[Congressional Record Volume 152, Number 119 (Thursday, September 21, 2006)]
[House]
[Pages H6903-H6905]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
BAD FAITH ACTIONS AND POLICIES OF STATE FARM INSURANCE IN MISSISSIPPI
Mr. TAYLOR of Mississippi. Mr. Speaker, I ask unanimous consent to
speak out of order and to address the House for 5 minutes.
The SPEAKER pro tempore. Without objection, the gentleman from
Mississippi is recognized for 5 minutes.
There was no objection.
Mr. TAYLOR of Mississippi. Mr. Speaker, on Wednesday of this week,
Mr. Edward Rust, Jr., the CEO of State Farm Insurance Company, was
supposed to be in Washington. I had hoped that I would have the
opportunity to speak to him on behalf of the people of south
Mississippi.
State Farm is one of three firms that for thousands of south
Mississippians has denied their claims on wind policy, some of them for
over $1 million; have said that they are not going to give a dime as a
result of what happened at Hurricane Katrina.
Had Mr. Rust been there, I also would have had the opportunity to
tell him that last Saturday I met with two whistleblowers, two sisters,
Cori and Carey Rigsby, who walked away from jobs that paid well over
$200,000 a year, investigating claims for State Farm, because they felt
that company was abusing the people who paid for their policies, that
their company was engaging in fraudulent behavior by denying these
claims. Instead of being rewarded by that subcontractor to State Farm
for telling the truth, they are being sued by that subcontractor for
telling the truth.
So, Mr. Rust, if you had been there, I would have presented you with
this letter, detailing what I think you have done to the taxpayers and
to the people of south Mississippi. But since you were not there, I am
going to put it in the Congressional Record and mail you a copy.
But there are two things I want you to know. You see, when you didn't
pay people's wind claims in south Mississippi, you hurt them
individually. You hurt average Joes like Joe Dee Benvenutti, who,
interestingly enough, is also an insurance salesman; or guys like Mike
Chapoton, who is a banker; or Dr. Leroy McFarland, who was my family's
physician when I was a kid, and now in his 70s has been denied over $1
million claim.
But you also denied guys like Senator Trent Lott and U.S. Judge Lou
Guirola. It is one thing to tell a banker or a former corrugated box
salesman that you can't read a policy, but I think it is something else
to tell a Federal judge that he couldn't read his policy, to tell a
U.S. Senator with a law degree from the University of Mississippi
apparently he can't read his policy.
If they are doing that to the average Joes, I am sorry, if they are
doing that to the bigshots like U.S. Senators and Federal judges, then
the question is, what are they doing to grandmothers?
[[Page H6904]]
What are they doing to corrugated box salesman? What are they doing to
high school teachers who don't have a prayer and who have been told
that their cases could take years to be heard?
Mr. Rust, you not only denied those people, but, in my opinion, you
also stole from the taxpayers. Let me walk the taxpayers through this.
Flood insurance is paid through you, the taxpayers. It is heavily
subsidized this year to the tune of over $20 billion. According to the
Rigsby sisters, your agents were instructed to walk on a piece of
property, and, without looking at any of the evidence, blame it all on
the water. It was all water; offer to pay that water claim immediately,
and say, we will get back to you on the wind, knowing full well that an
investigation would not take place on the wind policy, and that the
only check those people are going to get would be from the taxpayers.
You see, that broke the law, because under the False Claims Act, when
you ask your Nation to pay a bill that it should not pay, you are
liable for triple damages and a $10,000-per-incident fine. I think that
is exactly what went on. This House has passed language asking the
inspector general of the Homeland Security Department to look into
that. Unfortunately, the other body has not acted on that. Senator
Lott, for his part, has passed the funding for that investigation for
$3 million, but this House has not voted on that.
So, in return for your behavior towards the people of south
Mississippi, where over 1,000 south Mississippi families feel like the
only chance they have of any justice is to go to court, I am going to
try to do three things in my time remaining as a Member of this House.
Number one, I am going to push for that investigation, because I am
confident in my heart that you stole from the taxpayers when you did
that.
The second thing is I am going to work to remove your antitrust
exemption. I bet you it would surprise the average American to know
that if the two hardware stores in town called each other up and said,
let's charge this much money for a gallon of paint, if they were caught
doing that, they would go to jail. But Allstate can call State Farm,
who can call Nationwide, who can call Farm Bureau, and they can say,
this is how much we are going to charge for an insurance premium, and
this is what the benefit is going to be. Yes, let us all play hardball
and not pay any claims. It is perfectly legal. Check my facts on that,
it is perfectly legal.
Look at your own pay stub. I would guarantee probably that at least
the fourth biggest expenditure in every American family is insurance.
Do you want to know one reason why it is so expensive? There is no real
competition. They are exempt from the antitrust laws. No one should be
above the laws. I am going to work to take away that exemption.
Third thing is I am going to work to pass an all-peril policy so that
the people of Mississippi, Florida, Alabama or Texas don't have to stay
in their house with a video camera to record how their house was
destroyed to get some justice out of you.
Lastly, I am going to work for Federal legislation because you have
picked the States apart. You are picking on 50 little States, 50 sets
of rules. You are taking advantage of the citizens of this country when
you ought to be dealing with our Nation's government.
Mr. Speaker, I submit for printing in the Congressional Record a copy
of a letter from me to Mr. Edward B. Rust, CEO, State Farm Insurance
Companies, dated September 20, 2006.
House of Representatives,
Washington, DC, September 20, 2006.
Mr. Edward B. Rust, Jr.,
CEO, State Farm Insurance Companies, Bloomington, IL.
Dear Mr. Rust: I am writing to make you fully aware of the
consequences of the bad faith actions and policies that State
Farm has carried out against the people of South Mississippi
since Hurricane Katrina.
First, allow me to establish a few basic facts about
Katrina's damage in Mississippi. There is no property in
Mississippi that was damaged solely by flooding. More than
300,000 properties, including many that were hundreds of
miles inland, sustained wind damages but no flooding.
Properties nearest the coastline were damaged or destroyed by
some combination of hurricane winds and storm surge.
State Farm's assertion that hundreds of coastal homes were
destroyed without suffering any wind damage has been easily
and overwhelmingly refuted by every meteorologist, engineer,
eyewitness, or investigator who is not on the payroll of an
insurance company or an insurance company's contractor. Every
community on the Mississippi Coast suffered four or five
hours of high hurricane winds and powerful gusts before the
surge. High winds continued to cause additional damage during
the surge, and the wind and water in combination caused the
worst destruction.
State Farm recently reported that it has handled more than
84,700 property claims in Mississippi, yet requested
engineering reports for only 1,100 of the claims. Since
engineering reports are needed for the purpose of determining
whether damage was caused by wind or by water, State Farm
must have acknowledged that other 83,600 properties were
damaged by winds alone. In other words, State Farm has paid
claims for wind damage far inland where you could not blame
flooding, while denying wind claims on the coast where the
winds were much stronger, but where you could blame flooding.
Many homeowners near the coastline had flood insurance, but
not for the full value of their properties. Hundreds of
homeowners who bought every property insurance policy that
was available to them--homeowners, windstorm, and flood--
are nevertheless left with huge uncovered losses because
State Farm and other insurers have decided that only the
federal flood insurance program, and federal taxpayers,
should pay on homes that were destroyed by the combination
of wind and water.
State Farm's twisted legal argument that the anti-
concurrent causation language in your policies allows you to
deny wind claims, even where you acknowledge that wind was a
cause of the damage, is an especially cynical and despicable
act.
Your company's betrayal of its policyholders has had
horrible financial consequences for families and communities
at their time of greatest need. Some policyholders will file
bankruptcy and default on their mortgages. The lucky ones
will recover only after depleting their savings and
retirement accounts and assuming large new debts. Worst of
all, I fear that your actions will result in unnecessary
deaths in future disasters. If you succeed in establishing
that the burden of proof is on policyholders to prove that
wind and wind alone caused damage, I am convinced that some
people who should evacuate will stay behind next time to
record the damage.
State Farm and other insurers have contracts with the
National Flood Insurance Program that permit you to sell
flood policies and adjust flood claims that are backed by
federal taxpayers. When your adjusters assigned all damage to
flooding, I believe you committed fraud against the United
States government. State Farm's contract with NFIP obligates
your company to apply the same standards to flood claims as
you apply to your own claims. The federal regulations do not
empower you to assume flood damage anywhere it is possible,
while denying wind claims unless no other cause is possible.
I believe that State Farm and other companies violated the
False Claims Act by manipulating damage assessments to bill
the federal government instead of the companies. I have
written the Justice Department to recommend that the Katrina
Fraud Task Force investigate whether insurance companies
defrauded federal taxpayers by assigning damages to the
federal flood program that should have paid by the insurers'
wind policies.
In late June, the House approved my amendment to the Flood
Insurance Reform and Modernization Act to instruct the
Inspector General of the Department of Homeland Security to
investigate the Katrina claims practices of the insurance
companies that adjusted flood claims. Sen. Trent Lott added a
similar provision to the Homeland Security Appropriations
Act.
Even before Katrina, I was an original cosponsor of
legislation introduced by Rep. Peter DeFazio to repeal the
antitrust exemption that was granted to the business of
insurance by the McCarran Ferguson Act. After Katrina, this
issue will be much higher on my agenda. It is obvious that
the large insurance companies conspired together to
manipulate the claims process. It also is clear that state
resources were inadequate to protect consumers from
underhanded insurance practices on such a large scale.
In the decades since enactment of McCarran Ferguson, the
federal government has assumed responsibility for insuring
some risks that the insurance industry refuses to cover.
Medicare and Flood Insurance are obvious examples. The
federal government also provides disaster assistance and
loans to individuals, businesses, and communities to help
offset their uninsured losses. It does not make sense for the
federal government to fill in the gaps left behind by the
insurance industry and yet have very little role in
regulating and investigating insurance companies and their
practices.
In the next session of Congress, I plan to press for a vote
on legislation to have the federal government take
responsibility for regulation of insurance. It is ridiculous
for the industry to claim that insurance is not ``interstate
commerce'' rightfully under federal jurisdiction when
companies stop issuing policies in New York and Florida
because of claims in Mississippi and Louisiana. Congress and
federal regulators should have clear responsibility for
oversight of the insurance industry.
[[Page H6905]]
I also pledge to work tirelessly to enact a natural
disaster insurance program that provides for all-perils
insurance coverage. There is no reasonable way to distinguish
the wind damage from the water damage from a major hurricane.
The worst destruction almost always results from the
combination of the two. The division of wind and flood
coverage guarantees that legal disputes will consume millions
and millions of dollars for engineering reports and legal
fees instead of going to pay damage claims.
I cannot support plans to provide federal reinsurance for
the current system that allows insurance companies to shift
their liabilities to taxpayers and property owners. Any
effort to provide a federal reinsurance backstop for
insurance losses must insist on elimination of the exclusions
and gaps in property coverage. Homeowners need to be able to
purchase insurance and know that disaster damage will be
covered.
Finally, I will continue to urge the leadership and my
colleagues in Congress to undertake detailed hearings and
investigations of insurance industry practices. Please know
that the actions of your company have helped make the case
that Congress and the federal government must move to
regulate and investigate your industry in order to protect
consumers and taxpayers.
Sincerely,
Gene Taylor,
Member of Congress.
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