Posted by: bridget | 12 January 2007

Bleeding Hearts Trump Justice

A federal judge in Mississippi issued a directed verdict against State Farm for failing to pay for the damage done by Hurricane Katrina. The homeowners lacked flood insurance, and the policy does not cover water damage to a home. The judge reasoned that, as it was impossible to parse out the damage done by the water and the wind, State Farm would be liable for everything.

The Broussards did not pay for flood insurance. Roughly a third of homeowners in New Orleans had such insurance. Such insurance is subsidized by and offered through the federal government. So there’s two problems with this little directed verdict:

  1. The Broussards did not have comprehensive insurance through State Farm; and
  2. they declined to purchase the federal flood insurance plan.

Now, in a just society, someone who refuses to purchase insurance will not receive value for that which they did not pay. As a practical result of this philosophy, the insurance industry will charge higher premiums, knowing that, in the event of a disaster, they will be liable for all damage, whether contracted for or not. Lower and middle class homeowners will not have the option of picking and choosing coverage – they will be charged high premiums for deluxe insurance, whehter or not they can afford it or want every protection. They will choose to go uninsured or pay back-breaking premiums, in an odd echo of the health insurance market. Meanwhile, the Broussards and their lawyers will sit fat and happy, spouting about “big business” while their liberal ideology screws the little guy one more time.

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Responses

  1. […] In theory, insurance companies can keep rates down by not covering floods; after all, flood insurance increases premiums in high-risk areas by a factor of ten.  (Low-risk areas are charged $317/year for the same coverage.)  As State Farm found out the hard way, however, judges and juries will still nail insurance companies, requiring them to provide coverage never paid for (previously blogged here).  […]


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