When Hurricane Camille hit Mississippi in August 1969, it was one of the most powerful storms ever to hit the mainland United States – what we now call a Category 5.
Camille’s winds were clocked at more than 200 miles per hour, and many coastal properties weren’t just damaged or destroyed, they simply disappeared.
Big storms change things in unpredictable ways. One thing that disappeared, for example, was school segregation, at least in one community. In Pass Christian, west of Gulfport, Camille destroyed more than a third of the public schools – leaving authorities with no choice but to open up the remaining schools to both black and white students.
Somehow, in the face of necessity, all of the obstacles to school integration that had seemed insurmountable simply disappeared. After all those years of delay, Pass Christian’s schools were integrated without incident.
Another thing that disappeared after Camille was private-sector flood insurance coverage. All homeowners’ insurance policies written in Mississippi since 1969 (and almost everywhere else now) contain clauses that exclude flood damage from their coverage. Individuals and businesses who wanted coverage could obtain flood insurance through the federal government, at additional cost. Private insurers, after paying out the huge claims from Camille’s damage, wanted out of that part of the business.
Given the size of their losses, you might ask, “Who can blame them?” Well, we now have an answer: Jim Hood. He is Mississippi’s attorney general, and he blames the insurance companies, big time. In the aftermath of Hurricane Katrina, he has filed a lawsuit against five major insurers, attempting to get the courts to redefine wind damage, which is covered by homeowner policies, to include wind-driven water.
Tort lawyer Richard Scruggs, who earned his reputation in successful lawsuits against the asbestos and tobacco industries, has also announced his intention to file a lawsuit against the insurance companies on behalf of Alabama, Louisiana and Mississippi residents whose coverage did not include flood damage.
Estimates of insured damages from Katrina are now in the $60 billion range. If the insurance companies are found responsible for flood damage as well, the total bill could easily be three or four times that. Whether the companies, which include such giants as State Farm, Allstate and Nationwide, could take that kind of hit and survive is questionable.
Certainly, if either of the lawsuits is successful, Katrina will change the cost and the legal structure of homeowners insurance for all of us.
The lawsuits and post-Katrina political developments are forcing us to take on some heavyweight economic questions. The first involves compensation for losses. Although precise data isn’t yet available, we do know that a large number – perhaps most – of the homes in New Orleans that were destroyed were not covered by flood insurance. The owners had decided not to pay for it.
Should the federal government step in and compensate them anyway – in effect, rewarding them for their bad decisions? There have already been calls for Congress to set up a Sept. 11 type of fund for Katrina victims, even though that was hardly a model of either simplicity or fairness. Should such a Katrina fund reward or punish those who paid their flood insurance premiums every year? (Similar issues plagued the Sept. 11 fund when it reduced payouts for victims who had been paying for life insurance.)
More generally, what should be the federal government’s response to economic losses suffered in a natural disaster of this scope? The funds described as “required by law” in so many speeches refer to sharing the cost of rebuilding the infrastructure – roads, bridges, levees, public buildings, etc. – with local governments and not to any compensation to private individuals for losses sustained.
If we decide to use federal funds to rebuild private housing and compensate individual Katrina victims, we have an obligation – to the future as well as the present – to give some thought to the structure of that assistance.
While there is no harm in a federal program of temporary emergency funds, the more permanent rebuilding effort for individuals should be based not on grants or a dole but on mortgage loans that are interest-free and even principal-free for, say, the first five years – long enough for people to get back on their feet.
And in considering the structure of federal assistance, we also need to avoid picking favorites – Katrina’s victims over those of some no-name tornado, for example.
In that, and in every other way, our federal economic response has to be fair. It is the right way and, ultimately, the best way for our economy.
James McCusker is a Bothell economist, educator and consultant. He also writes “Business 101,” which appears monthly in The Snohomish County Business Journal.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
