Breaking: Scruggs Contempt Case in Alabama Dismissed

David Rossmiller has broke this story on his blog. Thanks to Bellesouth for the pdf of the order and heads up.

sop

Update:

I have read the order for dismissal and await a lawyer's analysis but to me it boils down to what was very apparent from reading Judge Acker's original order; the law enforcement exception contained therein is absolute and was met as demonstrated by the facts of the case. Also Judge Vinson found Judge Acker's order was poorly written:

There is some ambiguity in the wording of the order because if the first paragraph was complied with (and the documents were given to counsel for Renfroe), then as Judge Acker himself acknowledged at the March 2007 contempt hearing [see Doc. 130 at 187-88], the second paragraph would be superfluous (i.e., the Rigsbys could not further disclose, use or is appropriate materials no longer in their possession). The special prosecutors attempt to resolve this ambiguity by arguing that the second paragraph meant only that the Rigsbys “could cooperate with law enforcement by discussing with law enforcement what they knew about the documents.” See Doc. 11 at 5. This contention overlooks the nature of the object of the injunction. The second paragraph by its own terms applied to “any material described” in the first paragraph, which plainly consisted of the tangible documents themselves. Any attempt to limit the second paragraph to “mental impressions” or “recollections” must fail.....

And finally the heart of the matter:

However, the fact remains that Scruggs did not violate the clear and express terms of the injunction. Again, as then-Judge (now Justice) Stephen Breyer has observed, courts must read injunctions "to mean rather precisely what they say."

The injunction specifically and precisely said the documents could be given "to law enforcement officials at their request." Regardless of the subjective intent that Hood may have had when he requested the documents, the undisputed fact is that he did make such a request. The objective language of the injunction expressly authorized the law enforcement exception, and it must be recognized here. Criminal contempt under such circumstances cannot be supported under the law.

While Judge Vinson did cast a wary eye on the arrangement between Mr Scruggs and Mr Hood the bottom line was that issue was ancillary to the points of law. I wonder if Marsha Thompson at WLBT will now rehash the Rigsby sister's sex lives in an attempt to save face.

This issue has been resolved and not the way the self proclaimed cyber experts predicted. At the risk of appearing snotty such things happen to the closed and weak minds.

Our best wishes and regards go out to the Rigsby sisters for their strength in the face of this assault on their characters and reputations.

sop

"You furnish the pictures and I'll furnish the war."

Humanity is governed by minorities, seldom or never by majorities. It suppresses its feelings and its beliefs and follows the handful that makes the most noise. Sometimes the noisy handful is right, sometimes wrong, but no matter, the crowd follows it.

Oddly enough, Mark Twain's quote comes from The Mysterious Stranger- in the world of blogs and message boards, mysterious strangers are the norm. Here, for example, I am known as Promise; but,by any name, am a modern day muckraker.

I still believe most do; but, I am no longer so green that I can’t spot a Yellow Kid or recognize comments made by those that reflect the British English application of the word to sensationalist scandal-mongering journalist, not driven by any social principles.

Allegations and indictments have, as Cowboy would say, slabbed the integrity of our State’s legal system. Grief is a natural response, and anger is a natural part of the grieving process. Scandal-mongering, however naturally it may come to some, is not anger – it’s the sensationalized stories or outright lying that caused Joseph Pulitzer and William Randolph Hearst, two icons of American journalism, to be known as the two Yellow Kids.

Pulitzer and Hearst are often credited (or blamed) for drawing the nation into the Spanish-American War…eventually resulting in…the most famous example of the exaggeration…a version of which appears in the Hearst-inspired film Citizen Kane - the apocryphal story that artist Frederic Remington telegrammed Hearst to tell him all was quiet in Cuba and There will be no war. Hearst responded Please remain.You furnish the pictures and I'll furnish the war.

So - Who’s furnishing the pictures of Attorney General Hood and who’s furnishing the war on his integrity?

It would be less than honest not to acknowledge Hood himself is submitting a few snapshots – I didn't care who (Scruggs) supported. I wasn't crazy about being attorney general anyway.. – and equally dishonest not to consider the possibility Twain suggested - Often the surest way to convey misinformation is to tell the strict truth.

Yesterday’s edition of the Clarion Ledger generated a total of 160 reader comments from a front page story and three separate blog posts related to the allegation that indicted attorney Dickie Scruggs attempted to influence Hood.

Blogs started developing that picture on the 25th - that Jim Hood story was sitting there in Pacer at 7-8 PM or thereabouts. I started downloading stuff about then, and just didn’t get around to it till midnight.The first post was up early on the 26th and Holy S--t Balducci, State Farm, Jim Hood, Scruggs – all together in one paragraph appeared shortly therafter.

During the day related posts and news stories were linked to those already posted online.

Holy Cow! Do you see what this says? It says that Scruggs paid Balducci and Patterson half a million dollars to get Hood to back off the State Farm grand jury investigation. ..Seems to me that whole business needs to be explored some more, don't you think? If this is true, doesn't it qualify as some sort of improper influence of a public official?

By the evening of the 26th another picture was developing on the blogs – one chiding the old media are 24 hours behind the blogs…Actually, I’m going to frame this question more aggressively…What’s with the pros? – and, on the morning of the 27th, it was ready to print.

As you might expect, that $500,000 that Tim Balducci claims Dickie Scruggs (eventually, grudgingly) paid him and Steve Patterson to get Attorney General Jim Hood’s indictment of State Farm called off has made a splash in Mississippi’s largest newspapers this morning

On the 28th, the Yellow Kid went big time with a level of sensationalism that spread an outright lie coast to coast under the banner of none other than Legal News Line. Had it not been for my all time favorite blog post title - Why Legal News Line is fit only for the bottoms of virtual birdcages – the Yellow Kid’s nose would be longer than Pinocchio’s by now for claiming An FBI report released this week supported the headline Hood allegedly offered bribe from Scruggs.

The modest attempt to set the record straight - Editor’s note: The following story is a corrected version of an earlier article that contained many inaccuracies – fell far short of any measure of retraction. Shortly after daylight today, Legal News Line was back to the bottom of virtual birdcages - Too bad you didn’t notify The Google, LNL. I hope this helps them sue your ass for libel.

Attributing an outright lie to an FBI report can only be called an amazing act of hubris – far stronger evidence than documented in the defense Motion to Change Venue:

the print media blitz has been supplemented by Mississippi-based web logs (blogs) that report, in excruciating detail, every event in the prosecution and defense of the Scruggs criminal case; as well as their finding people piling on. Mr. Merkel. Mr. Tollison. The notion being at last he’s getting his comeuppance.

Judge Biggers called it one of the most thoroughly researched briefs I have ever seen; later adding, but it’s hard for me to believe there were no statements favorable to Dickie and denying the motion.

Considering the unanimous, accurate blog prediction of every ruling Judge Biggers made on the Defense Motions, Judge Biggers unquestioned integrity, and the assaults on Attorney General Hood, one can only wonder who’s providing the pictures and who’s providing the war - and where all these warriors are hidden.

The only thing proven thus far is attributed to Mark Twain:

Injurious truth has no merit over an injurious lie. Neither should ever be uttered. The man who speaks an injurious truth, lest his soul be not saved if he do otherwise, should reflect that that sort of a soul is not strictly worth saving.

Don’t Mess with Texas – or Connie Moran

Big Insurance, meet Connie Moran – a Fulbright Scholar with a master’s degree in finance/economics and international commerce – the Mayor of Ocean Springs, Mississippi with all perils insurance on her mind.

Moran wants more than stories about businesses and residents having trouble rebuilding due to insurance costs, she want hard data. According to the Mississippi Press Register, she plans to provide that data to Congressman Gene Taylor.

A small town Mississippi mayor may not sound like a threat – unless you happen to have read about her accusing FEMA of “creating trailer trash” in the Seattle Times.

The mayor first gained national attention when she locked horns with FEMA, preferring the traditional and sustainable Katrina Cottages to the standard-issue mobile homes that “within 18 months create a trash-heap of trailers up for auction.”

She envisioned a neighborhood of "Katrina cottages" — tiny, yellow houses built in a Southern style, with sloped metal roofs and big front porches.

Ocean City has actually created “a planned village of 20 ‘Katrina cottages” about a mile from Ocean Springs’ downtown.”

You don’t mess with Texas or Connie Moran – if you don’t believe me, contact the Mississippi Department of Transportation and ask about that bridge they almost had to sell.

Cashing In On Catastrophe

How the insurance industry is protecting their proftis, not policy holders, when natural disasters strike.

Full page add in WSJ (C5) for a program this Sunday, March 2 at 10pm EST.

Sounds interesting. I don't get CNBC (We are a basic cable kind of family), but maybe it will show up as a clip on the web.

Insurance Crooks at Marsh Convicted of Price Fixin'

Hey pardners why don't we go help State Farm beat up on Jim Hood. Not!

Two ex-Marsh executives convicted of bid-rigging

NEW YORK (Reuters) - Two former executives at Marsh Inc, a unit of Marsh & McLennan Cos Inc (NYSE:MMC), were found guilty on a monopoly charge on Friday for participating in an insurance bid-rigging scheme, court officials said.

William Gilman, a former executive in Marsh Inc's Global Broking unit, and Edward J. McNenney, a former global placement director, were acquitted of all other charges they faced in the ruling handed down by New York State Supreme Court Judge James Yates.

The ruling was confirmed by clerks for the judge.

"All of the charges that were thrown out sort of gutted (the government's) case, in my view," said Stephen Neal, a lawyer for McNenney. "We are going to appeal the conviction on the anti-trust count vigorously."

"Bill Gilman was really the client's best friend and the insurance carrier's worst enemy," said Gilman's attorney, Robert Cleary. "We look at this as merely round one."

The case, first brought in September 2005 by the New York Attorney General's office, was part of a sweeping investigation of insurance industry practices.

"We are gratified that the court found the defendants guilty of felony bid rigging," Jeffrey Lerner, the spokesman for Attorney General Andrew Cuomo, said in a statement.

"Bid rigging is a serious offense which deprives customers of the benefits of a competitive marketplace and this office will continue to prosecute it vigorously."

Eight former Marsh executives, including Gilman and McNenney, were indicted in September 2005 and their 10-month bench trial was the first trial in the case.

At the time of the indictments, then-Attorney General Elliot Spitzer said that between November 1998 and September 2004, the defendants colluded with executives at ACE USA (NYSE:ACE), American International Group Inc (NYSE:AIG), Liberty International Insurance Co, Zurich American Insurance Co (VTX:ZURN.VX) and others to rig the market for excess casualty insurance.

Gilman and McNenney were acquitted of charges of scheming to defraud and 19 counts of grand larceny.

Marsh, a unit of the world's largest insurance broker, itself did not face criminal charges. The company agreed to pay $850 million in January 2005 to settle Spitzer's civil lawsuit accusing it of bid rigging.

Breaking: Federal Jury Finds 5 Former Insurance Executives Guilty in Financial Manipulation Scheme

Not much time for analysis but here is the news story. sop

HARTFORD, Conn. (AP) -- Five former insurance company executives were found guilty Monday of a scheme to manipulate the financial statements of the world's largest insurance company.

The verdict came following a monthlong trial in federal court.

The defendants, four former executives of General Re Corp. and a former executive of insurance industry leader American International Group Inc., sat stone-faced as the verdict was read.

They were accused of inflating AIG's reserves through reinsurance deals by $500 million in 2000 and 2001 to artificially boost its stock price.

Reinsurance policies are backups purchased by insurance companies to completely or partly insure the risk they have assumed for their customers.

The defendants were former General Re CEO Ronald Ferguson; former General Re Senior Vice President Christopher P. Garand; former General Re Chief Financial Officer Elizabeth Monrad; and Robert Graham, a General Re senior vice president and assistant general counsel from about 1986 through October 2005.

Also charged was Christian Milton, AIG's vice president of reinsurance from about April 1982 until March 2005.

Ferguson, Monrad, Milton and Graham each face up to 230 years in prison and a fine of up to $46 million. Garand faces up to 160 years in prison and a fine of up to $29.5 million.

"This is a very sad day, not only for Ron Ferguson, but for our criminal justice system," Clifford Schoenberg, Ferguson's personal attorney, said in a statement distributed at U.S. District Court in Hartford. "I and the rest of Ron's legal team will not rest until we see him -- and justice -- vindicated."

Yo Allstate: Florida Isn't Amused OIR Moves to Ban Allstate

Earlier this week there was some improtant developments involving Florida's battle with Allstate. As we have repeatedly noted in our continuing coverage of Allstate there is a pattern of behavior exhibited by this insurance giant of ignoring lawful subpoenas and court orders. Worse according to the Florida Office of Insurance Regulation complaint:

Encompass Floridian Insurance Company’s chief executive officer knowingly made and filed a false certification.....

This charge involves a certification on the rate filing that the CEO of the operating company has reviewed the entire application. When sworn under oath the CEO of Allstate's Florida subsidiary admitted he signed the document only reviwing the execuitive summary and thus was unable to answer detailed questions by the Florida Senate committee.

To put this into context this was the type of defense by ignorance used by Ken Lay at Enron (the three wise monkeys). It resulted in CEO's and CFO's being required by Sarbanes-Oxley to affirmatively certify their companies financial information submitted to the Securities and Exchange Commission. Here is a link to Thomas Wilson certifing the last quarterly corporate financial statement and in the process doing what the CEO of his Florida subsidiary did not do, reading and certifing that an important document is accurate and complete. I now wonder if those internal controls Mr. Wilson swore were working on October 30, 2007 really are in light of the FLOIR Complaint. After all a good system of internal controls include those which insure compliance with applicable laws and regulations.

In any event here is the press release from Commissioner McCarty's office for our readers to consider. Events in Florida are heating up and as pointed out elsewhere by Mr CLS could directly tie into the shareholder derivative suit styled Fojas v. Ackerman.

Florida Insurance Commissioner Kevin McCarty today announced that the Office of Insurance Regulation (Office) has filed an administrative complaint on a non-emergency basis seeking to suspend the certificates of authority of the Allstate Companies (Allstate) to write new insurance policies in Florida.

The complaint is based in part on Allstate's failure to provide witnesses and documents as subpoenaed by the Office; falsely labeling subpoenaed documents as trade secret and falsely certifying its rate filings.

"Seeking to suspend a company's license is not something we take lightly," said General Counsel Steve Parton. "However, in light of their defiance of the Florida Insurance Code, we think it is necessary to make the point that actions such as we have seen by Allstate will not be tolerated."

Allstate was to have provided all appropriate company documents related to the Office's investigation at or before the Jan. 15 hearing. Instead, in late November, Allstate filed 51 pages of objections to the subpoenas. Allstate has been delivering documents to the Office since the Jan. 15 hearing, but has not delivered all documents requested by the subpoenas and is maintaining claims of privilege to some of the documents.

The Office has been asking for documents about Allstate's reinsurance program, its relationships with risk modeling companies, insurance rating organizations and insurance trade associations. The subpoenas also required appropriate witnesses to appear at the January hearing to be able to discuss issues that were subjects of the subpoenas.

The complaint also alleges that Allstate has violated Florida law by not properly certifying its rate filings as required by House Bill 1A, which passed in January 2007.

Filing the complaint is required under Florida law as part of the process that began when Commissioner McCarty issued the Immediate Final Order (IFO) Jan. 17, suspending Allstate from writing any new business in Florida. Allstate is expected to request an administrative hearing on the Office’s complaint. If requested, a hearing would be held at the Division of Administrative Hearings (DOAH).

An administrative law judge will hear the evidence and then make findings of fact. Commissioner McCarty could then issue a Final Order, which may include a suspension of Allstate's certificates of authority. Allstate could then appeal to the First District Court of Appeal.

The DOAH hearing is separate from the ongoing matter that Allstate initiated in the First District Court of Appeal (DCA) by filing its Jan. 17 notice of appeal of the commissioner’s IFO. That matter is still proceeding in the DCA.

The Allstate suspension was the first time the Office had suspended a company for failure to "freely" provide documents as required by Florida law.

The Order would apply to all Allstate companies on which the subpoenas were served:

Allstate
Floridian Insurance Co.
Allstate Indemnity Co.
Allstate Property &
Casualty Insurance Co.
Allstate Insurance Co.
Allstate Floridian
Indemnity Co.
Allstate Fire and Casualty Insurance Co.
Encompass
Insurance Co. of America
Encompass Indemnity Co.
Encompass Floridian
Insurance Co.
Encompass Floridian Indemnity Co. A copy of the subpoena is available
to review.

sop

Florida Again Dominates the Insurance Battle

There were two big announcements out of Florida this week, one involving Allstate and one involving State Farm. I'll tackle State Farm first since it is more complex and the most disingenuous.

Some background is in order for State Farm. When Florida created a state market for cheaper reinsurance it also mandated premium reductions for those who took advantage of the program. Two major insurers filed for rate increases after buying the state reinsurance, Allstate and State Farm. When Insurance Commissioner McCarty ordered rate hearings for the increases (rate hearings in Florida involve public sworn testimony including revealing the basis for the rate increases) State Farm backed down and instead reduced their homeowner premiums in accordance with the law. As is their custom in states where they do not get their way including here in Mississippi when we dared to litigate against them they announced they will no longer write new homeowner policies in Florida. I like Beatrice Garcia's reports on insurance news from Florida so today I've linked the Miami Herald story on this development.

In a move certain to deepen Florida's insurance crisis, State Farm Florida plans to stop writing new homeowners policies throughout the state starting Saturday.

The state's largest private insurer of homes also won't offer new renters or commercial policies in order to reduce its exposure to hurricane risk in Florida.

State Farm's current policyholders won't be affected by the move. The company will continue to renew the one million homeowners and renters policies it has in Florida.

The insurer also will continue to write new auto insurance in Florida, a far more lucrative line of insurance than property coverage. It insures more than two million vehicles.

State Farm will cease writing new homeowners policies just days before lawmakers return to Tallahassee to wrestle once again with proposals to make insurance coverage more affordable and available.

However unlike Mississippi which kowtows before these large insurance companies Florida's Office of Insurance Regulation has some arrows left in it's quiver. Contrast the Florida approach as outlined yesterday and my comment to yesterday's post of Mississippi's of letting insurers dump off coast consumers in the state wind pool:

Ed Domansky, an OIR spokesman, said that as a courtesy State Farm Florida told regulators of its plan to stop writing new homeowners policies. While OIR regulates insurance company activities in Florida, it has no authority to block State Farm's move.

Domansky said Insurance Commissioner Kevin McCarty was disappointed by State Farm's decision.

Both McCarty and OIR General Counsel Steve Parton will see if State Farm will be in compliance with a new law that requires companies to sell homeowners coverage in Florida if they sell other lines here and sell homeowners insurance elsewhere in the country.

Sen. Steve Geller, a Democrat from Cooper City, said he believes State Farm will stay within the bounds of the new law because the company will be renewing existing property insurance policies.

State Farm is trying to curtail its risk if a massive storm hits, particularly in densely populated areas such as South Florida and the Tampa-St. Petersburg area. But Geller wonders if State Farm's action could also be driven by another motive.

State Farm and Allstate are aggressive backers of a bill introduced in the Florida House of Representatives last week that would create a statewide windstorm program to write hurricane coverage throughout the state, not just along the coast.

Under that proposal, insurers could decide to write policies without hurricane coverage or still sell traditional multi-peril policies. These policies wouldn't be subject to surcharges to make up any deficits in the state-run Citizens Property Insurance, the state's largest insurer of homes and condos.

State Farm's new move ''could be a threat to get more favorable consideration'' of this bill, Geller said.

The bill faces resistance. Sen. Bill Posey, R-Rockledge and chairman of the Senate Banking and Insurance Committee, sees the bill as an "insurance industry relief bill. That's why it's a non-starter with me."

Isn't it strange that the insurance company PR departments and trade groups denounce the NFIP as a taxpayer subsidy (it is and was intended as one when it was enacted in 1969) yet expect the taxpayers to bail them out every time they hit a bump in the road? Senator Posey has it exactly right in my opinion and I hope the Florida legislature does not let these insurance companies offload their least desired risk exposures on the taxpayers while continuing to profit handsomely from other lines of business.

sop

Insurance News You Can Use

Welp folks this Cowboy don't know what to make of ole Chaney. One day he campaign promisin' to make the insurance commissioner appointed then after he wins he says he wasn't going to fight for that in the legislature since it was just his personal opinion. A couple weeks back he says rates is goin' up and now he says rates is goin' down. Maybe one of the others can make sense of this Sun Herald story for me.

Insurance Commissioner Mike Chaney told members of the Biloxi Businessmen's Club on Thursday he hopes to lower residential rates in the state wind pool by at least 10 percent.

Chaney said he would like to see a decrease of up to 40 percent in rates for the coverage offered by South Mississippi's wind insurance company of last resort, but doesn't know if that's possible. The wind pool is shopping for reinsurance, which would help cover its losses in case of a disaster. Chaney will be transferring $40 million to the pool between now and July to help pay for the coverage.

With reinsurance rates going down, the hope is wind pool rates also can be lowered.

Wind pool rates increased 90 percent for homeowners in October 2006 because of Hurricane Katrina. On the Coast, insurance companies also stopped offering new customers homeowner insurance that included wind coverage and in some cases cancelled policies at renewal time.

Chaney said the Coast is probably one of the "most profitable markets" for insurance companies that offer policies without wind coverage because the risk of ice storms and tornadoes, which their policies do cover, is relatively low.

A day earlier, Chaney had announced Aegis Security Insurance Co. would resume offering new policies in Mississippi, but it turns out the company will offer wind coverage only as far south as George, Stone and Pearl River counties.

In other news the leader of the Diamondhead Slingshot Group has finally settled out with them crooks at State Farm. It only took 30 months and bringin' in a lawyer to get them Gucci suit wearin' crooks to experience a come to Jesus moment and honor their obligations. Havin' to fight your insurance company tooth and nail is the new fangled way of doin' business. Besides them executives and their yearly bonuses the other folks I see benefitin' from the current system is the lawyers. Here is the Anita Lee story:

A Diamondhead homeowner who rallied policyholders to fight for payment of their Katrina claims has settled her lawsuit with State Farm Fire and Casualty Co.

Notice of the settlement was filed Friday in U.S. District Court in Gulfport. Terms were undisclosed.

Kenneth and Judy Dutruch sued State Farm in June 2007. They accused the company of breaching its contract to cover Katrina damage to the couple's vacation home and sought punitive damages for denial of their claim.

Judy Dutruch has told the Sun Herald in previous interviews State Farm refused to consider evidence of wind damage to the couple's South Diamondhead home off the Bay of St. Louis. State Farm sent experts to examine the property only after the Merlin Law Group filed the lawsuit on the Dutruchs' behalf.

Experts hired by the Dutruchs, including a forensic arborist, concluded their home suffered extensive wind damage - covered under their State Farm policy. State Farm concluded storm surge, excluded from coverage, destroyed the home.

As a result of widespread denials by State Farm and other major insurance companies, Judy Dutruch formed the Slingshot Gang in Diamondhead to unite waterfront homeowners. They pooled money to pay for expert reports, shared information and provided moral support to one another.

Many members of the group have settled their claims, but the Slingshots agreed not to disband until all claims were resolved.

As part of the settlement, both sides agreed not to disclose the terms. In fact, they could say little more than they were "pleased."

Judy Dutruch added, "We are certainly glad that it is all over and we can now start thinking about future plans of rebuilding."

A State Farm spokesman said, "We're pleased to have resolved our differences with Mrs. Dutruch."

Commissioner Chaney Scores!

Newly elected Insurance Commissioner Mike Chaney announced Aegis Security Insurance Company will begin writing new policies in Mississippi.

We welcome the good news, Commissioner Chaney - and look forward to more.

Breaking: Allstate Fined $250,000, Ordered to Reinstate Policies

Thanks to Mr CLS for the heads up to this Times Picayune story.

BATON ROUGE -- Insurance Commissioner Jim Donelon fined Allstate $250,000 Wednesday and ordered the state's second-largest insurer to reinstate the wind and hail coverage of several hundred customers whose policies were dropped in disregard of a key consumer-protection law.

It is the only fine that Louisiana has levied against a homeowners insurance company since Hurricane Katrina, and the fine is the maximum penalty allowed by state law.

"I'm doing that because of the continuing efforts of the company to circumvent the consumer
protections that have served us so well," Donelon said. "This statute is the law of Louisiana. It was the law of Louisiana when these policies were written, and it will be enforced."

Donelon said he has tangled with Allstate three times in the past year and a half over the company's efforts to circumvent a Louisiana consumer-protection law that makes it difficult for insurers to drop policyholders after three years, and he said he is tired of it.

In July 2006, Allstate announced plans to drop 30,000 customers in south Louisiana in a way that Donelon said would violate the three-year law, and it took five months of negotiations to get the company to take a different tack. In spring 2007, Allstate conducted cursory drive-by inspections of homes and tried to cancel hundreds of homes that it deemed "abandoned" that were actually under repair or occupied before the state Insurance Department intervened.

And most recently Allstate has been reclassifying some longtime customers as new ones so their wind and hail coverage could be dropped. Donelon said the ongoing problems with Allstate's practices led him to conclude that the company was flouting the law and needed to be penalized.

Allstate admits no wrongdoing. The suburban Chicago company said it disagrees with the Louisiana Insurance Department on its interpretation of insurance laws.

But Allstate, the sponsor of the Sugar Bowl, said in the consent agreement and stipulation signed Tuesday that it decided to settle the matter "in recognition of the catastrophic events of 2005, the continuing concern for its customers and as a gesture of goodwill."

In a news release Wednesday, Allstate said it agreed to pay the money "to avoid expenses associated with a hearing."

But Donelon said the $250,000 is indeed a fine. "In my view, absolutely," he said. "No one else has gotten close to the need for punitive action."

Cursory inspections done

Though the fine was triggered by Allstate's recent efforts to drop the wind and hail coverage of longtime customers who should be protected by state law, the fine technically was levied on the company as a result of a flawed property-inspection process that was supposed to determine whether homes were occupied or being rebuilt.

Last year Allstate dropped 4,772 customers after conducting drive-by inspections of 40,500 homes in the New Orleans area that averaged about a minute a home. Allstate said it dropped the policies because the inspections revealed that the homes were unoccupied or not being repaired. Within a few weeks, 588 people filed written complaints with the Insurance Department saying they were in fact living in the home or rebuilding.

The department ordered that Allstate temporarily reinstate all policies and redo the inspections, with documentation. How many of the 4,772 customers ultimately qualified to keep their reinstated insurance coverage is unknown, but 552 of the 588 people who complained were found to have been improperly terminated and were reinstated.

When the department forged an agreement with Allstate on the issue in March, Donelon reserved the right to impose sanctions. As the department began investigating a new round of complaints that began just a month later with Gretna homeowner Michael Scioneaux, Donelon decided he needed to do so.

Dropped after 31 years

Scioneaux had been insured by Allstate for 31 years at the same home and never made a claim outside of Hurricane Katrina, but he got a letter in April saying his wind and hail coverage would be dropped because he had been with the company for less than three years.

The letter made no sense because Louisiana has a law that says once a customer has been with an insurance company for three years, it's very difficult to drop them. Customers can be dropped only if they stop paying their bills, make excessive claims for non-"act of God" events such as hurricanes or tornadoes, commit fraud, or unless the company can prove to the Insurance Department that it risks going bankrupt if it keeps them.

But several years earlier, Scioneaux had taken advantage of a good-credit discount that Allstate offered. Unknown to Scioneaux, Allstate rewrote his policy from letterhead that said "Allstate Insurance Co." to stationery that said "Allstate Indemnity Co." to process the discount.

In the April 2007 letter, Allstate now said the May 2004 change meant that Scioneaux was a new customer whose wind and hail coverage would be dropped in June. Scioneaux said he was not informed of any such risks when he accepted the discount offer and that the shift amounted to a bait-and-switch for the company's benefit. Allstate has been under a corporate mandate to reduce its exposure in coastal areas.

Scioneaux was overjoyed at the news that his policy would be reinstated. "I just heard I won. I'm in a state of shock," he said Wednesday.

Since the summer, Scioneaux has been forced to buy his wind and hail coverage from Louisiana Citizens Property Insurance Corp. But because he was angry that Allstate cut the most important part of his policy, he moved to Louisiana Farm Bureau Mutual Insurance Co. for his fire, theft and liability coverage as payback, and cut Allstate out of the deal so it would be unable to earn easy premiums.

Even though Scioneaux says he has no love for Allstate, he said he plans to return to the company because it's a better deal than a split policy. "I'm really not in a position that I can pick and choose. I need to take the best coverage and the best price to protect me and my family and our biggest investment: our house," said Scioneaux, who is also personnel director for Jefferson Parish.

For now, Scioneaux plans to celebrate. His Allstate agent, a friend who also lost his wind and hail coverage, called and invited him out to dinner Friday night. Scioneaux also will be having a celebration lunch with two other dissatisfied Allstate customers whom he met during the course of complaining to the Insurance Department.

"We're comrades in a cause," he said. "I never thought I would feel so happy about being able to go back to a company where I'm going to have to pay an expensive policy."

Unknown number affected

About 21 people in Scioneaux's situation have complained to the Insurance Department, but it is not known how many customers of Allstate or Encompass, the brand of Allstate insurance sold by independent agents, were affected. Allstate's news release says "a few hundred" are in the group.

According to the terms of the agreement, Allstate must give the Insurance Department a list of people like Scioneaux who were dropped within seven days and send customers an offer to come back within 30 days. That offer will include wind and hail coverage, but it will carry a 5 percent storm deductible, as all Allstate policies have done since June. The company must "take all reasonable and necessary efforts to contact each customer directly," and within 90 days, it must give the Insurance Department a list of how many of those people opted to come back.

Not everybody was impressed with the settlement.

Bob Hunter, director of insurance for the Consumer Federation of America, said a $250,000 fine for a company that earned $4.6 billion in net income last year is negligible. "The fine, for Allstate, is chump change. It's a cost of doing business," he said.

Hunter, who is originally from New Orleans and who served as insurance commissioner in Texas in the early 1990s, said Louisiana needs to make sure Allstate doesn't pass on the cost of its fine to customers because the state doesn't have a law barring companies from throwing the cost of fines into rate filings.

Hello! Hello! Is this the party to whom I am speaking?

Saturday Night Live became Tuesday morning reality when State Farm attorney, the “honorable” Shelia L. Birnbaum, hit the wrong button and sent the media an email asking if Attorney General Jim Hood could be charged with Contempt of Court.

I bet you did Shelia – the panic button – when Hood’s office replied, “No, you can’t!

The case was dismissed because the allegations were false, according to Hood’s spokeswoman, Jan Schaefer.

Living in a travel trailer for two-and-a-half years can make folks crazy; but, it doesn’t make them dumb. No one’s ever called Shelia Birnbaum dumb either – most say she’s smart as a fox.

After yesterday, there’s no reason to doubt they’re right. Birnbaum looked at the clarification Hood’s office sent to the media and noted the General was about to take his coat off - his message to the media meant he was tugging at his tie.

Cowboy, you better saddle up – I do believe the State Farm’s fox is about to find out what Hood had waiting in the henhouse.

Robin' Hood of Support

Blogs are touted as the savior of democracy – a voice for the people, a place where our cherished freedom of speech enjoys the freedom of information.

…and, by the way, did I mention the bridge I’ve got for sale up in Brooklyn?

Blogs are in the information business – news you can use but news that can use you, too.

Last week blogs were big news. The defense team for the King of Torts, indicted Mississippi attorney Richard “Dickie” Scruggs, cited the unfavorable environment created by blogs in the Motion for Change of Venue.

The named blogs responded with a “moment of silence” and noticeable absence of some of his most vicious critics. However, it wasn’t long before they were back in business -feasting on Mississippi Attorney General Jim Hood with a side dish of Scruggs and the others for desert.

Hood is a state-wide elected official and his conduct is fair game for public conversation – but this game was anything but fair. Although he recently won reelection by a larger percentage of vote than any other candidate, few of his supporters comment on these blogs. Understandably so - take a look at the titles of these posts: AG Jim Hood Goes on Offense…and Fumbles the Ball; What's the Name for Hood Posts; and Hood Pours Gasoline, Strikes Match, and Sets Self on Fire.

I don’t know who picked up the tab for this feast but I know who paid the price – the people on the Coast – particularly those with State Farm claims unsettled. Banned from one blog and then another, and threatened by yet a third, robbed Hood of his strongest supporter and those who read these blogs of a balance view.

I came to offer Promise – for every voice to be heard. Meet bellesouth a fearless fighter for the people on the Coast – a diva of a defender with a sack full of rock solid fact and a spirited opinion up against a Goliath of critics who turned on her when they had nothing of substance to throw back.

(Note from Sop: To the extent this intersects with insurance we are allowing some Jim Hood discussion. We have begun the process of contacting the Office of the Mississippi Attorney General in hopes Mr Hood will comment to the extent he can on what his office is doing for us on these insurance issues. Given the pilloring he has taken, unfairly in certain respects in our opinions, we intend to provide a blog outlet that will simply allow him to present a differing point of view, just as we welcomed the Rimkus Engineer's viewpoints on our Aiken threads.)

Also a quick hello to Mr CLS and our thanks for reading us. - sop

Xavier University v. Travelers / Chehardy v. Allstate

"The wise man listens to meaning; the fool only gets the noise."
Poet C. P. Cavafy

"Favor distilled thinking, by which I mean the thinking based on information that is around us that is stripped of meaningless but diverting clutter. For the difference between noise and information has an analog: that between journalism and history."
Nassim Nicholas Taleb in Fooled by Randomness

For whatever reason I was reminded of those quotes yesterday while reading the Jim Hood commentary in yesterday's Clarion Ledger, the Folo Blog and David Rossmiller's blog. Those that have actually read Taleb's books understand he harbors a general disdain for "journalists" though the main object of his sarcastic wit in "Fooled" is George Will who is a commentator, rather than a journalist. All in the blogosphere are guilty of being Talebesque noise makers including your authors here at the Insurance Issues Forum. The trick is distilling the commentary, which task all three sources of noise I listed above failed miserably yesterday in my opinion.

So while much of the local blogosphere goes off chasing the Jim Hood br'er rabbit, some fresh off their unsuccessful chase of Billy McCoy, we will stick to our knitting of providing analysis of the insurance news which impacts so many coastal residents across this nation.

I saw this news item in today's Sun Herald and thought it most worthy of mention, mainly because we will surprise some of our readers with our take. It deals with two court cases on appeal out of the New Orleans area related to Katrina and the Supreme Court shooting down the appeals of Xavier University.

The Supreme Court refused Tuesday to offer help to Hurricane Katrina victims who want their insurance companies to pay for flood damage to their homes and businesses.

The justices rejected appeals from Xavier University and 68 other individuals and businesses seeking to allow their lawsuits against the insurers to go forward.

Xavier asked the court to step in after the 5th U.S. Circuit Court of Appeals ruled the policies did not cover damage from floods, even those that resulted from man-made failures such as the collapsed levees in New Orleans.

Other cases working their way through state courts have so far reached differing conclusions. A Louisiana appeals court has said language excluding water damage from some insurance policies was ambiguous. The Louisiana Supreme Court will hear arguments in that case Feb. 26.

Xavier and the other plaintiffs had asked the federal court to allow the state Supreme Court to rule on their suits as well. The 5th Circuit refused and the U.S. high court upheld that ruling Tuesday.

While we are certainly sympathetic to the arguments of the dubious effect the Chamber of Commerce has exacted on our judiciary we agree with the Supreme Court's ruling. The Flood Exclusion found in all private insurance policies is not ambiguous and these suits succeeded only in muddying the waters for all insurance litigation, much of which are far better grounded in insurance law. These Louisiana cases are not wind versus water; rather all the parties seem to agree flooding was the cause of damage. In our minds the obligations of insurers stop when excluded events are the clear cause of damage as is the case in these suits.

Finally we welcome Bellesouth, a real life example of the firehouse syndrome at work in the blogosphere. To their credit the Clarion Ledger has not banned Belle simply because she has a differing viewpoint though I am fairly certain Sid Salter would love to strangle her. Belle is new to the blogosphere and comes equipped with some strong opinions. We hope she will find the environment here conducive to learning the ropes and finer points of effective blogging.

sop

State Farm Cancels 50,000 Florida Policies

Here you go pardners, the private insurance industry doesn't want our coastal wind business and they don't want a federal solution 'cause it might cut into their profits from offshore reinsurance. So what do they do to keep the pressure on? They cancel you out like State Farm just did in Florida and New York. We got this from our friends in Florida at the Herald Tribune:

HURRICANE INSURANCE

State Farm dumps 50,000 statewide

Longtime State Farm customer John Spencer is not wanted any more.

He is getting dumped, one of 50,000 coastal Florida homeowners whose hurricane coverage will not be renewed by State Farm this year.

"It just irritates you that you get canceled, and it makes you nervous," said Spencer, whose policy on his Englewood home expires several weeks before the start of the 2008 hurricane season.

An estimated 7,500 customers in Sarasota, Manatee and Charlotte counties will be dropped by State Farm, Florida's largest private homeowners insurer.

Many will wind up with windstorm coverage at Citizens Property Insurance Corp., the state-run insurer that is one of the few options for insurance near the coast.

For some of them, there could be a silver lining.

State Farm is among the priciest insurers for coastal properties. Citizens, after rolling back one rate hike last year and freezing rates through 2008, could be a cheaper alternative.

Punta Gorda Isles homeowner Gerald Crowley expects to switch to Citizens when his State Farm policy expires in late March.

His premium will drop about $600 from the current $3,600. But he is still not happy about being dumped.

"It's the principle of the thing," he said. "I can afford what they wanted to charge."

Sarasota insurance agent Al Malins said some private companies are writing new policies along the coast and may accept customers from State Farm.

"People certainly have options," he said. "It pays to do some shopping around."

Norm Harte, also a Punta Gorda Isles homeowner, has been searching for new coverage since he got his cancellation notice last month.

"We've pursued Citizens and others, but the coverage they are offering is pretty awful," he said.

He may save a modest amount of money by going with Citizens, but it will come in part by reducing his insured value from $350,000 to $305,000 and eliminating such coverages as a pool cage.

Harte thinks the state should block insurers from "cherry picking," or getting rid of their riskiest customers.

"If State Farm or any insurance company doesn't want to do the whole game, pull their license and find somebody else to do it," he said.

Many property insurers have trimmed their Florida exposure since the 2004-2005 hurricane seasons, which caused $37 billion in insured damage.

Allstate, Nationwide, USAA and Tower Hill are among the major players that have pared down.

State Farm stopped writing new business in some coastal counties years ago, but this was the first time the company decided it needed to drop policies, said spokesman Chris Neal.

"We kind of managed it through attrition, but we came to the point where that just wasn't working for us anymore," he said.

The 50,000 nonrenewals represent about 5 percent of its 1 million homeowners policies in Florida.

State Farm began the policy cancellations last fall but was soon blocked by the Florida Office of Insurance Regulation. The original plan was to drop customers who lived within several miles of the coast or other bodies of water, while retaining any of those with other company policies, such as auto.

The insurance regulators objected to that practice. After reaching an agreement with OIR over who would be canceled -- along with promising a 9 percent rate cut -- State Farm began resending nonrenewal notices in January. That premium reduction followed an average 53 percent rate hike in 2006.

The company is now cutting all windstorm policyholders who live within one mile of the coast, regardless of any other coverage they have.

Those customers are getting at least 120 days of advance notice so they can find new coverage. Timing can be an issue -- some insurers, including Citizens, will not quote a new policy more than 30 days before it takes effect.

Pressure from the state to lower insurance rates is driving companies to reduce exposure, Neal said, as they balance their ability to pay claims when a hurricane hits.

"You've got two choices: raise rates or lessen your exposure," he said. "Our choice here was to lessen exposure. Being closer to the water presents the highest risk. By nonrenewing 50,000 homes closer to the water, it takes a significant amount of exposure away from the company."

Spencer, a State Farm customer in Florida and elsewhere for 30 years, hopes to find wind coverage from someone other than Citizens.

"They are just dumping us into the Citizens pool," he said. "It is not as good a coverage. If they are just dumping liability back to the government, why not just have government insurance?"

Malins said his agency tries to avoid putting customers into Citizens because they may later become "take-out" policies by other carriers.

Citizens was criticized for poor customer service after the 2004 hurricanes, but regulators and others say it has improved.

"You have to give them credit for trying to act more like an insurance company," Malins said.

Some homeowners with other State Farm lines, such as auto, are thinking about taking that business elsewhere.

Citizens does not offer auto insurance, and those homeowners could miss out on multi-line discounts they now enjoy.

State Farm, Florida's largest auto carrier, expects some of those customers will leave.

"It would be naive of us to think we won't lose some of our auto business because of the nonrenewals," Neal said.

A Price to Be Paid Boys.....

Welp pardners, this Cowboy just saw something that made me laugh hard. Ole David Dugas is havin' hisself one heck of a hard time gettin' that promotion to federal judge 'cause he was soft on crime - insurance crime that is. There is a lesson in this for ole Dunn Lampton too. Look here from our friends over Times Picayune way:

Sen. David Vitter, R-La., angry that the nomination of Baton Rouge U.S. Attorney David Dugas to a federal judgeship is being held up by Sen. Mary Landrieu, D-La., tried to advance the nomination last week through a unanimous consent request on the Senate floor. He was rebuffed when Sen. Robert Menendez, D-N.J., objected. Vitter said he still hopes Landrieu will relent and allow a hearing on the nominee. "If there is a reason to stop the nomination, surely a hearing is the best venue and the best vehicle to illustrate that and talk about it," he said. Landrieu has said she has serious concerns about the nomination of Dugas because he failed, as U.S. attorney, to investigate allegations from insurance industry whistleblowers that companies had engaged in an intentional policy to deny valid wind claims after Hurricanes Katrina and Rita, in some cases passing along the liabilities to the government-subsidized Federal Flood Insurance Program.

Yippe Kia Yea Republican Big Business Bootlickers! Payback's a bitch.

Gene Taylor to Speak on Insurance Reform

There has been an advertisement run in the print editions of the Sun Herald on Gene Taylor conducting an Issues + Answers lecture sponsored by the University of Southern Mississippi Gulf Park Campus on Friday, February 29, 2008 at the Advanced Education Center auditorium.

Thanks to one of our readers, I was emailed a link to the University press release and I am happy to pass it along to all so interested. Considering the other recipients listed in the address header I am honored Ida thought enough of this blog to pass me the good word.

I will be in attendance and hope we pack the house on the 29th.

sop

The Insurance Industry's GREAT ESCAPE

NAIC President Questions Motives of OFC Supporters

KANSAS CITY, Mo. (Feb. 15, 2008) — Sandy Praeger, President of the National Association of Insurance Commissioners (NAIC) and Kansas Insurance Commissioner, in a letter yesterday, reiterated the strengths of state-based regulation and reasserted opposition to federal legislation that would establish an optional federal charter (OFC).

A few relevant parts of the letter:

…allowing insurers to pick their regulator threatens a regulatory “race-to-the-bottom.” This scheme would be especially dangerous in property/casualty insurance, where families and businesses faced with a storm, fire, illness or injury often rely on a hands-on regulator to make insurers keep their promises and to help rebuild quickly after an unforeseen disaster. The push for an OFC is, in reality, nothing more than a call for little or no regulation.

There are presently more than 11,000 individuals working in state insurance departments across this country who help to protect insurance consumers. It takes quite an imagination to assume the Treasury Department could assume even a partial role in regulating insurance without creating a huge bureaucracy. The plain and simple truth is optional federal chartering would create a new federal bureaucracy from scratch and allow insurance companies to “opt out” of comprehensive consumer protections and state oversight. Current proposals would gut consumer protection, while outsourcing most critical regulatory functions to an industry-run self-regulatory organization.

The Mississippi "R" Factor Part 2

I've noticed that when solutions to this insurance mess are offered it is one political party that is doing the offering. Outside of a few Democrats like US Senator Christopher Dodd the Republican party is the overwhelming choice for discriminating big business and insurance political donors.

Such must certainly be the case here in Mississippi as we found this Clarion-Ledger story concerning Phil Bryant's State Senate Insurance Committee most disturbing. Lt. Governor's Bryant stated campaign goal of continuing the coastal rebuilding efforts certainly are taking a back seat to his service to monied insurance interests.

No Katrina-related insurance legislation will be taken up by the Senate Insurance Committee this year, chairman Sen. Eugene Clarke said Thursday.

Clarke, R-Hollandale, said he needed a year to get acclimated to leading the committee before passing any bills.

"I feel for people on the Gulf Coast, but we've got totally new leadership in both chambers," he said.

Clarke's decision has soured some Gulf Coast senators, though, who say nothing has been down two and a half years after Hurricane Katrina flattened the southern part of the state.

Sen. David Baria introduced seven pieces of insurance reform legislation this session, but he said Clarke told him Thursday they would all die in committee.

"It's upsetting because this is the primary reason I decided to run for the Legislature - to do something about insurance," said Baria, a freshman lawmaker who defeated Republican incumbent Sen. Scottie Cuevas in the November election.

"While I understand (Clarke) is new... we can't wait any longer to do something about this issue."

The two pieces of legislation the Bay St. Louis Democrat said he was most interested in seeing get to the floor included:

A bill to codify a premium payer's Bill of Rights and attach it to policies, as well as include plain-language exclusions and eliminate concurrent cost exclusions. He filed two versions of the bill and one would prohibit insurance companies from contributing to anyone running for commissioner of the Department of Insurance.

A bill that would offer apply a premium reduction in the private sector to those who build a "fortified" home - similar to regulations under the so-called Windpool.

Clarke said he was going to spend the "off season" studying up on the legislation.

"We want to take care of consumers," he said.

No offense to Senator Clark but if actually thinks anyone believes that load of dung he shoveled then I have some waterfront in the New Mexico I'd like to sell him.

The comments to the Clarion Ledger story tell that tale of Senator's Clark's continued study of an issue that is now almost 30 months old.

No offense to Sen. Clarke, but perhaps the Senate leadership should have asked him if he felt comfortable chairing a committee related to insurance issues BEFORE appointing him to chair the Senate Insurance Committee. I bet the beleagured folks on the Coast would have appreciated that. Why is it that after almost every article I read about our Legislature I find myself having to take deep breaths and rub my temples? I would hate to assume that he was placed there because he would be willing to block anything the insurance companies didn't want becoming law.

or this one

Thanks Mr. Clarke! The coast gets shafted because you need on the job training.

Senator Clarke is doing as he is told which is why I place the blame for this inaction on his boss Lt Governor Bryant. The Mississippi Democrat party appears in complete disarray so I doubt they capitalize on the insurance "R" factor to score political gain. I hope everyone that supported Mr. Bryant and Mr. Chaney last November and who now pay much higher insurance are taking notes.

sop

The Mississippi "R" Factor Part 1

We have more insurance news out most of it involving the State of Mississippi. As I noted yesterday the contrast between Commissioner McCarty and the Republican Party in Florida and Commissioner Chaney and the Republican leadership in Mississippi is striking and very unfavorable to our leadership here. Today we are greeted with this news story in the Sun Herald on the Mississippi Windstorm Underwriting Association:

Residential policyholders have been shocked by significantly higher premiums in their wind-pool renewal notices.

Wind-pool board members approved policy changes, effective Oct. 1, that mean higher rates for the majority of policyholders who stick with a 2 percent hurricane deductible. A Sun Herald reader alerted the newspaper to the policy changes Thursday.

Wind-pool board member David A. Treutel Jr., who is from the Coast, said the change was in error. The board, he said, was trying to give the best wind discount possible while keeping options simple. He said the error was brought to the board's attention in January and members voted unanimously to correct it. A correction should apply retroactively to rates charged since Oct. 1.

"The direction from the board was to fix it," Treutel said. "That wasn't intended."

As of now, policyholders who used to have $1,000 or $2,500 deductibles for unnamed storms will feel a pinch unless they raise their named-storm deductibles. Even then, their rates might still increase even though their out-of-pocket expenses will be higher after a catastrophe.

Such was the case for Rex Chastain's family. Chastain had hoped for some insurance relief in 2008, but instead finds his family "insurance poor."

Hurricane Katrina forced the Chastains, along with thousands of other South Mississippi residents, into the state wind pool, where residential rates jumped 90 percent in 2006. The wind pool is the insurer of last resort for 36,000 South Mississippians, who must carry a separate private policy to cover fire, theft and liability.

The Chastains' total homeowner insurance bill jumped 147 percent. (Emphasis mine)

Homeowners insurance has been that dirty little secret buried in the howling wind insurance storm. Coastal consumers are routinely finding their wind excluded homeowners policy costs as much today as their wind included homeowners policies before Katrina. I have not heard of increased fire, theft or liability risk here on the coast since the storm. Curious.

We were also greeted with this story on David Baria and his attempts to pass some common sense legislation in the Mississippi Senate dealing with insurance.

Sen. David Baria has filed seven Hurricane Katrina-related insurance-reform bills, but on Tuesday legislators will finalize the list of measures that stay alive, and his are in danger of dying without a vote.

The first-term legislator, a Democrat from Bay St. Louis, attended the Senate insurance Committee meeting Thursday briefly to see if any of his bills were up for discussion, but was surprised when he found they were not.

Baria has filed a "Policyholder's Bill of Rights." The measure would put the burden of proof on the insurance companies when there is a dispute over whether a claim is covered in a policy. The House Insurance Committee approved a version of the bill Wednesday, allowing it to move forward.

Baria said it's surprising two of his Senate bills, which he considers minimal changes, haven't made it out of committee. Senate Bill 2432 would make it mandatory for insurers to attach a list of a policyholders' rights to each homeowner's policy. Senate Bill 2165 would help homeowners who use stronger construction methods get discounts on the rates they pay.

"To me, both of those bills should be no-brainers," Baria said.

Indeed we agree with Senator Baria on SB 2432 and SB 2165; these laws should be a no brainer. Insurance impacts everyone in the state but it has impacted coastal residents in an outsized way, which in turn has greatly elevated the level of awareness these issues here. The real problem in my opinion lies with Lieutenant Governor Phil Bryant and his choices for the insurance committee, which he evidently stacked with pro insurance legislators.

Of the Senate Insurance Committee's 13 members, only three are from South Mississippi - Watson, Billy Hewes, R-Gulfport, and Debbie Dawkins, D-Pass Christian. Eugene S. Clarke, R-Hollandale, chairs the committee, which is made up of eight Republicans and five Democrats.

Most of the Legislature's post-Katrina insurance reforms aimed at coverage offered through the private sector have failed. The Legislature last year approved a bailout for the state wind pool, which is the insurance of last resort for those who can't get private wind coverage.

This is R factor is at work. How quickly Mississippi Republicans have forgotten the people who elected them to office.

sop

Insurance News Today

There are two news stories in today's Sun Herald that are well worth pointing out. The first deals with the House Insurance Committee's passage of a Policyholder's Bill of Rights, prompted by the treatment of consumers here on the coast after Hurricane Katrina.

Long Beach resident Kevin Buckel lost his house on Russell Avenue to Katrina, but was originally paid only $1,000 by Nationwide, but the company later settled a lawsuit with him. Buckel told the committee that putting the burden of proof on the insurance company is the most important part of the Policyholder's Bill of Rights.

"When you are denied a claim, the insurance companies would be more likely to settle with homeowners if they can't prove their case in court," Buckel said.

I have not read the bill but I take Mr Chaney's reservations concerning it to mean it must favor consumers over insurers.

The second story should come as no surprise that private insurers will continue to increase the pressure by economic strangulation of the coast enabled by former insurance agent turned inusrance commissioner Mike Chaney. I find the contrasts between Mr Chaney and Mr McCarty in Florida most telling as I do the timid reactions of Mississippi politicians in general to this issue in huge contrast to those in Florida.

Mississippi Insurance Commissioner Mike Chaney said some major insurance carriers have indicated they may no longer renew wind coverage for customers in South Mississippi.

"If they quit writing wind for existing customers, that's really going to put more pressure on the economy," said Chaney, who added that he is working to keep private carriers in the six southernmost counties and bring in new business.

He hopes enforcement of enhanced building codes, coupled with other measures his office is pursuing, will improve the market.

Is it me or were the new buillding codes passed after the storm in late 2005 or early 2006? Perhaps it's time Mr Chaney quit hoping and instead champion the people who elected him to office. Frankly I would personally never sign up with a private insurer for wind coverage, as it is a waste of money buying a policy that does not pay on wind damaged coastal properties. Like my home before the storm my rebuild will be in the wind pool which did pay on their policies as a rule.

sop

Nationwide on Your Side? Nope

Any company that would screw an old lady certainly has no problems messin' with younger folks. Keep that chair pulled up as these videos illustrate why folks like Senator Chris Dodd and Richard Shelby live by "Show me the Money". If you is common folk and got no money then you don't count like their friends in big insurance.

Nationwide: Not on Your Side?

Pardners when this Cowboy says big insurance will go to great lengths to screw the elderly for a buck he means it! Pull up a chair and listen to this poor ole woman's nightmare dealing with her own insurance company Nationwide Insurance. I hope insurance industry waterboys like Senators Chris Dodd and Richard Shelby are proud of themselves and their service to big insurance. Bless their hearts their mommas must not have taught them right from wrong when they was growin' up.

Insurance Complexities: The Myth of State Farm's Financial Insolvency and Conflicts of Interests.

I occasionally run across “fans” of Nassim Taleb, a philosopher/visionary who is changing the way people view world events. His black swan concept, which is the name sake for his latest book, is understood and often repeated as the totality of his theory when in reality it is just a small part of his body of work. Russell and I share an interest in Taleb’s work, an interest that derives from actually reading his two books rather than simply embracing the pop culture lite version repeated in the popular media. This subject of insurance is akin to understanding Taleb and his theories; one can get a slight flavor for the concepts of subjects like wind claims dumping from the media but the nuance and complexities of the subject escape the vast majority of the popular reporting just as Taleb’s theories are revealed completely only by reading his books. Taleb’s Black Swan is an important concept but his central thesis is far more involved. Taleb’s website, named for his first book gives a better clue the larger theory he espouses.

Such is the case with the recently issued GAO report and the concepts surrounding the inherent conflicts of interest possessed by the Write-Your-Own insurer and the possible impacts of that conflict manifested in concepts like wind claims dumping following a multi peril flood event such as a Hurricane. David Rossmiller penned a particularly insightful piece on the GAO report tackling the conflicts of interest conclusions of the GAO head on.

“One, this "inherent conflict of interest" certainly exists, just as it exists whenever you file a first-party property claim. This is not very startling, because it has been said -- wait while my computer comes up with the final tally -- 3,456 kajillion times before in insurance literature. For many of you the following explanation will be something you know already, but many don't know it, so I am going to set it down in writing here. As you may or may not know, when someone makes a liability claim against you, say you ran into them with your car, your insurer owes you a fiduciary duty, assuming a duty to defend arises out of the allegations and the language of the insurance policy. A fiduciary duty is the highest duty imposed by law, and requires one to treat another's interests like one's own, resolving all conflicts of interest in favor or the insured. These type of liability claims are called third-party claims. In contrast, claims you file with your own insurer for damage to your house or other property are called first-party claims. An adversary relationship is assumed to exist between the insurer and insured from the time the claim is filed, and generally speaking, no fiduciary duty arises on the part of the insurer.”

Mr. Rossmiller gave his readers a great lesson in the law but also his post implied a great lesson in dealing with an insurer. When a consumer files a first party insurance claim and the adjuster is sent, the insurance company knows a great bit of information in advance of the first visit, including a good idea how the insurance company plans on adjusting the claim. The unsuspecting consumer, who was promised good hands treatment by a good neighbor, has no clue their friendly claims adjuster is actually an adversary, a wolf in sheep’s clothing.

As I pointed out in a post on the concepts of economic transparency and insurance in December this condition is known as Information Asymmetry, “A situation in which one party in a transaction has more or superior information compared to another. This often happens in transactions where the seller knows more than the buyer, although the reverse can happen as well. Potentially, this could be a harmful situation because one party can take advantage of the other party’s lack of knowledge.”

There are public policy implications in these conflicts of interests, both those noted by the GAO and those that are an accepted part of insurance law as explained by Mr Rossmiller. These public policy battles are being played out real time in places like Olympia Washington and Washington DC by people, including politicians who have the ability to see past the law to a greater collective good.

Is State Farm Overextended?

I have read remarks like this one several times in the blogosphere and am again reminded of Taleb and his theories:

(My independent insurance agent) “talked me out of using State Farm (who had the lowest quote), because he said that the opinion of a lot of insurance brokers was that State Farm had overextended itself, and might not be able to pay all of their claims in a widespread disaster. He directed me to a company that was about 20 per cent Higher than State Farm.”

The luck involved with that scenario is stunning. Though I don’t think it is possible to buy State Farm insurance from an independent insurance agent lets assume this statement is true. What were the motivations of that independent agent? To maximize their own commission a la commissioned retail stock brokers? Assuming this poster had combination wind-water damage and their WYO insurer paid them under both wind and flood there is also a large element of luck that the damage was distinguishable as appears the case with McIntosh.

As a group we do not recognize the influence of pure chance at work in our daily lives as we are far more suited to pat ourselves on the back and stroke our egos than see true reality. A central part of Taleb’s observations that deal with how we humans make sense of events was best summed up by Taleb himself when he wrote:

“It is high time to recognize that we humans are far better at doing than understanding, and better at tinkering than inventing. But we don't know it. We truly live under the illusion of order believing that planning and forecasting are possible…..

(we) are too bathed in enlightenment-style (notion of) cause-and-effect and cannot accept that skills and payoffs may have nothing to do with one another.”

So while we try to make sense of how State Farm adjusted their multi peril claims here after Katrina in terms of misguided notions like “they had to commit fraud or they would have gone bankrupt”, it would help to arm ourselves with some facts including basic financial facts such as after paying almost $4 billion dollars in claims, State Farm’s Property and Casualty Subsidiary still had over $3.5 billion dollars of “unassigned surplus” while posting over $2 billion dollars of profits in the two years ended December 31, 2006. That’s right, State Farm actually made money despite paying those Katrina related claims.

For those interested in State Farm’s financial condition the last audit of their P&C subsidiary can be found here.

Next up: Differing views on the problems with NFIP and some suggested solutions.

sop

Landrieu Legislation to Extract FEMA's Head Out of Their Ass.....

Bill creates insurance oversight

Plan audits firms in flood program

Tuesday, February 05, 2008
By Rebecca Mowbray

On the heels of a federal report that found "an inherent conflict of interest" in having private insurance companies determine how much the government should pay on flood claims, Sen. Mary Landrieu, D-La., plans to introduce legislation creating an ombudsman to strengthen financial oversight of the National Flood Insurance Program.

Her bill would create the position within the Federal Emergency Management Agency to audit and monitor insurance companies and their subcontractors that do work for the government flood program.

The "report reiterates what we've long known -- when it comes to making sure the big insurance companies are living up to their promises, there's no one at the NFIP minding the store," Landrieu said in a prepared statement. "My legislation would create an independent office to make sure private insurers are acting in good faith, giving their customers the coverage they paid for. This ombudsman would be isolated from the political pressures of the powerful insurance lobby and have broad authority to hear and investigate complaints and stand up for insurance policyholders and taxpayers alike."

Homeowners policies generally exclude coverage for flood damage, so people guard against damage from rising water by buying policies from the National Flood Insurance Program. Flood policies are issued by the federal government, but private companies sell them alongside their homeowners products and determine the flood claims for the government after disaster strikes.

Consumer advocates, plaintiffs attorneys and individual homeowners began to question the arrangement after Hurricane Katrina, when private insurance companies had the power to determine whether damage was caused by wind, which they pay for, or water, which the government covers.

A study released last week by the Government Accountability Office validated those concerns. It found an "inherent conflict of interest" in having private companies with a financial stake in the outcome determine who pays for what. The report recommended that the flood program secure access to the wind files on homes that had flood damage to make sure the government is not overpaying, but FEMA resisted that suggestion.

Landrieu plans to introduce legislation to create Flood Insurance Accountability Act of 2008 before Congress adjourns for its Presidents Day recess Feb. 18. Landrieu's bill may come up for debate as the Senate considers overhauling the flood program before its authorization expires in September. The House of Representatives passed a flood insurance reform bill last fall.

Because other measures in Congress contemplate raising flood insurance rates on some homes that were built before the flood program was created in 1968, Landrieu said it's important to make sure that the program isn't subsidizing corporations before it raises premiums on homeowners.

"At a time when some in Congress are talking about raising flood insurance premiums on middle- and lower-income Louisianians, we need to make sure that this program is operating as efficiently as possible. This necessary step would fill a tremendous gap in the current oversight of the program," she said.

Landrieu's office said that the inspector general's office at the Department of Homeland Security, which houses FEMA, is not sufficient to monitor the flood program because the department has so many other responsibilities.

Her proposed ombudsman would have a broad mandate to investigate allegations of fraud and abuse, conduct random and systematic audits of companies working with the flood program, and investigate consumer complaints. A toll-free hotline would be established to make it easier for people to report concerns.

The ombudsman would have the power to subpoena computer and phone records and to compel testimony from people whose work relates to flood claims. The new position would have the power to investigate both insurance companies and vendors that provide claims adjusting, engineering and record-keeping services for the flood program.

To prevent the position from falling to a political appointee, Landrieu's bill will require the ombudsman to have an accounting, auditing, legal or management oversight background.

The ombudsman will report directly to the FEMA administrator, make an annual report to Congress, and have the power to recommend policy changes to Congress or the president. To ensure that the ombudsman is independent, the FEMA administrator will not be able to interfere with investigations. If the ombudsman is fired, FEMA will have to explain the dismissal to Congress within 15 days.

If evidence of overbilling is found, the ombudsman can levy damages worth three times the amount of the original claim. Cases of possible fraud or abuse would be referred to the U.S. Department of Justice.

Bob Hunter, director of insurance at the Consumer Federation of America, said that with FEMA turning a blind eye to concerns that insurance companies may be ripping off the federal government, Landrieu's bill is a good idea.

"No matter what the evidence is, the insurance companies can do no wrong. You need somebody who's there all the time," said Hunter, who ran the flood program in the 1970s.

If the ombudsman office is truly independent and has the money and staff to carry out its investigatory mandate, Hunter said, it shouldn't matter that it's located within FEMA.

Another Type of Insurance Problem

One insurance suit settled, one begun

The Desmoines Register
February 7, 2008

By S.P. DINNENREGISTER BUSINESS WRITER

Another Des Moines area insurance company has run afoul of Minnesota’s attorney general over the sale of equity-indexed annuities, and now Iowa regulators say they’ll look to see whether any similar action is warranted here.Minnesota Attorney General Lori Swanson on Thursday accused AmerUs Group and American Investors, both business units of what is now Aviva USA, of misrepresenting terms of annuities that it sells to senior citizens. She sued them in Minnesota state court for allegedly failing to disclose key terms and conditions of equity-indexed annuities that they market.

This type of thing has been going on for some time. The 2001 downturn brought a rash of problems with oversold variable annuities (whose accumulations were tied to stock market performance). Annuities are essentially reverse life insurance once the payout stage is reached. They have their good points, but their fees are often very high.

Florida Insurance Hearings: Not Every Company is Losing Money

We noted in our continuing coverage of the Florida Senate Hearings concerning their property insurance mess that Allstate used unapproved short term weather models to make actuary decisions on the purchase of reinsurance. Those poor business decisions have caused losses for Allstate's Florida operating company, losses they now wish to dump on Florida consumers.

Allstate has since been joined by Nationwide and Farm Bureau in admitting the use of unapproved short term models to drive reinsurance purchase decisions. Farm Bureau also admitted losses deriving from that fact.

In a refreshing change, we have a story from the Miami Herald that Florida based American Strategic Insurance testified Tuesday they used approved long term models and have profited from the better decisions that resulted from that fact.

American Strategic, a St. Petersburg company that managed to cut rates an average 11.5 percent due to the money it saved by buying a portion of its reinsurance from the Florida Hurricane Catastrophe Fund.

The company also lowered rates another 9.5 percent later in the year, mostly because it paid a lower cost for additional reinsurance bought in the private market and had fewer claims and better cost controls.

''Generally speaking, apples to apples, reinsurance costs were coming down for everyone in 2007,'' said CEO John Auer, who expects to see another drop this year.

Unlike many insurers, American Strategic said it is writing new homeowners policies, even some on the coast. The company has 260,000 policies, making it the third-largest insurer behind state-run Citizens and State Farm.

Sen. J.D. Alexander, R-Winter Haven, questioned American Strategic's heavy use of reinsurance to cover potential losses. He asked if it would be in financial trouble if its reinsurers, especially the state catastrophe fund, couldn't make good on their
policies.

Auer said the company, started 10 years ago, has already lived through highs and lows in the reinsurance market, noting that reinsurers are pleased with American Strategic's management. And A.M. Best raised American Strategic's rating to A-minus from B++ last December.

As I opined on the Allstate Yahoo Finance Message Board, the testimony of Allstate, Hartford, Farm Bureau and Nationwide Insurance reminded me of the confessions of an accomplished three card monte dealer. They expect their customers to foot their mistakes; both the mistaken decision to purchase more reinsurance and the decision to buy expensive reinsurance at all for that matter, rather than the cheaper variety offered by the State of Florida. Is insurance the only line of business that doesn't have to pay for their business mistakes? In the small business world where I come from there is no government backstop save bankruptcy so the concept of profit entitlement is foreign to me.

In any other line of business the shareholders, not the public would be eating these business mistakes. So while we congratulate American Strategic and their owners for their ability to profit while their competitors languish we also hope free market principles apply equally to those who make bad business decisions.

Simply put there is a point where the insurance industry needs to take ownership of their mistakes. The mess in Florida illustrates exactly why so few present day insurers would survive in a truly competitive marketplace without that anti-trust exemption they currently enjoy. Our position is that the free marketplace should reign supreme where ever possible and the culture of big insurance profit entitlement should end.

Finally the events in Florida now have me wondering if our state regulators here in Mississippi have been hoodwinked by similar tactics. Our wind pool premiums are in the stratosphere, largely due to the astronomical cost of reinsurance. Given what we have learned through the application of Sunshine to the insurance industry by the Sunshine State, I challenge Mr. Chaney to hold rate hearings for any increases in property insurance, not just those he arbitrarily deems too high. We have quickly arrived at the point where he should put the interests of the citizens of this state ahead of the profit interests of these out of state insurance companies.

sop