Hurricane Katrina was the worst natural disaster the insurance industry has ever managed. The number of claims exceeds the previous record of more than two million made to cover losses in 2004 from the four Florida storms.
There has been a great deal of press coverage about the way Insurance companies have handled claims. Several stories have aired showing families who have been denied insurance for losses they suffered from Hurricane Katrina. The issue is that Homeowners insurance policies have never covered losses due to flood and this Hurricane resulted in major flood damage.
The typical homeowners policy covers damage caused by wind, wind-driven rain, fire, theft (including looting), vandalism and damage due to fallen trees. If an insured home has been damaged because of windstorm or any of the other named perils, an insurance company will pay for repairs and rebuilding to the limits of your policy.
Rain that enters through wind-damaged roof or broken widow, it’s considered a wind loss and not flood damage and would be covered by a standard homeowners policy.
While recent press seems to imply insurance companies are denying claims made by Hurricane Katrina homeowners the truth is insurance companies have always evaluated claims on a case by case basis. In some situations, losses will be apportioned between wind damage covered under the homeowner policy and flood damage.
For example, a home that was damaged by windstorm would be insured for the damage caused by the wind, broken windows roof torn away and fallen trees under the homeowner insurance policy. However, the damaged caused when the levies broke and water entered the home would only be an insured loss if a flood insurance policy had been purchased.
There are undoubtedly claims from Hurricane Katrina that resemble the ‘chicken or egg’ situation. Was the loss caused first by the wind or is the damage caused by the floods? It will be interesting to see how these claims are eventually sorted out. My advice having lived through a flood personally is to insure our most important investment for all possible losses. If you do not have flood insurance you might want to consider the investment.
The National Flood Insurance Program, is a division of the Federal Emergency Management Agency (FEMA). Flood insurance has been available at affordable prices from the federal government since 1968. Flood losses have never been covered under any homeowners insurance policy.
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