Posted in on September 7, 2006

Insurance Companies Collect Record Premiums, Pay a Fraction of the Benefits

I have recently seen news clips and information about how some victims of Hurricane Katrina have been shafted because of insurance company decisions not to pay for water and flood damage caused by the Hurricane.

Then, today I read some information that State Farm denied a hurricane victim’s claim, then demanded the return of $3,300 in living expenses. The article I read was about Sue and Donald Williams of Mississippi, whose home was completely destroyed by Hurricane Katrina. After the Hurricane, the Williams returned to their home to find that their roof was completely blown off, there were no walls, and trees were bent and mangled. The Williams’ asked their “good neighbor” State Farm adjuster to help them, however, their adjuster, and the adjuster’s supervisor, refused to admit that the damage was caused by the Hurricane wind – not water. The Williams hired their own independent engineer who confirmed the damage was indeed caused by the wind from the Hurricane.

One of the things that really disturbs me is that prior to Hurricane Katrina, Sue Williams, specifically asked her “good neighbor” agent to sell her hurricane and flood insurance. The agent insisted that Sue Williams did not need flood insurance because their house was not in a flood zone.

The most appalling part of this story is that initially after Hurricane Katrina, State Farm paid the Williams an initial $2,500 to help get them back on their feet after losing their home, as well as providing additional money for food and storm damage. After State Farm denied the Williams’ homeowner’s insurance claim, State Farm then demanded the Williams pay State Farm $3,300! The Williams, who had invested their life in a house, and who had been assured by their “good neighbor” agent that they were fully covered, were left with nothing – just like thousands of other State Farm insureds around the country.

While these stories are all too common after major natural disasters, it is not an uncommon occurrence for insurance companies to take advantage and act in bad faith toward their own insureds and policy holders on an every day basis.

Our firm has represented a number of individuals who have had similar experience with fire loss claims with State Farm. In our cases, the individuals requested to purchase full coverage from State Farm in case their homes were destroyed by a fire, and in each case, State Farm only sold them enough insurance to cover approximately one-half of the cost to rebuild their homes. In each case, we were able to point out that State Farm had acted in bad faith toward their own insureds, and we were able to help the individuals recoup what State Farm had previously denied. But not without a long, drawn-out fight. (See our case results link for more information about the particular cases). It shouldn’t come down to that. As a customer and a policy holder, you should get what you pay for, and you should be sold the correct coverage for which you ask. That’s just good business.

But the fact is that insurance companies are not interested in good business or good customer service. The insurance companies are only interested in putting their own bottom line above the interests of the people they insure. In 2005, a year of record disasters in this country, the insurance industries recorded record profits of nearly $45 billion! This is an 18.7 % increase in profits from 2004! [Source: “Insurers Saw Record Gains in Year of Catstrophic Loss” LA Times].

The reality is that the insurance companies are not “there when we need them,” and we are not in “good hands.” Time and time again, it has been shown that insurance companies, State Farm in particular, have acted recklessly and with malice in handling claims, yet these public determinations, court rulings and jury verdicts still are not enough to demand that these major insurance companies change the way they do business.

As a consumer, and an attorney who fights for consumers, it is important to me that we publicize the tactics used by State Farm, Allstate, American Family, and the other large insurance companies, and work to make sure that consumers understand what their rights are and the benefits to which they are entitled.

We also have to exercise our right to vote. The first step in impacting the way these companies do business is to elect leaders who are not beholden to big insurance special interests, but who are going to fight for our individual rights and who will fight to hold wrongdoers accountable. It’s about responsibility and accountability — a message that big insurance companies in this country needs to hear loud and clear this election season.

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