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Smart, Scrappy and Mad

By  Joel Wood

State Farm refused to pay Sen. Lott for his Katrina damage; now Lott may refuse to play with the industry.

The late, great U.S. Rep. Mo Udall, D-Ariz., ran for Democratic Caucus chair in the House of Representatives in the early 1970s. While a significant majority assured him of their support, on secret ballot, he lost by one vote. “Today,” he said then, “I have learned the difference between a cactus and a caucus. With a cactus, the pricks are on the outside.”

Sen. Lamar Alexander, R-Tenn., might have been thinking of that tale in early December, when he lost a squeaker (25 to 24) for Whip, the second-ranking Republican leadership post in the Senate, to resurgent Sen. Trent Lott, R-Miss. After his defeat, Alexander sent 27 “thank-you” notes to colleagues who had publicly declared their support for him, not knowing which three had flipped.

Lott’s re-emergence in the Republican leadership is consequential not just to the manner in which Senate operates, but specifically to the insurance industry.

His six years as Republican leader in the Senate (both as majority and minority leader) came to a crashing end amid controversial remarks he made at a 100th birthday party for then-Senator Strom Thurmond, R-S.C. As leader, he had been a friend to The Council, speaking at our Legislative Summit and most always fighting the pro-business cause.
Lott used to say derogatory things about those who go to court: for example, “The Democrats seem to think that the answer is a lawsuit. Sue everybody…It’s sue, sue, sue…That’s not the answer.” and “I’m among many Mississippi citizens who believe tort reform is needed.”

But last year, Lott’s attitude toward tort reform and the insurance industry changed drastically. Hurricane Katrina swept away his beachfront home in Pascagoula, Miss., and his insurer, State Farm, refused to pay for the damage in the infamous wind-versus-water dispute. Now Lott has filed his own lawsuit and talks about “insensitivity and outright meanness” of insurers, saying, “They have abused my people, my friends, the people I love.”

Lott got busy with legislation. He filed one bill that would have retroactively allowed homeowners in Katrina’s wake to buy federal flood insurance. Another bill would force insurers, under the guidance of the Federal Trade Commission, to put wording in “plain English” on the cover of each policy describing all coverage exclusions. He successfully dropped $2 million in the Homeland Security appropriations bill for a loaded study into anti-competitive practices of insurers related to the hurricane. And his own lawsuit was filed by his brother-in-law, Dickie Scruggs, who raked in nearly $1 billion as the chief negotiator with tobacco companies.

Lott has also indicated his desire to crank up the heat on the industry’s perceived antitrust immunity under the McCarran-Ferguson Act. In that, he is joined by another prominent Republican leader, Arlen Specter, R-Pa. Specter’s interest in McCarran is also peripheral. He’s mad at the property-casualty industry for spiking his asbestos resolution trust fund proposal. In a hearing last year purportedly on the subject of McCarran, he was swinging in wildly different directions, including lots of digs on the broker compensation controversy, which had absolutely nothing to do with the McCarran-Ferguson Act. McCarran may be the most misunderstood law of the land. For decades, when the industry feared intrusive federal regulation, it was the Holy Grail that preserved state control. But all McCarran says is that to the extent the federal government doesn’t legislate insurance regulation, power will remain with the states. That’s it.

Meanwhile, a sizable majority of the industry (at least in market share) has gravitated toward a view that they’d gladly give up McCarran in return for an optional federal regulatory body—so onerous is the difficulty of complying with 50 sets of state laws in a converging national/global industry.

McCarran or not, Lott is on a mission to stick it to insurers. He’ll have lots of opportunities to vent, since Congress wound up kicking the can down the road this year on fundamental reforms to the beleaguered National Flood Insurance Program.

He might also cause some heartburn on the reauthorization of the Terrorism Risk Insurance Act.

Incoming Banking Committee Chairman Sen. Chris Dodd, D-Conn., has been an aggressive TRIA supporter and is interested in a “permanent resolution” of the terrorism reinsurance dilemma. As Republican leader in 2002, Lott was skeptical about TRIA but in the end did no harm. In a meeting with his principal staffer at the time, I offered evidence that TRIA was necessary to keep major real estate deals afloat. His response that “maybe what you’re telling me is nobody should be building skyscrapers in New York City right now” left me uncharacteristically speechless.

The Administration will be looking for allies to scale back Dodd’s vision of an active federal role in assuring the availability and affordability of terrorism coverage. Lott, whose job it now is to count and deliver votes, may well be their ideological soul mate on this issue. Then again, he’ll never be the White House’s “man.” Lott figures Karl Rove is the guy who cost him his leader job four years ago.

I’m told that President Bush called Lott to congratulate him on his most recent win. Lott answered the phone: “Lazarus speaking.”

With Lott, watch out. He’s smart, scrappy and good. And he’s mad.

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