In recent years, natural disasters such as floods, hurricanes, mudslides, and fires have caused massive and catastrophic damage to residential property, precipitating thousands of damage claims brought by affected homeowners. Insurance plays an integral role in recovery after such disasters because victims need to settle claims quickly with their insurers to begin the rebuilding process. Without insurance proceeds, many homeowners are unable to repair the damage to their homes, preventing the homeowners from moving forward with their lives.
In response to the high volume of claims brought in recent years, state departments of insurance have promulgated emergency rules to help resolve disputes arising from these claims. In general, the rules require insurance companies to finance state-sponsored mediation programs that are designed to provide a non-adversarial, effective, fair, and timely method of resolving the large number of disputes that arise between homeowners and insurers. Hurricane Katrina, which struck the United States Gulf Coast in 2005, is one recent example of a natural disaster that triggered the formation of these emergency mediation programs. Hurricane Katrina “damaged, destroyed, or left inaccessible” over 850,000 homes. The sheer volume of claims arising from this type of disaster would overwhelm any system currently in place to handle ordinary insurance claims. This problematic situation is exacerbated when genuine issues arise as to whether the loss suffered was a result of wind damage or flood damage, because many residential insurance policies do not cover losses caused by floods. Varying interpretations of the source and scope of the resulting damage inevitably result in some homeowner dissatisfaction with the amount of money offered by the insurance company for the damage.
In the absence of some form of ADR program such as mediation, the homeowner is left with few options. First, many homeowners can simply accept the offers from the insurers, although this option may not be either equitable or wise. Another option for a dissatisfied homeowner is to file a lawsuit against the insurance company in court. However, not all homeowners are in a financial position to wait years for a verdict from a judge or jury as the court systems would be “flooded” with claims, and the process would most likely bring the recovery effort of the area to a screeching halt. A final option for the homeowner is to attempt to negotiate with the insurance company through its claims adjuster in an informal manner. This last option could potentially place the homeowner at a great disadvantage if the homeowner is not fully informed or is without adequate legal representation.
The potential obstacles and difficulties that the homeowner must face worsen when that homeowner is a member of a minority group. Generally speaking, minority groups are at a greater disadvantage throughout a natural disaster. Even though the current disaster mediation programs have been generally beneficial for post-disaster communities, some inadequacies in the programs’ implementations have surfaced. The most glaring of these inadequacies is the lack of equal bargaining power between the homeowner and the insurer, especially when that homeowner is a member of a minority group.
This article discusses the inherent difficulties that homeowners, especially minority homeowners, face when trying to settle post-disaster insurance claims through the mediation process. I conclude by proposing that any disaster mediation program designed to place a homeowner on a level playing field with the insurer should also strive to place the minority groups—the most vulnerable in our society—on that same level.
Depending upon an individual’s overall situation, including access to financial resources and educational materials, the same disaster may place one person at a greater risk of losing his or her property or life than another person. Because disasters affect people in different ways based on factors like poverty level, race, and ethnic background, it is understandable that minority groups are more adversely affected throughout the various stages of a disaster.
According to the Department of Health and Human Services, Office of Minority Health, a disaster can be broken down into several phases: the preparation phase, the response phase, and the recovery phase. The preparation phase actually occurs before the disaster strikes. This is the time when preemptive action should be taken by local, state, and federal authorities to prepare the area in case of an emergency. During this phase, when life is relatively normal, governments should take actions and develop plans that improve the ability to prevent, protect, respond, and recover from a disaster. The Office of Minority Health states that minority populations are more likely to be unprepared for disasters because minority groups are less likely to be involved in preparedness activities and also less likely to receive preparedness training than majority groups. Consequently, minority groups will be less prepared with evacuation plans and will likely not have previously identified important paperwork such as insurance documentation that would be helpful, or required, when filing claims after the disaster.
The response phase occurs during the disaster. At this point, plans in place from the preparation phase should be implemented and actions must be taken in the wake of the disaster. The response phase is characterized by actions taken to save lives, protect property, and meet basic human needs.
The final stage of a disaster is the recovery phase, which includes both long-term and short-term recovery efforts in the affected area. Minorities face unique problems because they have a greater chance of experiencing slower response and recovery in the aftermath of the disaster. Problems that minority groups encounter such as inadequate housing, lack of financial stability, and lack of communication resources contribute to slower response and recovery.
Although there are various programs to assist disaster victims, many of these programs fail to consider how factors outside of the disaster, such as social vulnerability, will affect how both communities and individuals are able to respond to the disaster. Due to these facts, assistance programs should be designed to ensure that everyone is afforded an equal opportunity to respond to and rebound from disasters.
Natural disaster victims commonly experience severe damage to their homes, or in the worst-case scenario, lose their homes entirely to the ravages of the disaster. Some homeowners are fortunate enough to have the resources to afford insurance, whether it is homeowner, flood, or wind insurance. In the wake of a natural disaster, however, many of these insured homeowners face unforeseen obstacles when they try to file claims with their respective insurance carriers. These obstacles arise when several thousand homeowners file claims within a short span of time, thus overloading insurance carriers who were previously ill-equipped to handle such a high volume of insurance claims. Another unfortunate reality that exacerbates this problem occurs when the homeowner and the insurance carrier disagree as to the amount of proceeds due to the homeowner.
One method of resolving this quagmire of claims disagreements is a disaster mediation program. Insurance claims mediations typically include the mediator, the homeowner, and a representative of the insurance company, usually a claims adjuster.
When implemented as part of a post-disaster emergency mediation program, mediation is tailored to provide a method of avoiding the potential problems associated with hundreds of thousands of claims being brought against a handful of insurance companies at one time in the immediate aftermath of a disaster. The programs are designed by state departments of insurance to have the homeowner deal directly with the insurance company in an attempt to negotiate a binding settlement of the claim in a fair, timely, and cost-effective process.
These mediation programs have been both applauded and criticized. Proponents point to the high settlement rate as indicia of successful claims resolution. Opponents argue that disaster mediation programs place the homeowner at a severe disadvantage to the insurer. Even though generally there are high settlement rates in these programs, critics argue that this comes at the cost of a fair settlement and at the cost of homeowner satisfaction.
There are several flaws in disaster mediation programs. First among the weaknesses of disaster mediation programs is the potential for the insurance company to have an inherent advantage over the homeowner because, in general, the claims adjuster or other representative of the insurance company has more knowledge about the insurance policy and the mediation process than the homeowner. This advantage is revealed when one considers that the claims adjuster’s job is to understand the policy and negotiate a settlement that is in the best interest of the insurance company rather than the homeowner. In addition, the homeowner cannot rely on the mediator to protect his or her interests because the mediator is and should be a third-party neutral whose purpose is to guide the process to a mutually agreeable settlement. Unfortunately, this specific dispute resolution structure isolates the homeowner throughout the process as she tries to protect her interests and can lead to serious problems if not addressed.
Contributing to this knowledge imbalance is the homeowner’s unfamiliarity with the policy provisions, which are often written in technical and legal language. Thus, in post-disaster mediations, many homeowners are often unsophisticated and unprepared because they generally do not understand the details of their insurance policies. This problem is compounded when the required documentation is inaccessible or destroyed in the disaster.
Additionally, minorities and the poor are especially vulnerable because these groups tend to live in parts of a community that are exposed to greater dangers during a disaster. For example, minorities and the poor may live in older buildings or portions of a city that are structurally less able to bear the burden and stress placed upon them during a disaster such as a flood or earthquake. It takes little insight to realize that coastal communities are more susceptible to flooding from disasters such as a hurricane or tsunami.
When the reality of living in more vulnerable areas and structures is combined with the insufficient resources of the poor or members of minority groups, the situation can easily spin out of control and leave little or no protection for the vulnerable members of our society. The lack of resources is an important point that must be considered, and unfortunately, poverty directly correlates with race. For example, nearly three times the number of Hispanics and blacks live below the poverty line when compared to non-Hispanic whites. This problem is especially relevant when referring to post-disaster insurance claims. While a person with unlimited resources may be able to wait years to reach an acceptable settlement with the insurance company, the average person cannot wait. The insurance proceeds that poor people or minorities receive are likely to be used to rebuild their homes or, in more extreme cases, may be used to simply help them survive.
The homeowner’s lack of sophistication regarding the mediation process leads to another problem that plagues disaster mediation programs: Administrators of the programs allow homeowners to attend mediations without any legal representation at all. Many homeowners attend mediations unrepresented because current programs discourage the presence of legal representatives from assisting homeowners during the claims process. Because the homeowner is often unsophisticated and uneducated in insurance matters, many attend the mediation conferences without legal representation whereas the insurer’s representative deals with insurance issues daily. Even though this may be a willing choice in some cases, following Hurricane Katrina, my observation was that many homeowners were simply ignorant of the fact that it was possible to bring an attorney or other representative to the mediation.
The last flaw in disaster mediation programs results when members of ethnic and racial minority groups attempt to bring their insurance claim to the mediation table only to find that the appointed mediator is either unprepared or untrained to handle the mediation in a culturally competent manner. The most glaring example of this problem is when there is a language barrier between the insured and either the mediator or the insurer’s representative. An equally alarming problem occurs when the mediator fails to take into account the unique problems that minority groups face in the recovery and accompanying claims process.
Although disaster mediation programs can be beneficial, there are undeniable flaws that must be corrected, and additional measures should be taken when state insurance departments design future disaster mediation programs. Any disaster mediation program designed to place a homeowner on a level playing field with the insurer should also strive to place minority groups on that same level. I offer the following proposals to address these inequities:
The problems associated with disaster mediation programs should begin to be addressed before the disaster strikes, during the preliminary planning phase. Any plan adopted by state insurance departments must include an educational component specifically geared toward minorities to educate this population on how to properly plan for disasters before the situation arises and how to cope with the situation once the disaster occurs. An educational component that speaks to minority communities specifically will help ameliorate the unequal bargaining power that currently plagues disaster mediation programs.
In some areas of the country, there are language barriers that pose problems for minority groups who do not speak English as a first language. Therefore, any educational material from the planning phase as well as any relief information or broadcasts should consider this. For example, if the disaster occurred in or around Miami, Fla., it would be wise for the state to issue all information in Spanish as well as in English to ensure the information is accessible to every member of society.
Because of the difficulties unrepresented homeowners encounter at the mediation table, disaster mediation programs should be designed to encourage homeowners to bring legal representation to the mediation. Disaster mediation programs should contain an explanation that while the homeowners have a right to represent themselves in mediations, attorneys are generally knowledgeable in insurance issues and the principles of negotiation and can provide valuable legal representation to the homeowners during mediations. This explanation should emphasize to the homeowners that attorneys would represent the homeowners’ interests and would be present to advocate on behalf of the homeowners. Although some disaster programs provide standby attorneys at the mediations to provide basic legal information to homeowners who may be unrepresented, these same programs prohibit those standby attorneys from acting as advocates on behalf of the homeowners. Future mediation programs should be designed to strongly encourage homeowners to hire attorneys to assist them during the disaster mediations. Current practices that counsel against the use of legal representation should be discontinued.
An additional measure that should be taken during the recovery phase is for sponsors of disaster mediation programs to train emergency mediators regarding cultural competency toward minority groups. During the implementation of the disaster mediation program, a properly trained mediator would know that minority groups are more likely to suffer losses including injury and death after a disaster; therefore, the mediator would be better equipped to mediate in a situation where the insured has been injured or suffered the loss of a loved one as a result of the disaster. Research indicates that many disaster responders such as emergency managers, mental health professionals, military personnel, and American Red Cross workers are trained to consider factors such as cultural, ethnic, racial, and gender diversity when addressing the needs of disaster victims. Mediators should also be trained to consider these factors when conducting mediations with disaster victims.
The rise of natural disasters and subsequent insurance claims disputes in recent years has precipitated the creation of much-needed disaster mediation programs. While recent programs addressed several of the flaws identified with disaster mediation programs, serious obstacles remain as to the realization of a successful disaster mediation program that contemplates the special needs and circumstances of minority groups.
Future disaster mediation programs designed to equalize the power imbalance between a homeowner and the insurer should also attempt to equalize the more drastic power imbalance that exists between the minority homeowner and the insurer. Taking measures such as educating minorities regarding post-disaster mediation, encouraging the use of attorneys during the mediations, and training mediators to be culturally competent regarding minorities will help create a comprehensive and balanced disaster mediation program.
 Office of Minority Health, U.S. Dep’t of Health & Human Services, Cultural Competency in Disaster Responses: A Review of Current Concepts, Policies, and Practices 18 (2008), available at https://www.thinkculturalhealth.hhs.gov/pdfs/DisasterPersonneEnvironmentalScan.pdf .
 National Poverty Center, Poverty Facts: Poverty in the United States, Nat’l Poverty Ctr., http://www.npc.umich.edu/poverty/ (last visited Apr. 4, 2011).