Swimming in Denial

By Mark Goldwich

Nile Crocodile courtesy of  simpsonstreetfreepress.org

There’s an old joke: “Denial is more than just the name of a river in Egypt.” For consumers of property insurance the joke has a cruel, updated variation: Denial is the name of a strategy insurance companies seem to use to avoid paying for the damage caused by rivers (among many other things).

In this blog, we’ll see how surprisingly indifferent the insurance industry is to a big problem – namely, that so many consumers believe, wrongly, either a) that their policies protect them against damage from floods, or b) that their property is not at a significant risk for flood damage. Before we go any further, please understand one very important  thing: Insurance companies don’t pay flood claims..

In case you just fell down from shock, and are now returning to consciousness with limited capacity, let me say it once again. Insurance companies do not pay for flood claims. Flood claims are ultimately paid by the Federal Government.

If you have flood insurance, that’s who you really bought it from: the government. The insurance companies simply adjust the losses. The handling standards are strict, and if the insurance companies mess up (i.e., overpay), they have to pay the money they overpaid policyholders back to Uncle Sam. (This leads us to an interesting side question: If the insurance company is going to err on a flood claim, can you guess which way they are going to lean?)

This situation is something that should concern you, since the reality of damage from flooding is looking like something more of us are going to have to prepare for in the coming

years. According to the web site World View of Global Warming, “Meteorologists already see an increase in severity of storms, rainfall, and floods …” They go on to observe that “These anomalies from what we think is ‘normal’ are expected to continue around the world.”

Regardless of your stance on global warming (and its potential causes), regardless of what you believe, or don’t believe, about natural weather cycles, the moral of the story is the same: Think. If you think you’re not likely to be affected by a flood … think again. If you think your homeowner’s policy covers you against flood damage … think again. I

have personally witnessed the tragedy of property owners being without flood insurance. You don’t want any part of it.

Q&A:

If I was told by someone I trust that I didn’t need flood insurance, doesn’t that pretty much end the discussion?

No. People are told all the time -- by insurance companies, attorneys, or occasionally by representatives of mortgage companies or other “experts” -- that they have no need for flood insurance. All too often, this advice is simply incorrect. Sometimes what they say (or mean to say) is, “You are not required to carry flood insurance.” That is not the same as you not needing it.

• How would that bad advice affect me?

Let’s say that your home is covered for wind damage, but not covered sufficiently for flood damage – because some “expert” told you that it wasn’t ‘required’, because you didn’t buy the right level of coverage, or because you thought, incorrectly, that flood damage was included in your homeowners’ policy.  And let’s say a hurricane tears through your neighborhood. Let’s say that the wind from the hurricane rips the roof off your house – followed, of course, by torrential rain, and then by a flood. (That’s the sequence of events we all remember from Hurricane Katrina in 2005.)

When your insurance company reviews the claim, it’s quite possible that it could deny all payment, on the argument that the damage to your house was caused, not by wind, but by flood.

• What if I’ve got an eyewitness who will swear that he saw the wind rip the roof off my house. Is it still possible that the insurance company could deny my claim

for wind damage?

Yes.

• Is that a hypothetical example, or is this something you actually know for sure that someone has experienced?

It’s not hypothetical. It actually happened to a neighbor of one of my clients. The existence of the eyewitness made no difference whatsoever to the insurance company’s decision. Again the best policy is to consider the insurance company your adversary.

Ponder that example for a minute. What are the odds against someone actually seeing your roof get torn off, before the floods come? Yet for some companies, that’s still not enough!

• What exactly do insurance companies expect to get as proof of wind damage? Well, my personal view is that they don’t really want to see evidence in this situation. It’s not like they launch a huge investigation to find out exactly what took place in your neighborhood: “Hmm … you appear to have a point here, Mr. Policyholder. Let’s get to the bottom of this. Was it wind, or was it water? XYZ Insurance has an obligation to set the record straight once and for all!” That’s not the kind of discussion you’re going to hear.

For the purposes of establishing their own responsibility (or lack of responsibility) for wind

 damages, the insurance companies appear to expect homeowners to have video cameras trained on their homes twenty-four hours a day, seven days a week, so as to record actual damage from windstorms as that damage occurs. As a practical matter, that’s about what you would have to be prepared to provide them. If you don’t have tangible proof of this kind – proof demonstrating beyond a shadow of a doubt the precise nature of the damage your property sustained – then it’s entirely possible that the insurance company could choose to deny your claim. In the aftermath of a hurricane, they’re likely to insist that water caused the damage in question, not wind … when they’re talking to people who don’t have flood insurance.

• Is that kind of nitpicking out of line?

The attorney general of the state of Mississippi seemed to think so. In the afterma

th of Hurricane Katrina, he took insurance companies to court. In Mississippi (and indeed in many other corners of our nation), it seems that a huge number of homeowners don’t have, or can’t get, adequate flood insurance on their homes, and are thus ill-equipped to respond to the denial games that insurance companies play after major natural disasters.

More denial next time…

Mark Goldwich is president of Gold Star Adjusters, a group of public insurance adjusters dedicated to helping citizens get the maximum settlement for any insurance claim.