicle reports.  A representative from the Texas Department of Insurance told the Chronicle that they are monitoring the complaints to make sure they are resolved fairly.

In October, the risk assessment firm Risk Management Solutions estimated that damage costs from Hurricane Ike could go as high as $21 billion. Another report from the Insurance Services Office (ISO) found that Texas led all other states in insured losses this year, owing mostly to the impact of Hurricane Ike, as well as Gustav and Dolly, on the state.    With insurance companies taking a big hit from Ike, it looks like they are scrutinizing damage claims very closely - and some policyholders say, unfairly.

Lowball settlement offers were cited the most by the disgruntled policyholders interviewed by the Chronicle.  Some homeowners said they have had to dip into their own pockets to pay public adjusters and engineers to properly evaluate their claims.  The complaints involve both private insurance companies, as well as public entities like the Texas Windstorm Association and National Flood Insurance Program, the Chronicle said.  

Many of the disputes will likely end up in court.  Earlier this week, we reported that Texas judges are already preparing for a deluge of Hurricane Ike insurance claim lawsuits.  According to the Associated Press, they have discussed appointing one judge as pretrial judge for all residential insurance lawsuits. The Associated Press said they hope to have a plan in place by January.

One judge told the Associated Press that they wanted to be prepared for a possible repeat of what happened in the aftermath of Hurricane Katrina.  Conflicts between Hurricane Katrina homeowners and insurance companies  led to more than 1000 lawsuits against insurance companies, the largest number  ever to follow a natural disaster in the US.

Many of the Katrina lawsuits involved disputes over whether damage was caused by wind or flood.  Much of the damage from Katrina was the result of storm surge, which insurance companies deem to be flood damage.  Normal insurance doesn't cover flooding.   However, policyholders and their advocates argued that since storm surge is only caused by wind, damage from it should be attributed to wind and covered by homeowners insurance.

A 2008 Government Accountability Office (GAO) report on insurance issues from Hurricane Katrina urged better assessment of “the accuracy of flood payments on hurricane-damaged properties.”   Insurance companies’ handling of damage claims from hurricanes, where both wind and water destroy property, needs closer government scrutiny, the report said.