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"Stranded without Recourse: FEMA Halts Payment of Flood-Insurance Claims"

In his best post to date, Marc Mayerson explains FEMA's latest stunt:  "to authorize not paying valid [insurance] claims until Congress appropriates more funding." Here's an excerpt:

"There are nearly 100 insurance companies whose write-your-own (WYO) flood-insurance policies are backed by FEMA, and FEMA -- amazingly, alarmingly -- has told those insurers to stop paying claims.

"The way the WYO (or "Part B") program is meant to work is that the insurance companies that participate collect premiums and hold that money for the purpose of paying claims. FEMA in turn provides letters of credit on behalf of the private insurers to pay claims in excess of the premiums collected and also provides reinsurance. But FEMA's coffers now are bare ... "

Mayerson proceeds to examine the case law and conclude that people who paid their money for this insurance are now stranded -- in his professional opinion, they are even prevented by the Federal Tort Claims Act from going after FEMA. His conclusion? 

"Accordingly, there does not appear to be any judicially enforced (i) incentive on FEMA to pay claims promptly when due, (ii) directive to ensure that the private insurance companies perform promptly, or (iii) sanction to prevent the private insurers from engaging in bad faith. The check on FEMA’s power or abuses -- or those of its partners in the WYO program -- is political. That check, however, is not the same as one that says “pay to the order of,” which is what the residents of the Gulf States with valid claims are looking for."

It occurs to me that most of the same people who have been dutifully paying their premiums for WYO insurance policies that are no help to them at this moment, also have the right to vote. Luckily for FEMA and these insurance companies, that option may be closed to them too...

Related: Illinois Sen. Barack Obama's podcast, "Fiscal Responsibility and Gulf Coast Reconstruction."

Posted by Laurel Newby on November 18, 2005 at 12:49 PM | Permalink | TrackBack (0)

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