[Gerri Willis, Cnn Anchor:] A Mississippi lawsuit rocks the insurance world and could impact your policy. Avoid a deadly natural gas leak and exactly how to avoid danger and return home safely after a severe storm. Good morning, everyone. I'm Gerri Willis and this is OPEN HOUSE. Right now, a Mississippi courtroom is the site for an insurance showdown, the first of possibly 3,000 post-Katrina lawsuits. And at the heart of this dispute, whether a standard homeowner's insurance policy, which most of you have, will cover you in case a hurricane strikes your area. The industry says no way. But the couple who lost their home, they say they were ripped off. Headline News host Nancy Grace is here. Nancy, I'm so glad you're joining us today.
[Nancy Grace, Headline News:] Thank you.
[Willis:] Now, this case is a real eye opener for policyholders everywhere. This family did everything they were supposed to do. They bought the insurance, they paid the premiums. They even asked their local Nationwide agent, "Do we need more coverage?" And the answer was no. Didn't they do everything right?
[Grace:] You know what? They really did. Now, this at trial is going to be an issue of credibility. Who should be believed? Typically, the fact-finder, normally a jury, has to decide who's telling the truth. This is a test case. This is the first case going forward post-Katrina insurance claims with Nationwide.
[Willis:] That's right.
[Grace:] A lot of them have already settled. And what's interesting in this case, and I'm speaking just as a trial lawyer, is that there have been other witnesses to come forward in this case. One I know of is a chiropractor, one is a small business owner, that said the same agent told them they didn't need flood insurance. In fact, let me quote, Gerri, according to one witness, the same agent said, "I told you to let her blow, not let her flow."
[Willis:] Oh, my goodness, Nancy. So this...
[Grace:] So they're in trouble.
[Willis:] This is not the only issue in this case, though. I think what is so interesting, looking at this lawsuit in detail, no insurance adjuster was ever sent to the house. So how, just 14 days after the storm, can they get a letter in the mail saying, "Hey, you're not going to get covered for any of the damage?
[Grace:] Yes, it will be a cold day in, let me say Florida, when you get a check in just 14 days. Now, Nationwide says they did send an agent out there. I guess the agent went out there without the knowledge of the homeowner. But long story short, Nationwide denies everything. They say the agent never dissuaded them from getting flood insurance. And I think it's going to be a matter of what is reasonable. When you get hurricane insurance, typically, you would normally believe that all the damage resulting from a hurricane, including water damage would be covered.
[Willis:] Well, and that's one of the big disputes here, right? They thought they were getting a policy with a hurricane deductible. So they assume, "Golly, we're going to be covered." Turns out they weren't. But answer this for me. You know, the industry is really describing this as a nuisance lawsuit. They say no way this is going to be upheld in the court of law. Does this case stand any chance at all?
[Grace:] Well, when you don't know a horse, take a look at the track record. They've already settled multiple claims of people in the same boat, pardon the pun, as the Leonards are. In other words, other people that had hurricane coverage have water damage to their home as a result of Hurricane Katrina and I truly believe that it is unreasonable not to cover these claims. So if there's no basis for a claim, why are they settling all the claims?
[Willis:] The financial pain from this, if it goes against the consumer, the stakes are high.
[Grace:] They certainly are. And I want to point out to you one other issue that strikes me, as a trial lawyer. Again, when you don't know a horse, look at the track record. Look at the Leonards, who are the complainants in this case. They paid the premiums. They went and visited and talked to the insurance agent about this. In fact, he says he remembers two such conversations with them about flood insurance. So think about it. If you're willing to write a check every month for your insurance, you have conversations about how to protect your home, why wouldn't they get flood insurance? If they are paying for the insurance in a timely manner, I just don't think it makes any sense.
[Willis:] Exactly, and I think they were paying something like $2,000 a year for their coverage. That's a lot of money on the size of their house. Let me ask you this, though. For people out there who are worried about whether their insurance is going to cover them, if you get into a situation, the average homeowner, with a major disaster, weather disaster, what do you do?
[Grace:] Well, frankly, I face that here in New York. You know, here in New York you buy an apartment. You don't buy a home. And I got to wondering, does my apartment insurance cover, for instance, a flood or if the apartment falls in or something. Found out it did not. This is what I learned from being a trial lawyer. The person that has the most notes wins. Read your policy, ask questions. Whenever you make a phone call, write it down. Whatever they tell you, write it down and keep it. Save those e-mails. Reconstruct your conversations. Why? You'll find out, just like the Leonards, that whoever has the most written documentation wins.
[Willis:] And, of course, you always want to keep a nice long list of everything you own so you can prove it later. Nancy Grace, thanks so much for being with us.
[Grace:] Thank you, friend.
[Willis:] Nancy Grace, catch her every night on "Headline News", 8:00 and 10:00 p.m. Eastern time. Now, that brings us to the question, does the insurance industry need an overhaul? Amy Bach is with United Policyholders in San Francisco. Gordon Stewart, of the Insurance Information Institute, is in New York. Welcome to both of you.
[Gordon Stewart, Insurance Information Institute, New York:] Good morning.
[Amy Bach, United Policyholders, San Francisco:] Good morning.
[Willis:] Amy, let's start with you. Does this industry need to be reformed?
[Bach:] It absolutely does. The Leonard case is a classic example of what United Policyholders sees after every disaster. There's a big disconnect between the consumer's expectations as to what they paid for and what the insurer delivers.
[Willis:] Amy, a disconnect, yes, but what needs to be done?
[Bach:] The insurers have to start being more honest with their policyholders. If they are going to cut the giant holes out, they've got to let the homeowner know in advance so the homeowner can shop around and fill those holes.
[Willis:] So Gordon, tell me, is there a case where the industry just isn't being upfront with consumers or do consumers not understand their policies?
[Stewart:] Well, in listening to everything that has come before, it's sort of troubling that no one seems to understand, although I would think they would, the most basic facts about homeowners coverage that has been true since 1968 through the United States Government, the insurance industry, homeowners, builders, mortgage lenders, everyone else, and that is, simply, this. Flood, that is, water that comes from the ground, is not covered, never has been, under any standard homeowner's policy.
[Willis:] So, Gordon, I guess you're saying then that...
[Stewart:] And the language is very clear. That is why...
[Willis:] Gordon?
[Stewart:] Yes.
[Willis:] I guess you're saying that the industry does not need any reform.
[Stewart:] Well, that's not what I'm saying. I want to address the central question. There is a national flood insurance program, Floodsmart.gov. That is the only way in which flood is covered. It has been true since 1968. Eighty or 90 percent of the people in New Orleans bought it. There are five million policies in force. It's very clear. It's available to everyone.
[Willis:] Amy, to you, Amy Bach, is it that clear? Is the damage that results from flood clear compared to the damage that results from wind, from hurricane?
[Back:] This was a hurricane. A hurricane is all about wind. And the damage to the Leonard's home started with the wind. And there isn't a homeowner in this country that would think that a hurricane policy wouldn't cover them in this scenario.
[Willis:] Now, what's interesting, of course, here, too, is that they had agreed to pay a hurricane deductible. So they thought, "Gosh, we're covered for this." Where is the disconnect, Gordon? Let's talk about this. Clearly, there is a flood insurance program that's offered by the federal government, but at some point, consumers expect their home insurance policy to step up and pay for some of the renovations. When does that happen?
[Stewart:] Well, it's very simple. Hurricane, if you look at the word, is wind damage. Over 90 percent of all of the claims of Katrina have been settled. About $60 billion, twice 9-11, has been paid. The wind damage is covered. Flood is not. And there's an enormous disservice that is done if people are led to believe that flood is covered.
[Willis:] We're trying to talk about a national catastrophic fund. Do you believe one is necessary?
[Bach:] Yes, we have to have one and everyone has to kick in so the risk is spread. There's no one in this country that's immune from some kind of natural disaster in this day and age. And the insurance industry just keeps on cutting holes in the policies and the problems are just going to keep getting worse. So we need a national backstop, yes.
[Stewart:] There are many insurers who are in favor of it. There are many who are not. Many people who live in places like Iowa aren't so enthusiastic about subsidizing 50 percent of the population that chooses to live in more problematic areas. This is a controversial subject. How much of building do you want to subsidize by spreading the risk across taxpayers everywhere, where people feel differently about it depending on where they live.
[Willis:] Amy, Gordon brings up a good point? Is that kind of a plan, is it fair?
[Bach:] People in Florida don't want to pay for hailstorms in North Dakota. I mean, that's what I'm saying. And there have been earthquakes in the Midwest. We're all in this together and if the private insurers are not stepping up to the plate, we need a solution. I mean, we...
[Stewart:] Many private insurers favor...
[Bach:] And Nationwide, by the way if I can just finish. Nationwide, the company that's in the suit with Mr. Leonard, has applied, got a 21 percent rate hike last year in Florida and now they applied for an increase of up to 99 percent. So they're trying to collect the money. If they're going to collect the money and not deliver, we need a federal backstop.
[Willis:] Gordon I'm going to give you a quick chance to reply and then we are going to have to leave this conversation.
[Stewart:] Many insurers favor a catastrophic fund. Many oppose it. That is an issue for the public to decide through its legislature. Do you want to spread this risk nationally or not? By the way, hailstorms don't really add up to the largest insured loss in history of over 60 billion. Buy flood insurance, please.
[Willis:] We're going to have to leave it there. We're going to have to leave it there. Gordon, from the Insurance Information Institute. Gordon Stewart, thanks for being with us.
[Stewart:] You're welcome.
[Willis:] Amy Bach, United Policyholders, thanks to you, as well. We'll be following this issue for, I am sure, months and months and months.
[Anand Naidoo, Cnn Correspondent:] Good morning, again, from the International News desk. We have a breaking development out of the Middle East. That crisis is escalating there. The Israeli defense force has confirmed it did attack a border crossing point on the Lebanese-Syrian border, that is, attacked the Lebanese side of that border crossing point on the Syrian-Lebanese border. The IDF, the Israeli defense force, says that the attack was targeted mainly at bridges and access routes and was conducted to prevent the smuggling of weapons and possibly the movement of the two abducted Israeli soldiers. Those soldiers were abducted by Hezbollah militants earlier this week. And they targeted this particular crossing point to prevent the soldiers being moved into Syria. This is what we're being told by the Israeli defense forces. CNN is being told that. So to confirm again that the Israeli rather, to tell you, again, that the Israeli defense forces have confirmed that it conducted an air attack on a target on the Lebanese side of the Syrian-Lebanese border. That's near the town of Masna. And there is also a Syrian army position which is close to that border point. So the crisis there is escalating. We'll bring you the latest developments on this as we get it here at CNN. Now, back to our program.