If NOW and Bloomberg Market Magazine are accurate in their depiction of many homeowners insurance companies (and several are vehemently arguing they are not), how on earth are they getting away with the legal maneuvers, policy interpretations, and other dodges alleged in the PBS broadcast and the September Bloomberg article we summarized earlier. There are, according to the Bloomberg reporters, a number of reasons.

First, time is on the insurer's side. Homeowners, left to live in FEMA trailers, motel rooms, or bunking with family or friends are neither in a position nor a mood to fight the insurance companies for too long. A settlement that looks ridiculous a month after a casualty loss begins to improve in the beholder's eyes after months of delays and defacto homelessness.

Insurance companies are probably counting on word reaching the general public that the first offer may be the best one they will receive. This could discourage litigation even when an attorney can be found to file suit on a contingency basis.

But the root problem may be oversight. The insurance industry does not answer to a central federal regulator such as the Securities and Exchange Commission which polices the stock and securities market and can and does refer violations of its rules to the U.S. Department of Justice for criminal prosecution. According to Bloomberg, the current system is a "patchwork" of regulations by the states. "The most that state insurance departments typically do is imposing civil fines when companies mistreat customers."

Former Texas Insurance Commissioner Robert Hunter states that such sanctions are weak and infrequent. Until Hurricane Katrina, no state or federal prosecutor had ever investigated a nationally known property-casualty company for criminal mistreatment of its policy holders; however, a federal grand jury is reported to be probing how insurance companies responded following the disaster.

And Katrina may have marked the end for this lack of regulation. As has been widely reported, one victim of the storm was Senator Trent Lott, the powerful Republican Senator from Mississippi whose expensive Gulf Coast home disappeared completely into Katrina's maw. Lott was insured by State Farm and after the company refused to pay one cent of his claim based on the water v. wind argument we talked about in part one of this article, Lott sued. He and the company agreed to an undisclosed settlement this spring but Lott is still angry. He has filed legislation to have insurers regulated by the federal government rather than the individual states. The industry may still have the juice to keep such legislation from happening as they, along with the pharmaceutical industry contribute more to political candidates than any other lobbying blocks, but Lott's legislation may put them on notice to shape up or else.

It is only fair to note that, while we have mentioned Allstate and State Farm in this report, the PBS and Bloomberg pieces name many other companies including Liberty Mutual, Allied Property & Casualty Insurance, AMCO, Pacific Specialty Insurance and others and contain much anecdotal information to at least partially substantiate their allegations. The NOW report can be downloaded and viewed in its entirety here. We recommend you take the time to read this.

We looked at the websites of Allstate Insurance and the Insurance Information Institute for reaction to the PBS and Bloomberg pieces but they were mute. State Farm, however, had plenty to say. By Monday morning they had posted copies of three letters sent by their executives; one to PBS and two to Bloomberg.

Mike Fernandez, Vice President, said, "As a representative of State Farm, I am extremely disappointed with PBS, and the content and questionable reporting methods used in, 'Home Insurance 9-1-1' As the nation's leading personal lines insurer, we are committed to serving the needs of our tens of millions of customers - fairly, promptly, and efficiently. Contrary to your report, real data and overall customer experience support our position.

"Both the Now report and the Bloomberg magazine article from which PBS admits it derived most of its program content, present many inaccuracies and selective use of facts.

"NOW begins with a pledge to look into these 'controversial practices widespread' in the insurance industry. The term 'widespread' in the above context is supported by nothing more than anecdotes and a handful of lawsuits.

We invite readers to visit statefarm.com to learn much more details about the extreme journalistic deficiencies in both the Bloomberg article and the follow up Now PBS program. A trial bar-peddled handful of recycled anecdotes and lawsuits should not, and do not, tell your viewers the true story."

Robert P. Hartwig, Ph.D., President of the Insurance Information Institute of NYC in a letter to Bloomberg said the story was shocking and malicious, asked for "correction, retraction, and apology" and called the story unoriginal and devoid of journalistic standards and editorial oversight.

"Never mentioned in your story is the fact that property/casualty insurers annually pay out hundreds of billions of dollars on tens of millions of claims. Hundreds of millions of claims and trillions of dollars have been paid fairly and expeditiously during the 15 or so years spanned by your article.

"Your article wastes little time in making the quantum leap from anecdote to presumed industry practice. Indeed the article's two lead paragraphs include a discussion of precisely one claimant, which by the third paragraph morphs into the entirely unsubstantiated assertion that insurers "...routinely pay less than what policies promise." The error of this flat out false statement is compounded in the very next (and also incorrect) sentence, "Insurers often pay 30-60 percent of the cost of rebuilding a damaged home-even when carriers assure homeowners they're fully covered..." This type of leap from anecdote to overgeneralization to misrepresentation of facts occurs several times throughout the piece."

Mr. Hartwig's very lengthy response can be read in its entirety at here.