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Insurers - Paying Up in the Big EasyOr should they sue? If you stopped by the local bar, drank a pint of whiskey, a few shots of Old Crow, and downed 16 beers, you’d be pretty drunk. If you staggered around the bar tripping over yourself, you’d make a fool out of yourself. And if you insulted the bouncer’s wife, you’d be a drunken idiot. When he tossed you in a puddle of mud, you might be a filthy drunk. But if you got behind the wheel of your Cadillac Escalade, rocketed down the freeway at 120 miles an hour, and plowed into a car driven by a mom with her 5 kids, you would be a drunken murderer. However, your insurance company would pay off your car, pay your hospital bills, your physical rehab and maybe even your alcohol problem rehab as well. The mom’s insurance company would pay that family’s survivors the value of the car, life insurance, and any other insurance they carry. Then, they would turn around and sue you for every cent they paid out. Even if you are rotting in jail. Why? It’s called “subrogation.” Because you were criminally responsible, you owe the money. So it has occurred to me, after watching the devastation and catastrophic loss suffered by half a million people in New Orleans, shouldn’t the insurance companies start suing people? The people knew a massive hurricane was coming, and sat there in their homes. The mayor knew. He did nothing. The police chief knew. He did nothing. Worse, the President begged them to evacuate. They refused. The Governor knew. Yet she refused to allow the National Guard to move in. And both barely cooperated with FEMA or the White House until the flood waters were 20 feet deep. And now we know water didn’t actually flow over the levees and floodwalls. They simply failed. We’ve discovered the debris line was apparently 4 feet below the floodwalls of Lake Pontchartrain. In fact, the levees all held. The floodwalls failed. But it gets worse. New Orleans knew the 17th Street canal floodwall would fail even as it was being built. The contractor, Pittman Construction, said the earth wasn’t solid enough and the concrete wouldn’t be anchored solidly. They went to court and a pudding-headed judge Reba Page, forced Pittman to complete the project as instructed. So, the Army Corps of Engineers knew, but forced Pittman to build the wall incorrectly. So, think of all the claims that will be made over the next year. Over 500,000 residents. Tens of thousands of businesses. Cars. Homes. Boats. Life. Injury. From lost revenue to lost jewelry to lost dogs, rack it up, and…well, you’ll need a big rack. Then as in all insurance claims, the question of “Who pays” is always followed by “Who’s responsible?” And that is a good question.. Especially for companies that trade in risk. Insurance companies compute the value of your possessions, where you live, what type of person you are, and how you live. Then, they calculate the odds of getting hit by a tornado, a falling tree, a meteor, lightning, a drunken idiot, and of course, hurricanes and floods. So, if you are a big insurance CEO, wouldn’t you ask, “Wait a second. We calculated our rates based upon the studies that were supposed to be done, money that was supposedly spent, and levees that were supposedly reinforced. And we figured someone would tell people to leave, and they might actually leave without being told. So why are we paying all this money out to people who were grossly negligent, committed fraud and lied to us?" If I were an insurance company, I’d sue everyone. But there’s a catch: it’s called the “Political Subdivision Tort Liability Act,” designed to protect politicians from being sued for their stupid decisions. However, there are numerous exceptions, essentially centered around negligence and criminality. And there’s certainly enough of that to go around. After all, billions of dollars flowed into New Orleans to defend against the water. It is a safe bet that less than 5% ever got spent building anything. And you can gamble there were plenty of corners cut. Corners that became sluices for Katrina’s flood waters. In the end, the governments have the ultimate hammer. They regulate. And they can merely dictate, “We are the regulators, so pay up or shut your doors.” End of story, right? Not exactly. Because if the regulators weigh in against the insurance companies, they lose their shirts and pull out of the state. Plus, a lot of people have their money invested in insurance stock. They go belly-up, too. And in the end, the consumer will pay with tax subsidized insurance in a city essentially constructed like a giant 20 foot deep bathtub surrounded by a lake, and ocean and a river. And apparently, full of people who behave like drunken fools,
drunken idiots and drunken murderers. |
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