Confusing Consumers


Your house sustains heavy damage from wind and rain during a hurricane. The storm surge floods the lower level of your home three hours later. Despite the destruction, you are consoled by the fact that you purchased hurricane insurance as part of your homeowners policy. Your home sustains hundreds of thousands of dollars in damages, but you are confident it will be covered.

You're wrong. The insurance company points to the "anti-concurrent" clause in your policy. "I had hurricane insurance," you counter. But id does not matter. The  flood negates the coverage. How could you have known that hurricane damage would note be covered, even by hurricane insurance, if there was a flood? "You should have read your policy," says the insurance company, and points to some incomprehensible legalese headlined as an "anti-concurrent" clause in your policy. The kicker? You did not even get the policy until after you bought it. 

Pascagoula, Mississippi police lieutenant Paul Leonard found himself in this very situation after Hurricane Katrina.  Leonard testified that in 1999 his Nationwide Insurance agent told him he did not need flood insurance. Leonard's home later suffered over $130,000 worth of damage in Hurricane Katrina. Nationwide sent him a check for $1,600.

Leonard was in part a victim of the murky world of the insurance policy. Insurance contracts are traditionally some of the most dense and hard to comprehend contracts a consumer is ever likely to see. In the words of one commentator, the contracts "may as well be written in heiroglyphics. They are nearly impossible to decipher, [with] one incomprehensible clause after another." In trying to make sense of insurance contracts in a South Carolina case, the State Supreme Court concluded, insurers are attempting to convince the customer when selling the policy that everything is covered and convince the court when a claim is made that nothing is covered." 

Lawmakers in more than half of all states have enacted "plain English" laws for consumer contracts, yet many Americans still do not fully understand the risks they are subject to. Nearly half of all Americans mistakenly believe that if a new car is totaled only a few weeks after purchase, the insurance company will pay for the full replacement -- when in fact, insurance companies will deduct for depreciation, leaving consumers owing thousands of dollars on a car loan. Similarly with homeowners insurance, more than seven out of ten Americans believe their insurance company will pay for the full cost of personal belongings. But, insurance companies "cap" the amount they will pay for a total loss, and will deduct for depreciation when assessing damage to personal belongings.

Hurricane Katrina highlighted the insurance industry's use of opaque language to avoid paying claims. At issue were so called "anti-concurrent clauses." The clauses dictate that not only is damage from a flood, earthquake or other even not covered, but that such damage eliminates coverage for damage that is covered in the policy.  

So if heavy winds caused a tree to fall onto the roof of your house, and then rain water trickled in causing damage -- you would be covered. But if a storm surge came hours later and flooded the house, everything below the water line would no longer be covered.

When confronted with such a hypothetical scenario during a trial following Hurricane Katrina, Nationwide executive Jeffrey Kline Gilbert confirmed the coverage would be eliminated and said the policyholder should have read the policy. However, it is hard for an attorney, let alone a layman, fully grasp the implications of clauses such as these.

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