BY KIMBERLEY A. STRASSEL
Friday, February 23, 2007 12:01 a.m. EST
One big question when Democrats took over Congress was which industry would be first to feel the new majority's populist rage. Oil? Pharma? Banks? Corporate America just got its answer, direct from the angriest man to have been empowered in the past election: Republican Sen. Trent Lott.
The Mississippian was "infuriated" by the insurance industry's refusal to shell out for certain Katrina claims, most notably his own. So Mr. Lott is spearheading a ferocious campaign of political revenge that would make even Henry Waxman envious--replete with investigations, voracious trial lawyers, ambitious state attorneys general and threats of punitive federal legislation. And like most personal grievances that get morphed into policy battles, it's ending badly for consumers.
Mr. Lott's beachfront property in Pascagoula--one of three homes he owned--was swept away entirely by Hurricane Katrina's waters. Like many Gulf Coast residents, Mr. Lott was soon reminded by his insurer, State Farm, that his policy only covered wind damage--not flood damage. The senator surely knew that, which is why he'd also purchased federal flood insurance. According to his flood policy that was in effect when Katrina hit, he was covered up to $350,000 in flood damages, and he presumably collected in full. (Sen. Lott's office didn't return my call.)
State Farm, however, refused to cough up, inspiring Mr. Lott to embark on a campaign ripped straight out of the Democratic playbook. First was to pay a call to the favorite mob squad of the left, the plaintiffs' bar. Quicker than you can say "tort reform," Dickie Scruggs, the legal kingpin who engineered Mississippi's tobacco shakedown, was representing Mr. Lott in a high-profile lawsuit against State Farm.
Mr. Lott probably didn't have to do much special pleading, since Mr. Scruggs is his brother-in-law, and had also suffered Katrina damage. Mr. Scruggs is also a pal of Mississippi Attorney General Jim Hood, who within a few weeks of Katrina had filed a lawsuit against insurers over their "unconscionable" decision to not pay for damage they didn't cover. By December of 2005, the Lott-Scruggs-Hood triangle was proving a gale force storm for insurers.
For his part, Mr. Lott has been busy cranking up the pressure in Washington. Not that he didn't give fair warning. In July of last year, he placed a call to Chuck Chamness, the CEO of the National Association of Mutual Insurance Companies, to let the industry know what was coming. Mr. Chamness later sent a letter to Mr. Lott, summing up the call. The key passage: "Your comment that you will dedicate your next term of office to 'bringing down State Farm and the industry' through all means available to you, including legislation designed to harm the property/casualty insurance industry, was very unsettling, to say the least."
Mr. Lott has proven as good as his word. Since Katrina, he's slipped legislation into a Homeland Security bill requiring the inspector general of that agency to investigate insurers. He's put forward a bill requiring insurers to "state clearly" on their policies' "front page" what they don't cover. He's dropped another bill that would compel insurers to release more information about vehicles damaged by Katrina. Word is he's even been looking into the industry's tax rates.
But his big bomb came last week, when he introduced legislation that would end the insurance industry's exemption from certain federal antitrust regulations. Mr. Lott suggests this is to keep big insurance players from conspiring to do evil things, though the reality is that the exemption mainly benefits small insurers who use it to pool statistically reliable data. So in his wrath, Mr. Lott may end up kneecapping many of the hundreds of small insurers who offer some real competition to the so-called conspiring giants.
Democrats have been only too happy to assist in this fight, given their own ambitions of turning the Katrina mess to their political advantage. Mr. Lott's been getting his biggest help from fellow Mississippian and Democrat Gene Taylor--who also has a beef with State Farm and was part of the Scruggs lawsuit. In January, Mr. Taylor asked Financial Services Committee chief Barney Frank for an investigation into insurers' Katrina practices. Mr. Frank was only too happy to take the first step and next week Mr. Taylor will be the star witness in a subcommittee hearing about insurers' decision not to pay claims. Next up: subpoenas.
(Congressman Taylor, in a conversation with me yesterday, said he thinks it is "extremely appropriate" that he is in this insurance fight because "what happened to my constituents, my neighbors and my friends also happened to me.")
Meanwhile, Attorney General Hood has deftly used Messrs. Lott's and Taylor's Washington moves as a prod for his own agenda. In a public statement in January he noted that if insurers didn't settle with him, and continued "with their 'robber baron' mentality, I think that Congressman Taylor and [Congressman Bennie] Thompson and Senator Lott will see to it that we have national insurance reform." How's that for a threat?
Within a few weeks State Farm had agreed to settle with the Attorney General Hood and to review 35,000 claims, as well as agreed to pay off all those in the Scruggs lawsuit, including Messrs. Lott and Taylor. Any bets on just how big a slice of his contingency fees Mr. Scruggs will now donate to the Democratic National Committee for next year's elections?
Lost among all the politicians' war-whooping over the State Farm capitulation, is the effect this extortion has had on the private insurance industry. In recent weeks companies from State Farm to AllState have stopped writing policies in parts of Mississippi, which will result in consumers having fewer insurance choices, if they can find insurance at all.
Ah, but never fear: Washington has a solution for that, too. In the face of insurers exiting his state (in no small part because of the actions of politicians), Mr. Taylor earlier this month introduced yet another piece of insurance legislation. This one would expand the national flood insurance program to cover other hurricane-related damage. In other words, the Mississippian wants to create a new federal disaster insurance program that will put taxpayers--rather than private insurers--on the hook next time a storm hits. Revenge is a scary thing.
Ms. Strassel is a member of The Wall Street Journal's editorial board, based in Washington. Her column appears Fridays.
