One of the true pleasures of reporting on the insurance industry’s response, or non-response, to Hurricane Katrina was meeting, and reading the reporting of, the principal Gulf-area papers’ reporters on the insurance angle, Rebecca Mowbray of the Times-Picayune and Anita Lee of the SunHerald of Gulfport and Biloxi, Miss.

It is heartwarming to see them still on the case, four years later. It is heartbreaking to read what they are reporting.

Mowbray: “Report dubs FEMA poor watchdog”

That one, from September 22, is about how the government fails to supervise the private insurers who administer the federal flood program under a “private-public partnership” (always a good idea to check your wallet when you read those words):

The GAO report says that one-third to two-thirds of all flood premiums collected each year go to the private insurance companies administering the program, depending on the number of claims each year.

That’s for expenses, people. Insurers under this program bear no risk. What financial product comes with a 66% load?

The story says the government also does a poor job of preventing insurers from assigning damage that was actually caused by wind, which insurers must pay, to flood, which is paid by, guess who? And you wonder why the government doesn’t work.

Oh, don’t get me started. But do read this fascinating 2007 Mowbray story on how Allstate spent government money like it was going out of style, but when its own money was involved, treated nickels like manhole covers. And this was in the same house.

And here’s one from Lee yesterday: “Wind Coverage Counts”

This one reports on a landmark ruling by the Mississippi Supreme Court, which, after four years of litigation, finally ruled that wind policies cover damage caused by, um, wind.

I’ll explain. When Katrina hit in the predawn hours of August 29, 2005, wind howled for hours, doing untold damage, and then, around mid-morning, the massive wind pressure that defines a hurricane displaced the Gulf water up onto shore and over what was left of the houses. This was called a storm surge.

These facts are not seriously in dispute. So who pays? Well, logically, you might split the difference because, really, who know what caused what damage?

But no. You see, state insurance regulators, in their captivity, allowed insurers to include something in homeowners’ policies called the “anti-concurrent causation clause”—swear to God—that said in, effect, that if an uncovered cause (water) also does damage, even hours or days later, then the insurer is not responsible for any of it. Say, as happened in many cases, the wind blew those houses away, leaving only a slab, and the water washed over the slab, insurers could and did claim that water contributed. Claim denied. Don’t believe me? Here’s the language in the policy, from the Mississippi ruling (my emphasis):

We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.

In insurance law, ties are supposed to go to policyholder, because, among other reasons, they don’t write the contract and must accept whatever language the insurer provides. And a federal judge in Gulfport, L.T. Senter, ruled the language “ambiguous,” and threw out the clause in a clear rebuke to the regulators who allowed it. But the conservative-dominated Fifth Circuit Federal Court of Appeals in 2007 overturned Senter and upheld the contract. The tie in that case went to the insurers. And as Countrywide and The Wall Street Journal editorial page will surely tell you, a contract is a contract.

The trouble is, insurance law is different precisely because of the asymmetry of power and information inherent in insurance contracts. Insurers already have the money. Policyholders’ only serious recourse is the courts.

The latest ruling deals with a separate case brought in state court, which had sought a guidance from the high court on the policy language before proceeding with the trial.

The Mississippi high court opinion is well worth reading and found in a link to Lee’s story. It makes the commonsense point that:

No reasonable person can seriously dispute that if a loss occurs, caused by either a covered peril (wind) or an excluded peril (water), that particular loss is not changed by any subsequent cause or event.

Once it’s a loss, it’s not undone by something else.

All this pettifogging may seem obscure, but that’s kind of the point. These are details you only care about if you are fighting for your house.

There’s much more. Lee’s story lays out the reactions and details, including a key one—that the Mississippi ruling trumps the federal appeals court since insurance contracts are governed by state law—and notes the Pyrrhic nature of the victory for those who settled based on the federal court ruling.

The Times-Pic and SunHerald’s Katrina reporting demonstrates the critical importance of independent local news coverage. The Audit thanks them for staying on this story.

Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014).

Follow Dean on Twitter: @deanstarkman.