Filing insurance claims–the next New Orleans crisis?

The key insurance question looming in New Orleans may be whether flooding caused by the breach in the 17th Street Canal should be covered by flood insurance or homeowners insurance. Many people in New Orleans do not have flood insurance because they do not live in flood zones. However, when the levee broke, those people saw the water rise in their houses.

Louisiana legislators want homeowners insurance policies, which are tied to the valies of houses, to cover the damage caused by flooding from the breached levee. If homeowners insurance policies will not cover the damage, state lawmakers want the federal government to create a special fund to cover the difference. In the past, FEMA has not closed the gap if house owners were uninsured.

According to Former State Representative Chuck McMains Jr., who now represents the Property Casualty Insurers Association of America, the insurance industry wants to set up a mediation process that would deal with cases on an individual basis.

Then there is the matter of mold and mildew, which McCMains says also falls under flood insurance coverage.

The matter is expected to wind up in court.