Hurricane Katrina

Legal issues after Hurricane Katrina

Hurricane Katrina, the storm that destroyed many areas of the Gulf Coast by flood-waters in August 2005, left many legal issues in its wake.

Many people throughout the U.S. and abroad donated money to the American Red Cross and other charities to be put toward relief efforts in the Gulf Coast region. However, legal limitations on the ways in which charities can use such donations raised issues that could prevent much of the donations to these two organizations (totalling more than one billion dollars), from being used for hurricane relief efforts.

When Hurricane Rita threatened the Gulf region shortly after Katrina, the question of diverting post-Katrina funds for relief from that disaster arose. In an interview with the Washington Post, Jill Manny, executive director of the National Center for Philanthropy and the Law at New York University, said that diverting funds to any cause other than the one for which the money was originally intended could expose charities to prosecution from state attorneys general.

In March 2006, the Humane Society of the United States and the American Red Cross came under investigation by the Louisiana attorney general's office on the suspicion that the organizations had diverted money and supplies from the relief effort, and that they had wasted and abused their donations.

Jerome Nickerson, a Baltimore-based lawyer who was asked by the Red Cross to investigate allegations of misuse of funds and supplies, reported in March 2006 on so-called "rogue warehouses" filled with supplies that they suspected were being sold. In addition, Nickerson and his team found that Red Cross volunteers were using multiple debit cards worth thousands of dollars, and that they were ordering conspicuously large amounts of supplies such as cooking oil, coffee, and canned goods for areas that did not need them. However, when Nickerson presented his findings to local Red Cross officials in Louisiana and stated his plan to investigate further, he was sent home.

In addition, the Humane Society has received complaints that, although the organization received millions of dollars in donations, not enough work has been done to reunite hurricane evacuees with their pets. The Humane Society's investigation is ongoing, but officials have not admitted to any wrongdoing or misuse of funds.

The possible manipulation of gasoline prices in response to the hurricane was another cause for concern. In May 2006, federal investigators issued a report in which they stated that they could find no evidence that oil companies had worked together to manipulate prices. New York Times reporter Stephen Labaton quoted a report from the Federal Trade Commissin as stating that, although some price gouging had occurred at the local level, regional or local trends appeared to justify the higher prices, and that these spikes were fairly short-lived. "Evidence gathered during our investigation indicated that the conduct of firms in response to the supply shocks caused by the hurricanes was consistent with competition," the report stated.

Insurance coverage remains another ongoing legal angle in the wake of Hurricane Katrina. In May 2006, 669 homeowners in the Gulf Coast region joined in a lawsuit against State Farm Insurance Co., in which they allege that the company refused to cover the costs of homes destroyed by the hurricane. The plaintiffs accused the company of using a "one-size-fits-all" engineering report to deny coverage, and of failing to investigate whether the damages were in fact due to Hurricane Katrina. The engineering report, which was prepared for State Farm by the Dallas, Texas based HAAG Engineering Co., stated that damage to homes on the Gulf Coast of Mississippi were due to "storm surge," which State Farm does not cover, rather than wind damage, which the company does cover.

Richard Scruggs, a lawyer who was suing several other insurance companies for denying post-Katrina insurance claims, alleged that State Farm had essentially blackmailed engineering firms by refusing to pay them if their reviews of the damages conflicted with State Farm's commissioned analysis. Scruggs has also accused State Farm of transferring or firing employees who did tell homeowners that their property had sustained wind damage before the storm surge occurred. Scruggs had lawsuits pending against Metropolitan Life Insurance Co., Nationwide Mutual Insurance Co., and the United Services Automobile Association.

In April 2006, a federal judge in Mississippi ruled that the policies of Allstate Insurance that exclude floodwater damage from Hurricane Katrina were valid.

The city of New Orleans, which was among the major metropolitan areas hardest-hit by Hurricane Katrina, was scheduled to re-open criminal trials at the end of May, although the lack of funds for public defenders for accused criminals who were awaiting trial had prompted some lawyers to file lawsuits demanding the release of jailed suspects.