Opinion

Insurers lay down a smoke screen COMMENTARY

Great American Insurance Company has given a whole new meaning to the term "smoke screen." Not to mention the words "great American."

Earlier this week, the Houston Chronicle's Mary Flood reported that the Cincinnati-based insurer asked a federal court judge to help it avoid a potential $25 million liability in a Houston office fire last year that killed three people. Vocational nurse Misty Ann Weaver lit the fire to hide the fact that she hadn't met a paperwork deadline.

Now Great American officials are trying to hide from responsibility in the deaths, which isn't as shocking as the legal argument they're trying to employ.

Families of the fire victims shouldn't be compensated for their losses since the deaths were caused by smoke inhalation instead of actual flames, the company argued in a federal court brief.

The smoke, Great American maintains, is really "pollution," which is excluded from coverage in the policy. For the record, the policy's "pollution exclusion" also mentions deaths due to fumes and soot.

Adding insult

The argument is akin to denying a wind damage claim for a house flattened by a hurricane because water lapped up on the porch first.

We hear a lot about the unscrupulous doings of plaintiff's attorneys these days. Here's an example of an insurance company seeking to add insult to tragedy.

The fact is, where there's fire, there's smoke. Rick Flanagan, executive assistant chief at the Houston Fire Department, told me at least 80 percent of the city's annual fire deaths are due to smoke inhalation.

And "fire, lightning and debris removal" were the No. 1 causes for homeowners' insured losses nationwide at nearly 35 percent in 2006, the most recent year for which statistics were available from the New York-based Insurance Information Institute.

Meanwhile, insured fire losses made up 21 percent of commercial claims in 2007, according to the institute.

A spokeswoman for Great American didn't return my call for comment. Another high-ranking official I happened to get on the phone wouldn't be quoted, but when I explained the argument his company was making in this case, he called it "very strange," and suggested the Chronicle may have misinterpreted it.

I wish that were the case, especially for the sake of the families who have filed wrongful death and injury lawsuits. But Great American isn't the first company to try it.

In 2004, the Supreme Court of Connecticut ruled that smoke that killed children in a house fire didn't qualify for the "pollution exclusion" and forced Allstate to pay the claim, said Tom Baker, an insurance law expert at the University of Pennsylvania Law School. In that case, however, the word "smoke" wasn't explicitly mentioned in the "pollution exclusion" like it is in the Great American policy, Baker said.

The Kansas Supreme Court came to a similar decision in 1997, ruling that a pollution exclusion in a Northwestern Pacific Indemnity Company policy wouldn't help it avoid liability in fire losses suffered by a group of grocers.

In a brief stemming from that case, a plaintiff's attorney accused NPIC of "unmitigated audacity" to insist on a literal interpretation of the policy. "Do you really believe," the brief states, "someone would buy an insurance policy which covers flame damage, but not damage caused by the smoke generated from a flame?"

Common sense leads you to one answer. Greed leads to another.

"In the kind of gladiator idea of litigation, it's anything you can do until the Supreme Court of Texas says you can't," said Baker.

He says property insurance basically originated centuries ago with fire insurance. And the "pollution exclusion" originated after oil spills in the 1970s. It was intended — surprise — to apply to real pollution and, for example, corporations whose actions led to scandalous pollution events.

The temptation to employ it to avoid responsibility was apparently too tempting for some companies. Even Great American, an operation that traces its roots back to 1872, and claims on its Web site to be a "trusted" specialty insurance partner whose employees "are expected to conduct themselves with integrity in a legal, ethical and moral manner."

What's ethical and moral about not honoring fire insurance claims unless the victims literally burn to death?

For the sake of every property insurance policyholder in Texas, let's hope it's an argument U.S. District Judge Lee Rosenthal doesn't hesitate to stamp out.

lisa.falkenberg@chron.com