One thing became clear almost before the last drop of storm surge flowed back into the Mississippi Sound following Hurricane Katrina: There is going to be a huge legal fight over insurance.
Mississippi Insurance Commissioner George Dale said that homeowner policies specifically exclude damages from flooding. For flooding, homeowners must purchase separate policies from the federal government’s National Flood Insurance Program. Business owners also need a separate flood policy in order to be covered for flood damages.
The problem is, many thousands of homes and businesses flooded during Katrina had never flooded before — even during Camille. Most people who flooded never dreamed they needed flood coverage. It is estimated that only a quarter of the homes in Harrison County had flood insurance, and only about 10% in Jackson County.
Wind or water?
Appearing live on WLOX Channel 13 on the Coast, U.S. Rep. Gene Taylor (D-Miss.) said that insurance companies will likely come before Congress to ask for a massive bailout because of the huge losses expected from Katrina. Taylor said he doesn’t favor giving the insurance companies a taxpayer bailout if they refuse to pay claims under homeowner policies.
Taylor said the tidal surge was not a water-actuated event. The surge was not caused by excessive rainfall. It was caused by wind, and that is why it should be covered under homeowner’s policies.
Attorneys are advising Coast residents to be cautious when negotiating a settlement with insurance companies. Legal advice is needed if residents are told they aren’t covered because it was a flood event.
“I think that is going to be the biggest fight when people are talking about tsunami damage,” said Gulfport attorney Reilly Morse. “Will it be treated as a wind or a water event? It should be treated as a wind event if the insurance companies ask for a bailout from the government.”
There is some case precedent in Mississippi from Hurricane Betsy and Camille where juries tended to find that the damages were caused by wind, not flood. But the contract language in homeowner’s policies has changed since then, and homeowner’s policies specifically exclude damages caused by wind-driven gulf water.
And if a house or business and all of its contents are completely gone, how is it determined whether that is wind or flood damage?
Attorney Gerald Blessey, a former state legislator and former mayor of Biloxi, said he is confident the Mississippi Bar Association will set up volunteer legal services like they did after Hurricane Camille.
“Don’t sign anything if you are in any doubt at all,” Blessey said. “Go to volunteer legal services and get specific advice based on your specific insurance policy. There is going to be plenty of free legal advice from the Mississippi Bar Association. Rather than rush in and sign something, go there and get some answers. Of course, the big question, if you don’t have flood insurance, is whether wind or water caused the damage or contribution to damage. That is a question you should not jump to conclusions on. Get some legal advice on that situation before you make an agreement with the insurance company. It is a complicated issue. It has to be taken on a case-by-case basis.”
It will be complicated in many cases, to accurately determine how much damage came from flooding and how much from wind. If a roof was taken off from the storm, rain coming in is related to wind damage. But if the house also flooded due to storm surge, how much of the damage should be attributed to the flood policy?
Morse said there could be situation where the home and business owner’s find themselves in a catch 22 between different insurance companies policies and FEMA.
“In order to get a FEMA claim, you have to go to the insurance company and get a claim number,” said Morse, who lost his law office near the beach in Gulfport during Hurricane Katrina.
Morse was involved in insurance litigation resulting from Hurricane Elena on the Coast. He says another issue will likely be regarding depreciation. With some Elena claims he litigated, the insurance companies rejected the proof of claim.
“Businesses who had property damage would present bills regarding estimates of the cost of repair and replacement damage,” Morse said. “Insurance companies would reject the proof of loss as inadequate. The second fight was regarding depreciation. When you buy a replacement cost policy, normally you don’t have to mess with depreciation. But after Elena some insurance companies wanted replacement costs discounted by depreciation value.”
claims and employment, too
Morse also expects a lot of litigation about business interruption claims. Recognizing the vulnerability of their casino industry revenues, Biloxi and Gulfport purchased tax protection policies.
“It will be interesting to see how those insurance companies step up to the plate,” Morse said.
Steve Brandon, a partner in the Jackson offices of the law firm Lehr Middlebrooks Price & Vreeland, P.C., said there are also likely to be a lot of legal issues regarding employment related to Hurricane Katrina.
“Employees who are normally exempt from overtime may be asked to perform duties that are non-exempt during clean-up and business restoration,” said Brandon, who represents businesses and individuals in labor and employment matters. “Fair Labor Standards Act (FLSA) regulations specifically provide that ‘when emergencies arise that threaten the safety of employees, a cessation of operations, or serious damage to the employer’s property, any work performed in an effort to prevent such results is considered exempt work.’ Thus, an exempt employee will not lose his exemption because of performing routine work during an emergency such as recovery from Katrina.”
However, Brandon said if the employee performs such work for a long enough period, they must be paid overtime for all hours worked above 40 hours in a workweek. The FLSA generally requires employers to pay salaried, exempt employees their full salary for any workweek in which they perform any amount of work, regardless of the days or hours actually worked, or the exemption could be lost. Thus, Brandon advises that employers and employees should be mindful of the potential for wage-and-hour violations during Katrina clean-up operations.
Second, employers should apply their leave policies uniformly.
“After a crisis or a natural disaster, the number of discrimination claims filed under Title VII for discrimination on the basis of race, gender and national origin is often surprising to the business community,” Brandon said. “Nevertheless, employees may perceive or claim that an employer applied its leave policies differently, or treated some employees more favorably than other employees during the emergency circumstances because of the employee’s race, gender, or national origin, and may file charges of discrimination with the Equal Employment Opportunity Commission (EEOC) as a result.”
Another issue is regarding injuries sustained during the storm that may qualify employees for leave under the Family Medical Leave Act (FMLA). Experience shows employers may be reluctant to authorize FMLA leave when their staffing needs are at their peak, such as during times of crisis or natural disasters.
“However, failure to do so could result in a claim being filed by an employee against an employer under the FMLA,” Brandon said. “Also, employers should be aware that they must continue to pay for an eligible employee’s health insurance during the period the employee is away on FMLA leave, even during times of crisis.”
Safety and health standards under the Occupational Safety & Health Act (OSHA) aren’t suspended by hurricanes. Employers remain responsible for providing a safe and healthful workplace for their employees.
“If an employer asks an employee to perform recovery, business restoration or clean-up tasks which could be hazardous to the employee (for example: working around fallen power lines, entering into flooded areas which may be contaminated with toxic chemicals, or removing tree limbs without proper training or safety equipment), OSHA violations may be implicated,” Brandon said. “Employers are cautioned to remember that protracted exposure to heat and to the sun may cause safety and health risks to employees. Employers should not ask employees to perform activities which could expose the employee to the foreseeable risk of criminal conduct.”
Brandon said there are three other employment issues to be considered:
• Notice requirements under the Consolidated Omnibus Budget Reconciliation Act (COBRA) aren’t suspended by hurricanes. Employers who are covered by COBRA should be careful to provide all of the necessary information that is required by COBRA on a timely basis to eligible employees who may be affected by terminations or lay-offs.
• For employers who employ more than 100 employees, advance notice to employees of plant closings or lay-offs may not be required under the Worker Adjustment and Retraining Notification Act (WARN) due to natural disasters. But large employers are urged to work with state and local officials to provide as much advance notice of plant closings or lay-offs to employees as is practicable in the circumstances.
• Large numbers of undocumented workers are believed to have been displaced by the storm. Many of these workers will seek new employment. Employers are reminded that they must make efforts to verify employment authorization for new employees who have been displaced by the storm, even if the displaced employee does not possess documents which prove employment eligibility. Employers may rely upon receipt notices produced by employees for the replacement of authorization documents for a period of 90 days from date of hire. Also, employers have three days from date of hire to complete the I-9 for the newly-hired employee, so the employee has three days to apply for replacement docs.
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.