Katrina Update

Disaster Profiteering on the American Gulf Coast

 

August 17th, 2006

http://www.corpwatch.org/article.php?id=14023

Disaster profiteers make millions while local companies and laborers in New Orleans and the rest of the Katrina-devastated Gulf Coast region are systematically getting the short end of the stick, according to a major new report from the nonprofit CorpWatch.

A CorpWatch analysis of FEMA's records shows that "fully 90 percent of the first wave of (the post-Katrina reconstruction) contracts awarded - including some of the biggest no-bid contracts to date -- went to companies from outside the three worst-affected states.  As of July 2006, after months of controversy and Congressional hearings, companies from Louisiana, Mississippi and Alabama had increased their share of the total contracts to a combined 16.6 percent."  The CorpWatch analysis shows that more federal reconstruction contracts have gone to Virginia and Indiana - usually large, politically connected corporations -- than to any of the three Katrina-devastated states.

The CorpWatch report also exposes abusive "contracting charge pyramids" where the companies doing the actual reconstruction work often get only a tiny (and insufficient) fraction of the taxpayer money awarded for projects and widespread non-payment of local companies and laborers, including what has been alleged to be the deliberate and systematic exploitation of immigrant workers, including undocumented individuals.

“One year after disaster struck, the slow-motion rebuilding of the Gulf Coast region looks identical to what has happened to date in Afghanistan and Iraq. We see a pattern of profiteering, waste and failure - due to the same flawed contracting system and even many of the same players" says CorpWatch Director Pratap Chatterjee. "The process of getting Katrina-stricken areas back on their feet is needlessly behind schedule, in part, due to the shunning of local business people in favor of politically connected corporations from elsewhere in the U.S. that have used their clout to win lucrative no-bid contracts with little or no accountability and who have done little or no work while ripping off the taxpayer."

“Big, Easy Money” report author Rita J. King said:  "The devastation of the Gulf Coast is tragic enough, but the scope of the corporate greed that followed, facilitated by government incompetence and complicity, is downright criminal. Sadly, disaster profiteering has become commonplace in America. Well connected corporations are growing rich off of no-bid contracts while the sub-contractors - the people who actually perform the work - often do so for peanuts, if they get paid at all."

Click here to read the report (text version), to see key findings, or to download it as a PDF (1.75 MB).
 
For more information, call Patrick Mitchell at the Hastings Group, +1 703 276 3266 or pmitchell[at]hastingsgroup.com

Pratap Chatterjee, +1 510 759 8970 (mobile phone) or +1 510 271 8080. Email: pratap[at]corpwatch.org

Listen to audio of the August 18th press conference, with Pratap Chatterjee, Rita J. King, and Brooke Biggs. 

For community organizers and experts in the field, please see http://www.katrinaaction.org/experts

ABOUT CORPWATCH

This is the third in a series of CorpWatch reports on major reconstruction projects done in the last five years covering Afghanistan, Iraq and now the Gulf Coast of the United States.  CorpWatch Director Pratap Chatterjee authored “Iraq, Inc.,” the first book look at the U.S. occupation after the initial 12-month period. CorpWatch's Afghanistan report titled "Afghanistan, Inc." was released in May 2005.

To learn more: Iraq, Inc. http://www.corpwatch.org/article.php?id=11583
Afghanistan, Inc. http://www.corpwatch.org/article.php?id=13518


CorpWatch investigates and exposes corporate violations of human rights, environmental crimes, fraud and corruption around the world. We work to foster democratic control over multinational corporations by undertaking original cutting-edge research and reporting on companies' behavior and impacts in the United States and across the globe. We complement this investigative journalism with public education, network-building, and media activism, working in strategic coalitions to support campaigns that promote peace and sustainability by making the public and policy makers aware of the need for stronger corporate regulation and monitoring, and to catalyze efforts to tackle offenders.

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Energy customers won't be getting relief

Pam Radtke Russell, New Orleans Times-Picayune

August 23, 2006

Entergy New Orleans customers are paying nearly a third more for their power bills than they were last year, and a further proposed rate increase could mean bills will be 50 percent higher than before Hurricane Katrina .

"It's unbelievable, just unbelievable," said Lena Stewart, who moved back into her 1,800-square-foot eastern New Orleans home on June 17 and got a bill for $182 for running only her air conditioner at 79 degrees, her 19-inch television and her gas water heater. "I don't have any problems paying it, thank the good Lord, but just think of all the other poor people who can't."

Over the first seven months of 2006 compared with the same months in 2005, the average electric bill statewide for all utilities has increased 9 percent. At Entergy New Orleans' sister company, Entergy Louisiana, rates dropped more than 3 percent.

And because of a change next month in the way the city will pay for its share of nuclear power from Grand Gulf 1, Entergy New Orleans customers won't be getting any rate relief for at least four months.

In September, Entergy will alter its so-called fuel adjustment charge -- which reflects the cost of procuring natural gas, coal and other fuel -- by including not only the cost of nuclear fuel for Grand Gulf, but New Orleans' entire $7.5 million monthly cost to operate and maintain the plant. Customers, however, won't see bills change much from August to September because the total cost to run the plant, in addition to the rest of the fuel adjustment charge, will keep bills relatively stable.

Entergy justifies the changes that will go into effect in September by saying that customers are already used to higher bills that have increased since last year, even before Katrina.

"The fuel adjustment is going to be roughly what it was before because we had been experiencing historically high gas prices. So when we place that (Grand Gulf) back into the fuel adjustment, you're not going to see a dramatic change," said Phillip May, vice president for regulatory services for Entergy Corp.

Advisers to the New Orleans' City Council say that bills could have been much higher and the change will save customers $27 million over the next few months. And both the advisers and Entergy say the change is necessary to help keep bankrupt Entergy New Orleans afloat.

But one critic of Entergy says that rather than increasing the fuel adjustment, Entergy should have just asked for an overall rate increase to make the whole process more transparent.

"It's a ruse. If you need a rate increase, ask for a rate increase. Don't tell the ratepayers you're saving them money by selling them something you already own," said Mike Fontham, a utilities attorney who often works with the Louisiana Public Service Commission, often against Entergy.

Entergy Louisiana, Entergy Gulf States and CLECO requested and received temporary, emergency rate increases earlier this year from the Louisiana Public Service Commission to help deal with costs related to Hurricane Katrina .

Painful adjustments

Unlike the energy charge, or base rate, on a customer's bills, which changes only about once a year and is currently about $51 for 1,000 kilowatt hours, the fuel adjustment is changed each month.

The fuel adjustment increased 86 percent over the first seven months of the year, meaning fuel adjustment, which was on average $27 for a 1,000 kilowatt hours last year, is now an average of $52.

Calvin and Frances Fayard, who own a 15,000-square-foot Uptown home, saw their power bills shoot up from $1,282 in May to $2,538 in July, largely because of the rising fuel adjustment.

"It's exponential," Frances Fayard said. "It's hot here in May and it's hot here in July, how can it have gone up so much?"

Much of the increase is because of higher natural gas prices after Hurricane Katrina , and rising prices on coal even before Katrina last year.

"There are some things we can control and some things we can't," Councilwoman Shelley Midura said.

Other power companies experienced similar increases because of rising fuel prices. CLECO's bills have increased 23 percent over the past year, largely because of fuel adjustment charges because of higher natural gas prices.

Entergy Louisiana's bills, however, have dropped about 3 percent from last year, primarily because downtime at Waterford III caused the company to turn to higher priced natural gas for part of the year last year, said Mike Twomey, vice president of regulatory affairs for Entergy Louisiana.

Types of electricity

But the other large factor that can alter the price of the fuel adjustment is the kind of electricity available to a company.

Before Hurricane Katrina , much of Entergy New Orleans' power came from Grand Gulf. Most of the cost, $90 million a year, of paying to operate 17 percent of Grand Gulf was paid for through the base rates.

Entergy New Orleans, with the permission of the New Orleans City Council, however, stopped using that power after Hurricane Katrina because there was no need for it, and because there was no way to pay for it. Instead, the City Council allowed Entergy New Orleans to sell the low-cost, desirable nuclear power to other companies to get some cash to help restore the system, and to help the company, which had just declared bankruptcy, stay afloat.

"It was the only thing that we could make liquid and has a market value," said Tracie Boutte, vice president of regulatory affairs for Entergy New Orleans. "We didn't have the load to support it and we didn't have the revenue to pay for it."

As residents returned to the city and more people needed power, Entergy New Orleans turned to more expensive sources of electricity to fill the gap left by Grand Gulf, including the company's own Michoud Power Plant, the company's most expensive source of power. But the ratepayers who remained in the city were still paying base rates that were originally calculated to pay for the $90 million it cost to operate Grand Gulf.

Meanwhile, Entergy New Orleans made more than $57 million from selling the power, money it says was used to help restore power to the city and to help shore up the company, which declared Chapter 11 bankruptcy just weeks after Hurricane Katrina .

If Entergy New Orleans had not sold that power off when it wasn't needed in New Orleans, the results would have been disastrous, said Paul Nordstrom, a City Council utilities adviser with the law firm Sullivan & Worcester.

"Those sales have been instrumental to keeping Entergy New Orleans out of Chapter 7" liquidation bankruptcy, Nordstrom said.

The money that was used to pay down Entergy's debt and restore the system also will help lower customer's bills in the long run, Midura said.

Even Karen Wimpelberg, board president of the Alliance for Affordable Energy and a regular critic of Entergy, doesn't question the decision to sell off Grand Gulf power after the storm.

"No, they really needed to do something to get cash, and it's kept them in cash," she said. "I don't fault them for that."

The fuel adjustment price reached a critical juncture in May, when Entergy New Orleans, because of its bankruptcy status, lost two low-cost fuel contracts and had no way of replacing that power at a reasonable rate because companies didn't want to do business with the bankrupt company. That meant that Entergy New Orleans had two options: ask ratepayers to pay even more for fuel, or bring Grand Gulf back into the fuel mix.

But there was a glitch. Some of Entergy New Orleans' creditors wanted the company to continue to sell Grand Gulf power to bring in money to the company, May said.

And because there were fewer customers in the city, the revenue collected from the base rates wasn't covering the costs associated with Grand Gulf.

If Grand Gulf power were brought back to New Orleans, cutting off the money it was making by selling the nuclear power to other companies, Entergy New Orleans would slide deeper into debt, Boutte said.

So in June, Entergy New Orleans asked the City Council to bring back Grand Gulf and to pay for the $7.5 million a month needed to operate the plant with a charge on the fuel adjustment.

 

The council's Utilities Committee, in its first meeting since new council members were sworn in, followed the recommendation of its energy advisers and agreed to the expedited Entergy request to bring back Grand Gulf and use the fuel adjustment clause to pay for its share of Grand Gulf.

Starting in September, the costs for running the Grand Gulf plant will be absorbed into the fuel adjustment, roughly an additional 2 cents per kilowatt hour, May said. The total fuel charge will be just under 6 cents a kilowatt hour, roughly what it's been for the past several months.

But had New Orleans brought back Grand Gulf without tacking the costs onto the fuel adjustment, customers' rates would be 2 cents lower per kilowatt hour, or roughly what they were last year before Hurricane Katrina .

"It would be way lower," Fontham says of the bills.

That is strictly a mathematical argument, however, May said. "Had we brought that (Grand Gulf) back and not had a means for recovering costs associated with it, this company would have gotten into some serious financial difficulties," he said.

But Wimpelberg said there could have been other options. The council shouldn't have been rushed to a decision so quickly in June.

She asked the council to postpone its decision by a week, to talk to other energy providers to see if a better rate could be negotiated.

"One week is all I asked for, just one week. We could have talked to suppliers," she said.

Had they turned the city down in its time of need, Wimpelberg said, "We could have made the suppliers look terrible."

While the advisers stand firm in their recommendation to bring back Grand Gulf, Nordstrom said he can't address whether Entergy brought back Grand Gulf in time to help ratepayers.

"There's a tipping point," he said. "I don't know that I've ever seen a precise analysis of when Grand Gulf should have been brought back."

Request to raise rates

The higher fuel adjustments, in part because of Grand Gulf, will be firmly in place when Entergy New Orleans makes its case for increased rates to the City Council later this year.

The council's action "caused fuel to go up, and it will stay up with Grand Gulf," Fontham said.

Entergy New Orleans says it prefers to keep the Grand Gulf charges in the fuel adjustment, rather than put it in the base rates.

Whether Grand Gulf is put in the base rates or the fuel adjustment, the impact will be essentially the same for customers, May said.

However, if it is in the fuel adjustment, if more people return to the city, the cost will be spread out among more customers more quickly, May said. If it is in the base rates, those rates would remain stagnant for at least a year.

The company is asking for an increase of about $3 on base electric rates in each customer's monthly bill, and for an additional $9 per month for storm recovery costs and a storm reserve fund. While that amount would be just a fraction above what bills have been for the past several months, it would be an increase of 50 percent over last June's bills, when a customer using 1,000 kilowatt hours was paying $85.10 a month.

 

But that too is purely a mathematical argument. The council has until February to finalize any rate increase with Entergy, and Clint Vince, an adviser to the council Utilities Committee with Sullivan & Worcester, said that he hasn't heard any council member who is willing at this point to give the company an increase.

"The council members want to see the evidence and I haven't heard anyone say that they are in favor of a rate increase at this point," Vince said. "I don't think that level of increase (50 percent) is sustainable for ratepayers."

Low-income customers who are having trouble paying their bills can contact Total Community Action at (504) 827-2200. Seniors can contact the New Orleans Council on Aging at (504) 821-4121.

After Hurricane Katrina , Entergy New Orleans stopped turning off customers for nonpayment. That policy is still in effect, a company spokesman said.

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Katrina Costs Continue to Swell

by Richard Wolf, USA Today
August 22nd, 2006

The fiscal impact of Hurricane Katrina , the most costly natural disaster in U.S. history, shows no sign of ending.

Congress has already approved $122 billion in spending, and is now paving the way for Gulf Coast states to get billions more. As much as $20 billion for coastal restoration could come from offshore-drilling royalties in the next few decades. Louisiana has been seeking $14 billion for that purpose.

The Bush administration may need $2 billion more for public projects such as roads, schools and utilities. It awaits a study next year that could recommend even stronger levees in New Orleans than are now being built.

President Bush said Monday the government has made "a strong commitment" but added, "There is more work to be done, particularly when it comes to housing." That money has been appropriated, but much of it remains to be spent.

Most of the federal money has gone to compensate victims, clear debris, house evacuees and make repairs to New Orleans' levees. Local officials say the region's coast and infrastructure will require tens of billions more in years to come.

"Louisiana will not be made whole by what Congress has appropriated thus far," says Andy Kopplin, executive director of the Louisiana Recovery Authority. Sen. Mary Landrieu, D-La., says the Gulf Coast could need "a few billion dollars a year" in additional funds.

That appetite for federal funds could clash with lawmakers' wallets. Congress has approved $87 billion in cash, nearly $20 billion in flood-insurance payouts and billions in tax breaks for victims. As much as $1.4 billion was misspent because the Federal Emergency Management Agency lacked safeguards, according to the Government Accountability Office.

The White House is scrutinizing how federal aid is spent. "Should there be more requests, our job is to be sure it's based upon good data," says Donald Powell, federal coordinator of Gulf Coast rebuilding.

Some in Congress say enough is enough. "Not another dime should go," says Colorado Rep. Tom Tancredo, one of 11 Republicans who opposed the largest spending bill last year. Others want offsets in the budget. "Maybe we should stop funding Radio Free Europe," says Rep. Jeb Hensarling, R-Texas.

The flow of money has some worried about precedents. Sen. Judd Gregg, R-N.H., budget committee chairman, says when floods struck his state in May, "people were wondering why they didn't get the same amount as Katrina" victims did.

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70 percent of Katrina contracts awarded without full bidding

Associated press
August 24th, 2006

A U.S. House study has found that the government awarded 70 percent of its contracts for Hurricane Katrina work without full competition, wasting hundreds of millions of taxpayer dollars in the process.

The report, released today by House Democrats, is a comprehensive overview of government audits on Katrina contracting. It found that out of ten point six (b) billion dollars in contracts awarded after the storm last year, more than seven point four (b) billion were handed out with limited or no competitive bidding.

The report also cited numerous instances of double-billing by contractors and cases of trailers meant as emergency housing sitting empty in Arkansas.

Aaron Walker is a national spokesman for the Homeland Security Department's Federal Emergency Management Agency, which is the primary agency for awarding hurricane contracts. Walker says FEMA was already working to improve its contracting process based on "previously issued, non-politicized, reports."

In their report, Democrats acknowledged that some no-bid contracts were necessary to provide quick aid in the immediate aftermath of the storm. But they noted that while 51 percent of Katrina contracts awarded in September were limited or no-bid, that percentage increased to 93 percent in October.

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Katrina Aid Far From Flowing

A year after the hurricane, some federal agencies are dispensing available funds at a trickle: $110 billion has been approved, $44 billion spent.

Ann M. Simmons, Richard Fausset and Stephen Braun

 

Los Angeles Times

August 27, 2006

NEW ORLEANS — From the ghostly streets of New Orleans' abandoned neighborhoods to Mississippi's downtrodden coastline, the first anniversary of Hurricane Katrina's onslaught is arriving with emerging signs of federal money at work — rented trailers parked in the driveways of flood-ravaged homesteads, teams of Army engineers overseeing levee repairs, beaches swept clean of debris.

But the federal government has spent less than half the rebuilding funds that it amassed for Katrina recovery, which has raised sharp questions about the Bush administration's stewardship of the Gulf Coast's reconstruction and has provoked a chorus of complaints about excessive delays and government sluggishness.

Despite four emergency spending bills approved by Congress to provide more than $110 billion in aid, federal agencies have spent only $44 billion. Even as President Bush insisted last week and in his radio address Saturday that $110 billion was a strong commitment, he conceded that the recovery effort was plagued with bureaucratic hurdles.

The scale of the catastrophe continues to overwhelm the government's capacity to respond. Aid agencies are only now contending with the long-term needs of hundreds of thousands of evacuees and with the landscape of shattered houses and public infrastructure that will take years to restore.

Many homeowners and business owners have waited impatiently for promised grants and loans as federal and state officials have spent months dickering over how much and where to spend aid — and officials remain at odds over who bears the blame for the inconsistent flow of Katrina aid.

Last week, federal recovery director Donald E. Powell attributed the pace of aid payments to the "balance in attention between getting the money out fast and getting the money out responsibly fast."

But after a year of fielding constituents' pleas for help, Sen. Mary L. Landrieu (D-La.) said, "We're seeing the same thing going on with the recovery as we did with the immediate response. We're going through another unfolding disaster."

In the Democratic response to Bush's radio address Saturday, Landrieu said, "Too often federal agencies are slow to move and encumbered by red tape."

Some federal agencies acted quickly to help Katrina victims. Flood insurance payments moved early and efficiently, according to Landrieu and others who have analyzed the aid flow. But other agencies proved inflexible and overwhelmed, making little effort to clear bureaucratic obstructions and releasing available aid at a trickle.

In July, Congress' nonpartisan Government Accountability Office reported that disbursement of Small Business Administration recovery loans was marred by "significant delays." A report last week from Democrats on the House Small Business Committee said that of $10 billion approved for such loans, just 20% had reached recipients. And the Federal Emergency Management Agency, the administration's top recovery authority, already attacked for its response to the storm, has again taken heat.

Until last week, when the White House Office of Management and Budget released an agencywide breakdown of recovery spending, the administration had not provided a clear overview of how the money was being doled out. For much of the year, elected officials, government auditors and outside experts had to rely on fragmentary indicators of the pace of recovery spending, which handicapped efforts to monitor the process.

"It's not only that we don't know what's been spent. We haven't even had an accurate description of what 'spent' means," said Rob Nabors, Democratic staff director for the House Appropriations Committee. "They talk about 'commitments' and 'obligations' — they've invented new terms for not spending money."

Brian M. Riedl, a budget analyst with the conservative Heritage Foundation, said: "The government is barely adequate at counting how much money goes out the door, but it's terrible when it comes to tracking how much reaches the ground."

The telltale effects of the unspent billions emerge in the bitter accounts of homeowners who have waited for months for trailers that have not arrived, merchants who agonize over government loans still pending, town officials frustrated by rebuilding efforts stalled by the vagaries of federal regulations.

The toll taken by the government's slow-motion funding reveals itself in miniature on Flood Street, an aptly named stretch of flood-scarred dwellings in New Orleans' devastated Lower 9th Ward where the Kent brothers are trying to resettle their family home.

Lonnie Kent applied to FEMA six months ago for a trailer where he and his brother Clark Gable Kent could live while repairing their mother's mold-infested house, the only one on the block someone has returned to. Only last month did a FEMA agent show up to survey where the trailer would go. But the agent departed without making a commitment, leaving the brothers to wait it out in a house where sheetrock walls are exposed and the roof leaks.

"They said they couldn't hook up the trailer because an electrical line was [hanging] too low," said Lonnie Kent. "But ain't no trailer that high."

FEMA officials said more than 19,000 trailers had been delivered to displaced homeowners in New Orleans. But many others are still waiting, including 4,200 in New Orleans and nearly 4,000 in neighboring parishes.

The anxiety of waiting afflicts the city's affluent as well. Colleen Monaghan, 44, lived in the once-thriving neighborhood of Lakeview, where blocks of water-damaged homes sit vacant and exposed. The wall of floodwater that broke over poorly built levees caused $470,000 in damage to her home.With only $26,000 in insurance coverage, Monaghan turned to the Small Business Administration, which provides loans to homes and businesses damaged in natural disasters. She said she applied for a loan to rebuild her house a month after Katrina struck. In November, the agency informed her she would receive a $200,000 loan. But it was not until Wednesday that Monaghan received the money.

"It's been an ongoing nightmare for the one whole year," said Monaghan. "I feel I'm finally beginning to see the light. I'm proud to be an American, but I've lost all confidence in our government."

Bush administration officials emphasized that the $44 billion paid out so far was not a complete portrait of government efforts. Powell and other senior officials pointed to more than $77 billion in Katrina "obligations" — a term the administration uses for federal money that has been allocated but not yet disbursed to state governments or through direct loans and grants.

Assessing the government's recovery efforts depends on how success or failure is defined. Federal officials, for example, promote FEMA's commitment to spend $35.4 billion out of its Disaster Relief Fund for essential public infrastructure repair and emergency aid, but critics say the agency has managed to actually spend only $21.9 billion of its $42.6 billion allocation.

At times, FEMA's slowness to provide funds has paralyzed state agencies required under federal law to match 10% of the cost of repair work, said Amy Liu, deputy director of the Metropolitan Policy Program at the nonpartisan Brookings Institution think tank. Local governments confronting damaged roads and buildings have sometimes waited months for funding, Liu said.

"FEMA provided the most cumbersome, reflexively slow response we've ever seen when it comes to disaster assistance," said Liu, a former Clinton administration official who studied the allocations for a recent Brookings assessment of Katrina aid.

When the Office of Management and Budget released its spending overview last week, the numbers did little to dampen criticism. The figures showed, for example, that the Department of Housing and Urban Development had committed $11.5 billion in block grants, mostly through housing reconstruction programs administered by Louisiana and Mississippi. But the same breakdown showed that HUD had spent only $100 million of its overall $17.1 billion congressional allocation.

The failure to start a full-scale housing reconstruction program until nearly a year after Katrina, critics contend, left thousands of storm and flood victims in the lurch.

A senior Senate Republican aide said the Bush administration was largely to blame for the late start. The administration's first request for Katrina aid, in October 2005, included only $1.5 billion in HUD block grants. "It was a token," said the aide, who spoke on condition of anonymity. "By the time we got real money in the pipeline, six months had passed."

Louisiana's $10.2 billion in federal housing obligations were not secured until June 15, after a rancorous debate between state and federal officials over how housing money would be administered. More than 100,000 homeowners have since applied for HUD-originated grants under Louisiana's Road Home program, which is to provide up to 60% of a home's pre-storm value (capped at $150,000).

The first money to reach homeowners under that program arrived Friday . Gov. Kathleen Babineaux Blanco announced that 42 homeowners were expected to get $1.5 million in aid "in the next few weeks."

In neighboring Mississippi, displaced Gulf Coast homeowners are frustrated by the late start of a $5 billion federal block-grant program that is the cornerstone of the state's recovery plan. About 17,000 Mississippi households have applied for grants of up to $150,000 to repair their homes. But the state has sent out only about two dozen checks so far, said Scott Hamilton, a spokesman for the Mississippi Development Authority.

Some say Gov. Haley Barbour — a Republican stalwart and Bush ally who designed the rebuilding plan — could not move any more quickly. "I haven't seen any of the money here yet, but I feel like Gov. Barbour attacked it in totally the correct way," said Mayor Billy Skellie of Long Beach, a coastal Mississippi city of 18,000 that saw a third of its 6,000 properties destroyed or damaged in the storm.

But others say that both the federal and state governments paid scant attention to Katrina's most vulnerable victims. They say the governor unwisely earmarked much of the HUD money for one group of homeowners — those who lived outside the flood zone and had homeowners' insurance — while neglecting owners inside the flood zone, renters and the poor.

"The people who need it the most are not getting the assistance they deserve," said Minor Sinclair, U.S. regional grant-making director for Oxfam America, a nonprofit aid group.

The inequities in the flow of federal funding sometimes show up in the contrasting experiences of Katrina victims living just a few miles apart.

Near the Biloxi shoreline last week, Katherine and Walter Blessey had a work crew hammering away on their badly damaged home, which took 6 feet of water and is still missing large sections of its floor.

The Blesseys' estimated damage was $650,000. But they have already received the maximum of $350,000 allowed under the federal National Flood Insurance Program, which indemnifies homeowners in high-risk flood areas.

Though FEMA is savaged for its performance in other areas, its flood insurance program is credited with dispensing money rapidly. Congress allowed FEMA to borrow $19 billion to cover Katrina-related claims, and the program has already paid out about $15.6 billion for more than 210,000 claims, said FEMA spokesman Butch Kinerney.

Walter Blessey, an attorney, was annoyed that the government wouldn't allow him to take out more flood insurance. But the payout, which came in two phases in December and February, was enough for them to start rebuilding. "We were really grateful," Katherine Blessey said.

A few miles down the coast in east Gulfport, ferry operator Louis Skrmetta has not been so lucky. His sturdy brick home, situated 800 feet from the shore, is still inundated and needs major repairs.

Because Skrmetta lives outside the flood zone drawn up by FEMA, he only purchased regular homeowners insurance, assuming that there was no need to take out FEMA's national flood policy. After Katrina, having received only minimal coverage from his private insurer, Skrmetta turned early to the HUD block grant money for help.

He applied in April, but he has yet to hear if he has qualified. He and his wife have done fitful work on the house, raising extra money by selling a 1970 Corvette he had parked in the garage.

Tourism is way down these days, and his ferry business to nearby Ship Island has been suffering. Skrmetta says they'll have to stop renovations until more money comes in.

"We are the poster child for the grant," he said. "But now our government is being mysterious about the grant money."

Simmons reported from New Orleans, Fausset from Biloxi and Gulfport, Miss., and Braun from Washington. Times researcher John Beckham in Chicago contributed to this report.

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Law Suits Against State Farm Related to Hurricane Katrina

Gulf Coast Homeowners File Class Action against State Farm

January 9, 2006

http://www.consumeraffairs.com/news04/2006/01/katrina_statefarm.html

A Biloxi attorney and homeowners along the Gulf Coast area have filed a class action law suit against State Farm Insurance Company, alleging the company has refused to pay for hurricane damage to their homes, even though the plaintiffs purchased "all perils" homeowner insurance.

Attorney Richard T. Phillips of Batesville filed the class-action lawsuit Wednesday in U.S. District Court in Gulfport on behalf of attorney Judy Guice and homeowners in the area.

The lawsuit contends that State Farm is obligated to fully cover the losses of everyone named in the suit who purchased the all perils policy. State Farm denied coverage under Guice's homeowner's policy, citing an exclusion for water damage that includes tidal surge.

But Guise argues that the policy is worded so that all damage is covered unless it would have occurred "only" as a result of the tidal surge. Wind damage is a covered peril and since it contributed to the damage of the home it should be covered, the suit alleges.

It's not the only suit State Farm faces as a result of Hurricane Katrina. Sen. Trent Lott(http://www.consumeraffairs.com//news04/2005/katrina_lott.html) (R-Miss.) is also among homeowners suing the company. The law office of Lott's brother-in-law, high-profile plaintiff's attorney Richard "Dickie" Scruggs, filed the federal lawsuit on Lott's behalf.

Lott and Scruggs both lost their beachfront Pascagoula homes to the Aug. 29 storm.

The argument in both cases is whether a wind-driven storm surge is the same as flooding. Insurers say they shouldn't have to pay for water damage for those who did not have flood policies. The homeowners say wind-driven water is a secondary consequence of wind, which is covered in homeowners' policies.

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Another Katrina Suit Filed Against State Farm by Mississippi Insured

By Anita Lee
August 14, 2006

Judy Dutruch has long questioned why her insurance company refused to send an engineer to investigate Hurricane Katrina's destruction of her Diamondhead home on Aug. 29, 2005, before denying her claim.

Batesville attorney Richard "Flip'' Phillips, who seeks to represent a class of State Farm Mutual Insurance Co. policyholders like Dutruch, thinks he has the answer.

Phillips has uncovered a Sept. 13, 2005, memo authored at State Farm's Bloomington, Ill., headquarters and sent to employees handling Katrina claims in Mississippi, Louisiana and Alabama. The subject: "Wind/Water Claim Handling Protocol.''

The memo says policyholders have no coverage unless wind damage is separate from damage caused by storm surge, which the homeowner policy excludes from coverage.

Phillips is trying to get the lawsuit, filed on behalf of State Farm policyholder Judy Guice of Ocean Springs, certified as a class-action case.

In documents filed last Wednesday in U.S. District Court, he says this would allow a federal judge to decide, on behalf of thousands of "all-risk'' homeowner policyholders, that State Farm must pay claims in full when wind and water damage can't be separated.

Richard "Dickie'' Scruggs, a high-profile attorney whose firm represents about 3,000 Gulf Coast policyholders, has already filed separate lawsuits against Nationwide and State Farm on behalf of hundreds of policyholders for each company.

State Farm maintains it has treated customers fairly. The company has investigated each homeowner claim individually and is paying what is owed under its policies, the company has said repeatedly. The company maintains it should not be expected to pay for damage no premiums were collected to cover.

The Guice lawsuit seeks to represent those policyholders with "slab'' or "foundation only'' claims in Harrison, Hancock and Jackson counties. It further seeks to represent homeowners in cases in which a State Farm adjuster requested an engineering report that the company subsequently canceled.

Those claims, the lawsuit says, should be paid in full. Such was the case with Guice's claim. State Farm concluded wind and a 19-foot storm surge destroyed the property, leaving only pilings. The State Farm adjuster on Guice's flood policy, Joe Caruso, was unable to distinguish wind from flood damage and requested an engineering report Oct. 1 on a company form.

Guice, herself an attorney, was assured Oct. 22 by another State Farm representative that an engineer would inspect the property, according to company records subpoenaed in the case.

Caruso wrote a memo Oct. 27 saying Guice's living expenses under the State Farm homeowner policy would be cut off and no engineer would be sent to the site.

Her flood policy, also issued by State Farm, was paid in full through the National Flood Insurance Program, but covered only a portion of her losses.

Phillips asked a State Farm claims manager in sworn testimony what prompted the change.

The manager, Terry Blalock said: "Well, as time progressed and the storm information from what happened in the storm became more available and more apparent as to what caused the damage, there were some cases that we noted that we no longer needed to hire an engineer in order to determine what caused the damage on those locations.''

Blalock also said, "This claim, Judy Guice's claim, was handled in accordance with the wind/water protocol.''

If Phillips is successful in having Guice's case certified as a class-action case, any ruling in her favor could benefit Dutruch and other State Farm customers, even if they decide against filing lawsuits themselves.

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First trial of insurance lawsuit set to open

Michael Kunzelman, Associated Press
July 10th, 2006

http://www.corpwatch.org/article.php?id=13866

A trial set to open here Monday is expected to be the first legal test of the wind-versus-water debate that has pitted thousands of Gulf Coast policyholders against their insurance companies since Hurricane Katrina .

The lawsuit, filed on behalf of a Pascagoula police officer against Nationwide Mutual Insurance Co. after the insurer refused to cover damage to his home, will be heard by a federal judge, not a jury.

The case is believed to be the first Katrina-related insurance suit to be tried since the storm roared ashore Aug. 29 and destroyed or damaged tens of thousands of Gulf Coast homes.

Police Lt. Paul Leonard and his wife, Julie, claim Nationwide denied their claim without thoroughly investigating whether Katrina's wind or "storm surge" was responsible for the damage to their house, which is several hundred yards from the Mississippi Sound.

The Leonards, who purchased their policy more than a decade ago, also claim that their insurance agent had assured them that they didn't need to buy flood insurance for their home because their policy would cover all hurricane damage.

While Nationwide homeowners' policies cover wind damage, the Columbus, Ohio-based insurer argues that damage from flood waters, including wind-driven "storm surge," is excluded from coverage.

"Essentially, the Leonards are asking the court to change their contract after the fact," said Nationwide spokesman Joe Case. "They're asking for flood damage to be covered, and they didn't purchase flood insurance, regrettably."

In June, U.S. District Judge L.T. Senter Jr. ruled that Nationwide's policies cover damage from hurricane winds but not from "water or water-borne materials (other than damage caused by rain, driven through roof or wall openings made by direct action of wind)."

The Leonards are represented by high-profile attorney Richard "Dickie" Scruggs, who helped secure a landmark, multibillion dollar settlement with tobacco companies in the late 1990s.

"Everyone is going to be watching the result of this," Scruggs said of the trial, which is expected to last a week or two. "It won't be binding for other cases, but the precedential effects of this will be enormous because it's the first one."

Scruggs represents around 3,000 policyholders on Mississippi's Gulf Coast, including his brother-in-law, U.S. Sen. Trent Lott, R-Miss., whose Pascagoula home was demolished by Katrina.

Senter presides over the Leonards' case and others that Scruggs has filed for hundreds of policyholders against other insurers, including Allstate Insurance Co., Metropolitan Life Insurance Co., State Farm Insurance Cos. and United Services Automobile Association.

Mississippi Attorney General Jim Hood also is suing insurance companies, arguing they should pay for all of Katrina's property damage, whether it was caused by wind or wind-driven water.

Dr. Robert Hartwig, chief economist for the Insurance Information Institute in New York, warned that a victory by the Leonards would "create chaos in insurance markets all over the country" because it would send a message that contracts can be "retroactively rewritten" after a disaster.

"That creates an impossible business environment," he said.

Scruggs and other plaintiffs' hope that winning this and a handful of other cases would pressure insurers into settling thousands of other Katrina-related lawsuits.

"The outcome will at least set the tone for future cases against all (insurance) companies," Scruggs said.

Hartwig, however, downplayed that scenario.

"Insurers will be looking at every single case on its merits," he said.

Leonard, whose house sustained an estimated $100,000 in damage, has spent roughly $20,000 out of his own pocket to repair his home.

"The goal here is to make my home whole again," he said of his lawsuit. "If it helps someone else, that's great. But I'm fighting for my family's future."