[Congressional Record (Bound Edition), Volume 152 (2006), Part 14]
[House]
[Pages 18889-18890]
[From the U.S. 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? 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.

[[Page 18890]]

       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.
       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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