Make Your Insurer Pay

Editor's Note: This story has been updated since it originally was published in 2006.

The people who lost homes and businesses to Hurricane Katrina in 2005 put their insurers to the test. Their experiences can teach you a thing or two about dealing with your insurer when -- and even before -- disaster strikes.

Six Steps to Protect Your HomeDangers of Water-Damage Claims

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Whether you're facing this year's hurricane season or any disaster that threatens your home, follow the trail of these Katrina veterans to learn how they got their claims paid quickly, or fought back when claims were denied.

Be first in line

In the immediate aftermath of the storm, finding an insurance representative took some doing. The Bay St. Louis home of third-generation insurance broker David Treutel was under 12 feet of water, and his office was destroyed. So on his old office building he spray-painted directions to the tent he'd pitched across town. A few weeks later, the tent was blown away by Hurricane Rita. Treutel's staff then moved into a trailer, and on some days as many as 100 clients would wander into his makeshift office.

One smart thing Treutel did right off the bat was file blanket claims for all of his customers, which put them at the head of the line when the time came for them to deal with adjusters. A Safeco adjuster from Ozark, Mo., arrived two weeks after the storm and worked out of Treutel's office.

As it turned out, filing claims was the easy part. With nearly 900,000 Katrina and Rita claims in Louisiana, "there weren't enough adjusters in the world" to handle the volume, says Don Beery, an independent agent with Eustis Insurance, located near the Superdome. Coordinating meetings was a challenge because street signs -- and often entire roads -- had disappeared.

Responding to 125,000 phone calls from consumers who wanted help reaching their insurers, the Louisiana Department of Insurance provided contact information. State Farm let displaced customers file a claim with any of its agents around the U.S.

Ed de Montluzin, whose homes in New Orleans and Pass Christian, Miss., were both damaged by the storm, advises staying in touch by e-mail. "You have to keep on top of it and follow through with everybody," says de Montluzin. "People responded immediately to e-mail, and you had a record."

It also helped to have "a lot of patience" and to make a special effort to meet face to face with an adjuster, says de Montluzin. He traveled from Columbus, Ga., for an appointment with an adjuster from Chubb insurance company, so that they would both be there to see the six or seven trees that had toppled onto de Montluzin's house in Pass Christian.

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The adjuster called in an engineer to survey the situation and determine how much damage was caused by wind -- and was therefore covered by homeowners insurance -- and how much was caused by flooding, which was not covered. De Montluzin received a check for his policy's full amount less than two weeks later, in November; some of his neighbors continued to fight with their insurers for months. He hasn't yet decided whether to rebuild, and he used the settlement to buy a lake house in Georgia.

Make your case

New Orleans attorney David Krebs built his insurance claim the way he builds a case. His 1860s home in the Garden District suffered only wind damage. But it isn't cheap to repair the roof and windows of a 140-year-old house, and Krebs ended up with a claim for $70,000.

Krebs had evacuated to Jackson, Miss., and returned home in mid October soon after power was restored to his neighborhood. He called his agent, Harry Kelleher III, and his insurer, Chubb. Chubb immediately sent a check for $5,000 to cover temporary living expenses. An adjuster arrived quickly and told Krebs to get the damage fixed and send him the receipts.

Working with the contractor who had renovated his home, Krebs was able to have replacement windows installed and repairs made while his neighbors searched for available workmen, who are in short supply. Kelleher says some homeowners pay about $500 per year to put a contractor on retainer so that they are at the top of the list after a storm.

Krebs organized a tabbed binder with about 50 pages that itemized every expense. He included receipts, canceled checks, a detailed description of every repair made, steps taken to mitigate the damage and living expenses he incurred while he was evacuated. Says Krebs, "The average person doesn't always think about how broad his coverage can be." Two weeks later, he received a check for $70,000, which covered nearly his entire claim.

In the case of houses that were destroyed, homeowners who kept an inventory some distance from their flooded neighborhoods also cleared the insurance hurdle. Before Karen Hill fled her home in St. Bernard Parish, she hurriedly snapped pictures of each room. Those pictures were a big help when she later had to list every item in her home that was lost (which was pretty much everything).

Hill, an assistant vice-president of the Hartwig Moss Insurance Agency in New Orleans, had flood insurance, which paid out her full policy limit in November. While deciding what to do next, she paid off her mortgage and put the rest of the money in the bank.

Insure for floods

No matter how complete their records, many Gulf Coast homeowners will end up empty-handed because they didn't have the right kind of insurance. That's because much of the Katrina damage was the result of flooding, which isn't covered under homeowners policies. To protect against flood damage, you need to buy separate coverage through the federal government's National Flood Insurance Program. The NFIP estimates that more than 50% of residents affected by the storms didn't have flood protection.

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Flood insurance made a big difference for Laura and Scott Needle. The Needles bought a flood policy on the home they were building in Waveland, Miss. Even though it was on Waveland's highest elevation, the house ended up under 8 feet of water.

After the Needles met with adjusters for three different insurers -- Zurich for their homeowners, the state wind pool and the federal flood program -- the companies determined that only about $16,000 in damage was caused by wind, which was less than their windstorm deductible. But $43,000 in damage was attributed to flooding, and that was enough for the Needles to repair their house.

The Needles made another smart decision. Just before the storm, they had sold their old home and were renting it back from the new owners. Instead of dropping flood coverage, however, they kept the insurance on their possessions. That resulted in their biggest payout -- $73,000, which compensated them for losses when 3 feet of water saturated everything they owned.

When they recently renewed the flood coverage on their new home, the Needles found that despite their Katrina experience, the annual premium was still only $317 for maximum coverage -- the lowest preferred rate. Premiums and flood maps for the federal program haven't been updated yet, so if you're in a low-risk area (and what qualifies as low-risk may surprise you), you can get the maximum coverage for less than $360 per year.

Although underwritten by the government, flood insurance is sold through local agents (you can find one through www.floodsmart.gov). There's a 30-day waiting period before the policy takes effect, and coverage tops out at $250,000 for your dwelling and $100,000 for your possessions. Several private companies, such as Fireman's Fund and Chubb, offer extra coverage beyond those limits.

Make sure as well that you have adequate coverage on your regular homeowners policy. Increase your limits to include home improvements, and get special riders for jewelry, antiques and other valuables, which are underinsured under most policies.

Fight back

Unlike the Needles, Todd and Carrie Estapa didn't have flood insurance. The Estapas had bought their home in Waveland a year before Katrina and were told by their lender that flood coverage wasn't required because the house was 23 feet above sea level.

When Todd and Carrie returned to Waveland after the storm, a few houses, including theirs, were still standing in their cul-de-sac. But more than 6 feet of water had washed through the house. The storm had broken doors and windows, and large sections of the roof were missing. Todd estimates the damages totaled about $160,000, and he had more than $500,000 in homeowners insurance.

The Estapas found themselves in the middle of the wind-versus-water controversy. Three weeks after the adjuster visited, they were notified by State Farm that only about $2,500 in damage had been caused by wind -- less than their hurricane deductible. Todd hired a structural engineer, who determined that more damage to the roof, windows and dormers was wind-related. State Farm increased its offer, but not enough to cover the deductible.

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Then Todd hired a public adjuster, and "he and State Farm went at it." (Find an accredited public adjuster through the National Association of Public Insurance Adjusters.) State Farm eventually upped its payout to $16,000, about $10,000 more than the windstorm deductible.

At that point, the Estapas "gave up," says Todd, who moved with Carrie and their four children in two FEMA trailers parked in their driveway while they repaired their house. When Kiplinger's asked State Farm to comment on the Estapas' case, the company immediately sent two adjusters to reinvestigate. "They apologized nonstop and said they saw things that had been overlooked," says Todd.

A few days later, State Farm hand-delivered a check for $25,000 to cover most of the damage included in the original engineering report. The company said it would also pay for repairing a wall, which Todd expects to cost about $20,000. "When a combination of flood and wind is involved, it might require several inspections," says Jeff McCollum, of State Farm. "If you have more information, be persistent."

If that doesn't work, you can take your case to mediation, which both the Louisiana and Mississippi insurance departments are offered free to Katrina victims. Mediation isn't binding, and if you are not happy with the results you can always sue. But lawsuits tend to be time-consuming and expensive. Going to court should be your last resort.

Who does best and worst

One of the best ways to vet an insurer's reputation is to check its complaint ratio -- its percentage of total customer complaints divided by its market share, as measured by total premiums. The lower the ratio, the better a company's performance.

The Louisiana Department of Insurance received 4,530 complaints after Hurricane Katrina. Most of the disputes involved the gap between what company computers said repairs should cost and "what it actually costs to get work done in New Orleans," says Louisiana commissioner of insurance Jim Donelon.

The second-biggest dispute was the wind-versus-water controversy. All homeowners policies exclude flooding, but companies differ in their judgment on whether damage was caused by wind or water. In the Gulf states, insurers have been playing hardball on this issue.

Louisiana's insurance department is examining two insurers with high complaint ratios, Allstate and St. Paul Travelers. Citizens, the state's high-risk pool, has the worst record.

You'll find complaint ratios at most state insurance department Web sites and at the National Association of Insurance Commissioners' Consumer Information Source. Type in the company name, select the state and "property/casualty" to find the ratio. Then consult the chart comparing the company's ratio to the national median.

Editor's Note: This story has been updated since it originally was published in 2006.

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