Insurance limbo delays rebuilding of Gulf Coast

NEW ORLEANS — The owners of the sagging, flood-stained home aren't in. Above the front door, a banner explains their absence, and the lack of progress: "Allstate paid $10,113.34 on this house for storm damage."

Like the home next to it and the one after that, the house was disemboweled nine months ago by Hurricane Katrina. The force of the gushing water punched the refrigerator into the kitchen wall, and it still sits leaning through the house's broken ribcage. Inside, mud has hardened into a crusty carpet, covering a designer sofa and a leather swivel chair.

"I want people to drive by my home and decide for themselves: Could I repair this for $10,000?" asks Eric Moskau, the home's exiled owner, who had more than $1.2 million in coverage on his 3,000-square-foot home.

Behind the sign he hung from his porch is a story all-too-common in this once-posh neighborhood: Even New Orleans' affluent homeowners, who thought they had done the right thing by properly insuring their investment, are finding that technicalities are keeping them from securing enough from their insurers to rebuild.

The insurance industry says it has settled more than 90 percent of its Hurricane Katrina claims, proving it's meeting its obligations to policyholders. But consumer advocates say insurers settled numerous claims for only a fraction of the actual damage, using numerous exclusions to reduce payouts. Insurance modeling firm ISO estimates Louisiana had $24.3 billion in insured losses; the state department of insurance says $12.5 billion had been paid out as of the end of April, the last month for which figures were available.

Without enough money from their insurers to rebuild, homeowners are left with two choices: Give up and leave, or else rebuild by hand, using their savings to pay for labor and materials.

"It's basically self-insurance," said Moskau, who had what he thought was plenty of coverage on his $600,000, two-story house and now counts himself among those who have abandoned their homes on once-stylish Bellaire Avenue.

Sixty-three buckled, warped and mud-filled homes separate Moskau from the nearest neighbor who is now repairing his home. "With this," says 79-year-old Pascal Warner, holding up his large, lined hands, as the light streams in through his still unfinished walls.

He and his 71-year-old wife, Irma, have dragged their sopping furniture to the curb, ripped out the wet wallboard and stripped the house to the studs. With only a pittance from their homeowners insurance, they had just enough money for supplies, not labor.

After last year's floodwaters receded, politicians initially blamed the residents of this below-sea-level city, claiming too few had purchased federal flood insurance on top of their homeowners policies, which cover only wind damage.

Yet an analysis by the office of Donald Powell, the Bush administration's coordinator for Gulf Coast rebuilding, found few communities were better insured against flooding than New Orleans: Two out of three homes had flood insurance, 13 times more than the national average of 5 percent.

Moskau, a well-to-do real-estate appraiser now living in Idaho with his wife and two boys, thought he had taken every precaution: He had the maximum federal flood insurance of $250,000. But when the government issued that check, it was issued in two names: Moskau's and his bank's. His bank applied the check to his $600,000 mortgage, leaving him with an outstanding note of $350,000 and no money for repairs.

According to a spokesman at Freddie Mac, which over the past five years has bought more than $7.5 billion in mortgages in Louisiana, banks are required to put insurance checks into an escrow account, disbursing the money as repairs are completed. An exception is allowed if the home is in an area where rebuilding has been prohibited. In that case, the insurance check can be applied to the outstanding mortgage, said spokesman Brad German.

Flanking one of the city's buckled levees, portions of Bellaire Avenue are still in rebuilding limbo.

Warner, who has lived in the same ranch-style house for 40 years, had just $3,000 after his flood-insurance settlement was used to pay off his remaining mortgage. He also received around $18,000 from his homeowners policy for wind damage, enough for construction materials but not labor.

Moskau's house, like most on Bellaire, swallowed less than 6 feet of water. It was enough to destroy the first floor but not the second. The second floor, however, got wet, too. Water seeped in through the vents, pushed in by the hurricane's 140 mph winds, he said. The roof was damaged and windows were punched out — damage, says Moskau, that should be covered under the wind-only policy. Allstate told him it was all due to flooding.

"I agree that the first floor flooded. I used to be an insurance adjuster, and I know the rules, so I didn't expect Allstate to pay me for that. But the second floor clearly didn't. So shouldn't I at least get 50 percent of my policy?" asked Moskau. He said that would be enough to pay off the mortgage and cover much of the rebuilding cost.

The chief executives of State Farm Insurance and Allstate, the nation's No. 1 and No. 2 insurers, declined to discuss specific claims. Together, they control half the insurance market in Louisiana.

"When you track our claim satisfaction, it is very high in those areas. Ninety-three to 94 percent of our Katrina claims have been settled," said Allstate CEO Edward Liddy.

That hasn't stopped critical reviews by insurance regulators and lawsuits by policyholders.

Louisiana's top insurance regulator recently ordered reviews of consumer complaints regarding Allstate and St. Paul Travelers. In District Court in New Orleans, a class-action lawsuit was filed last month against 15 insurers, claiming they capriciously denied claims.

In Mississippi, Sen. Trent Lott, whose Pascagoula home was torn off its foundation, is joining hundreds of his constituents in suing State Farm for unpaid wind damage.

Part of what really rankles consumers is the record profits that property-and-casualty insurers are posting despite the unprecedented losses inflicted by Katrina.

The industry cleared a $43 billion profit in 2005, an 11.7 percent increase over the previous year and a 15-year high, according to the trade group, the Insurance Information Institute.

"I would say it's definitely good times in the property- and casualty-insurance industry," said Donald Light, a senior analyst at Celent LLC, a research and consulting firm.