Hurricane Ike: Bad Insurance Winds Blowing

While the ill winds of Wall Street and the government takeover of AIG has taken over the news, the victims of Hurricane Ike are receiving scant attention. But Ike's victims should be forewarned that like the victims of Hurricane Katrina, the prevailing legal winds seem to be blowing against the interests of property owners seeking to recover losses caused by water and wind disasters.

Sadly, thousands of Texas Gulf Coast storm victims who are now picking up the pieces after Hurricane Ike may be in for a shock when they file insurance claims and try to collect. Many policyholders think they are fully covered for the kind of wind damage inflicted by the front end of hurricanes and tropical storms but don't realize that most policies contain a troublesome little clause known as Anti-Concurrent Causation, or ACC. This typically convoluted insurance term spells big trouble for consumers because it lets insurers deny coverage for most, if not all windstorm losses when flood-related damage -- normally excluded in standard property policies -- is also involved. People who thought they were covered for wind damage learn about the ACC only after disaster strikes, and are forced to make the case that their now-destroyed home was heavily damaged first by destructive winds and finished off by flooding -- and then the argument may not even work

The chicken-or-egg debate over whether wind or water contributed the greatest damage to property has been around a long time, but Hurricanes Katrina and Rita in 2005 triggered an unprecedented mass of consumer complaints and challenges to insurer denials. An important principle of insurance law has always been that if policy language is ambiguous, than the decision should redound to the benefit of the policyholder. While thousands of cases remain to be resolved as a result of Katrina and Rita, the trend is becoming clear: a string of court rulings have found ACC clauses to be "unambiguous," handing insurers a significant legal victory. Insurers marketing property policies in vulnerable areas like the Gulf Coast can now count on broad exclusions to avoid covering wind damage and have less incentive to explain the legal realities to the policyholder.

More exclusions mean less protection for property owners. In coastal areas of Texas, Louisiana and Florida, this means that coverage against wind damage is harrowingly narrow, confined to relatively rare incidents of high winds unaccompanied by rain or storm surge.

The truth is that comprehensive coverage for "multiple perils" such as a combination of wind, water and hail, is expensive. But consumers should have the choices -- and costs -- clearly laid out in front of them so that they can make informed decisions about their coverage. There is every indication that legions of policyholders -- especially in the Gulf States -- are unaware of the ACC loophole. Private insurers as well as state-backed high risk insurance pools that sell coverage in areas where the private carriers refuse to tread, all have an obligation to inform the public in clear English what the contract covers and what it does not. State regulators should play a more active role. And the age-old principle: caveat emptor... let the buyer beware, has never been more important.