The Pirates of the Gulf

Lawyer Dickie Scruggs and Mississippi AG Jim “Eliot” Hood are trying to get insurers to cover floods from the recent hurricanes, even though they don’t.  The insurance contracts say no flood damage.  As in No. Flood. Damage. That means, even if it’s caused by a hurricane. Maybe if the damage is caused by wind. Flood protection is offered by the government, not private companies. 

But for these lawyers, contract rules are only “guidelines.”  Sort of like the Pirate’s Code in Pirates of the Caribbean. And you have to be a pirate for the Pirate’s Code to apply.

A W$J editorial today points out the mischief that would be done if courts actually bought this argument, apart from the catastrophic liabilities for the insurance industry:

Insurance companies that survived would have to assume that flood liabilities are now theirs to pay, regardless of the contracts they write. They'd then have to charge everyone in the region higher premiums -- by one estimate, as much as $500 a year -- to cover this flood risk.

But it’s actually worse than that, because nobody’s safe if courts don’t enforce contracts.  How could the insurance industry ever be sure it was excluding a risk if can't enforce this clearest exclusion of all?  How could any company ever be sure it was limiting the scope of any promise?

Welcome aboard the Black Pearl, Miss Turner.

Comments

[Eh Nonymous]

Kip,

Remind us, what's your insurance law background? Because, surprisingly enough, the contract _is_ just the beginning of the inquiry. Why's that? Because there is moral hazard: insurers who realize that they are obligated under the terms of the contract to pay look for a way to change the meaning or validity of the contract.

Unbelievable? Well, no. If the rules obligate them to pay money, they will find ways to change the rules. Insurers are not in the business of protecting people. They are in the business of making money.

People, in contrast, are not in the business of defrauding insurers (well, by and large they are not). They are in the business of getting on with their lives. When disaster strikes, they look for coverage. When that happens, they have many arguments they can make:

1) the terms of the coverage apply, and the terms of the exclusions do not
2) the terms do not by their words apply, but there was fraud
3) the exclusion seems to apply, but the exclusion is unenforceable as a matter of public policy
4) there is some other reason why the insurer should pay out.

It's not about "contracts matter" vs "contracts don't." Insurance law is not pure contracts law. Society is not in the business of upholding contracts as written; instead, it is in the business of enforcing some, treating as null others, transferring wealth when justice and law requires, and spreading costs. At times this means not awarding money to an injured insured.

But don't obscure the fact that major insurers, including UNUMProvident among many others, habitually and abusively attmept to avoid their obligations under the contracts. It's a battlefield and neither side has a monopoly on faithfulness to the words of the contract.

[Deoxy]

"Society is not in the business of upholding contracts as written"

Sadly, you are correct - and we foist a great many ills upon ourselves because of it, while solving practically none.