Insurance Industry Woes in the Aftermath of Hurricanes Katrina & Rita (2006)

HURRICANE Katrina was a natural disaster unlike any that the United States has experienced in the past. We will never forget the images, which were with us every waking hour on television, in print, and on the Internet. The Gulf Coast has endured many powerful storms in the past, but previous damage had generally been confined to relatively discrete areas. How many times have we heard the warnings of the impending terrible storm and seen foolhardy reporters clinging to street posts in driving rain and wind? During previous storms, citizens evacuated, buildings collapsed, roofs were ripped off, and debris strewn, but there was minimal loss of life and injury. People returned, insurance companies rebuilt, and life returned to normal. Katrina was different. In late August and early September, 2005, the hurricane headed toward the Gulf Coast with initial predictions of a direct New Orleans hit. Many locals evacuated thinking they would be back in a few days, while others believed in the general good fortune of the bayou and chose to ride out the storm. At first it seemed as if the citizens of New Orleans had waltzed with Lady Luck once more. The brunt of the storm had struck to the east, in Mississippi. New Orleans, it seemed, had been spared the worst. Bars in the French Quarter remained open, but the real tragedy was just beginning. The levees of New Orleans allowed the city to flourish, despite the city's location below sea level and surrounded by the Gulf of Mexico and Lake Pontchartrain. Unfortunately, after Hurricane Katrina struck, New Orleans was lashed by heavy rains, wicked winds, and storm surge, but the real damage came when the levees failed and Lake Pontchartrain met the Gulf in the once proud streets of New Orleans. We then saw images that we never imagined we would see in the United States as a result of a natural disaster, a disaster that could be blamed on bad luck, bad planning, bad budgeting, and bad engineering. The images of bodies floating in the streets, desperate people stranded on their rooftops, looters gone wild, flames throughout the city, and scenes from the Superdome and Convention Center beyond description are burned into our memories forever. Months later, time has passed and people have returned to New Orleans. The attention that was focused for so long on relief efforts is now turning to the causes of the disaster. Many issues not considered before the storm are coming to the fore, and it is clear that political forces seeking to divert the public's attention from the inadequate governmental response will closely examine the insurance industry. A thorough analysis of the issues facing the insurance industry is important to help weather the gale force storm that faces the industry in the wake of the natural storm. Will government legislate coverage where it otherwise wouldn't exist? Will contractual language be given a fair reading? Which damage was caused by floods, and which destruction was caused by the storm itself? Who will pay? What if businesses simply do not want to take the risk of moving back and rebuilding--what will they be owed? The region has become an incubator for mold, pollutants, and other toxins: who is responsible for the clean up? The answers are not necessarily clear, but a review of decisions, legislation, and previous governmental action should provide guidance. I. Regulatory and Legislative Responses to Hurricane-Related Insurance Issues The devastation wrought by the hurricanes that plagued the United States Gulf Coast in 2005 placed both the government in the affected states and the insurance industry under unprecedented pressure to deliver relief to the affected populations. State executives and legislatures faced with extraordinary pressure from constituents devoted and continue to devote substantial attention to addressing problems, real or imagined, with the insurance industry's response to the crisis. Not surprisingly, the attention has, by and large, been negative, designed to limit insurers' actions in favor of perceived public interest. …