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CNN Live At Daybreak

Analysis of President's Address; Mississippi Sues Insurance Companies; Pied Piper of Akron

Aired September 16, 2005 - 06:31   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

ANNOUNCER: From the Time Warner center in New York, this is DAYBREAK with Carol Costello and Chad Myers.
CAROL COSTELLO, CNN ANCHOR: And good morning to you. Thank you for waking up with us. Chad will have your forecast in just a minute.

Also coming up this half-hour, political analyst William Schneider leads us through the realities of the president's speech.

And the insurance issue over Katrina, a battle that could rival the hurricane in intensity.

But first, "Now in the News."

Condoleezza Rice has a message for North Korea: Get on with it. The secretary of state says time is running out for something positive to happen in those stalled six-party nuclear talks. She says the United States could freeze North Korea's assets if some kind of progress isn't made within a week.

Back to the disaster area today for Homeland Security Secretary Michael Chertoff. He's visiting Gulfport, Mississippi, and he'll attend services this afternoon as part of the National Day of Prayer.

President Bush has approved a plan to close several military bases. Members of the panel recommending 22 bases be closed say the plan will save the Pentagon about $37 billion over 20 years.

To the forecast center and Chad.

(WEATHER REPORT)

COSTELLO: The hardest work is still ahead. President Bush made that comment during his address to the nation last night. The president speaking from New Orleans also announced a series of initiatives aimed at aiding recovery of the Gulf Coast.

Now, the first is a Gulf Opportunity Zone. This plan includes tax relief for companies to create jobs in the region. Loan guarantees would also help small businesses rebuild.

The second, worker recovery accounts. Those will provide $5,000 for people to be trained in order to get new or better jobs in the region. It would also allow for child care during a job search.

Third, the president proposes an Urban Homesteading Act. Under that plan, federal lands would be offered for -- federal lands would be offered for free to low-income citizens under a lottery system.

President Bush admits that the rebuilding will take a huge financial commitment from the federal government.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The federal government will undertake a close partnership with the states of Louisiana and Mississippi, the city of New Orleans, and other Gulf Coast cities, so they can rebuild in a sensible, well-planned way.

Federal funds will cover the great majority of the cost of repairing public infrastructure in the disaster zone from roads and bridges to schools and water systems. Our goal is to get the work done quickly.

(END VIDEO CLIP)

COSTELLO: He didn't put a dollar amount on Katrina's damage though, but he promises, as you heard, that the federal government will foot most of the bill.

Joining us with some reaction to the president's speech is our senior political analyst, Bill Schneider.

Good morning -- Bill.

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Good morning, Carol.

COSTELLO: So, some people believe $200 billion-plus to repair the damage on the Gulf Coast.

SCHNEIDER: That is an enormous sum of money. And it could end up costing more than the war in Iraq, which has been going on now for over three years.

And that's creating some consternation among President Bush's fellow Republicans in Congress, because the one thing the president did not talk about last night was sacrifice, shared sacrifice. He never really talked about that with respect to the Iraq war, which was very expensive. And now, he's not talking about the cost and how it's going to be paid with respect to the Gulf devastation. That's a question that a lot of members of Congress are worrying about.

COSTELLO: Including Republican members of Congress.

SCHNEIDER: Yes. That's exactly right. They're the so-called fiscal hawks, the people who worry a lot about the deficit. They're saying you've got to do something to pay for this. They are certainly not going to talk about raising taxes. They're allergic to that idea. And Americans wouldn't find it very popular.

If you ask Americans, as some polls have done, what do you think we should do? They say, cut spending on other programs. OK. What other programs? And there's kind of a challenge going on among Republicans, conservatives and some Democrats to figure out what should be cut.

A lot of Democrats say, oh, we have the answer. Cut the commitment to Iraq. But Republicans aren't going to say that.

COSTELLO: I don't think so. I've been reviewing the editorials this morning, and most people say that the president was clear about the problem of race and poverty. He was also clear about what would be needed, although not the dollar amount. And he was also clear about accepting responsibility.

Let's listen.

(BEGIN VIDEO CLIP)

BUSH: Four years after the frightening experience of September the 11th, Americans have every right to expect a more effective response in a time of emergency. When the federal government fails to meet such an obligation, I as president am responsible for the problem and for the solution.

(END VIDEO CLIP)

COSTELLO: So, it appears that a Republican will be spearheading the charge to find out exactly what went wrong.

SCHNEIDER: Yes, that's got Democrats a little angry, because they say this should be done by an independent commission, not an investigation spearheaded by the White House and the Republican majority in Congress.

Well, the president did not spend a lot of time that was most of he said about looking back. The whole point of the president's speech is move on. Let's turn the page. Let's talk about reconstruction, let's talk about recovery. Let's talk about something else that's very important to people all over the country, which is, how safe is the rest of the country? If other cities are faced with natural disaster or, god forbid, a terrorist attack, does this -- is this an indication that we're really not prepared?

A lot of Americans are asking, wait a minute, four years after September 11, 2001, is the country really prepared after all of the spending and alertness to meet any kind of disaster? That's another challenge the president has to face.

COSTELLO: Bill Schneider, thanks for your analysis this morning. We appreciate it.

SCHNEIDER: Sure.

COSTELLO: Plenty more ahead on DAYBREAK. We've got more on the insurance debate. What's the difference between a hurricane and a flood? Who should pay to rebuild Mississippi? The state of Mississippi has now filed a lawsuit against a number of insurance companies. We're going to hear from both sides.

Also, evacuating to Akron. We'll explain why one man wants hurricane evacuees to move to Ohio.

But first, here's a look at what else is making news this Friday.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BUSH: Along this coast for mile after mile the wind and water swept the land clean. In Mississippi, many thousands of houses were damaged or destroyed. In New Orleans and surrounding parishes, more than a quarter-million houses are no longer safe to live in.

(END VIDEO CLIP)

COSTELLO: First, the floodwaters. Now a flood of litigation. More than two weeks after Hurricane Katrina slammed into the Gulf Coast, lawyers in the region are deciding who to sue.

Richard Scruggs, a powerful Mississippi attorney, is taking aim at insurance companies. He's planning to file hundreds of lawsuits in state courts to force insurance companies to pay up even if the homeowner didn't have flood insurance.

Mr. Scruggs joins us now live from Oxford, Mississippi.

Welcome.

RICHARD SCRUGGS, PLAINTIFFS' ATTORNEY: Thanks, Carol. It's nice to be here.

COSTELLO: Well, we love having you. Most homeowner policies include a clause that says damage from flood, surface water, waves, tidal water overflow of a body of water or a spray from any of these, whether or not driven by wind, are not covered. It says so exactly in most standard insurance policies.

How can you fight that?

SCRUGGS: Carol, the policies also have what's called a hurricane endorsement on all of the coastal policies. And a hurricane endorsement is a very unique meaning. Everyone knows that the greatest danger from a hurricane, aside from the wind, is the tidal surge driven by the hurricane.

The homeowners that I am representing all have hurricane endorsements. They paid extra premiums for it. And now, I'm afraid the second hurricane, the second phase of Hurricane Katrina, is now spreading across the Gulf Coast as the homeowners there who have insurance who thought their insurance was going to cover their costs of rebuilding and are now finding out that they have no way to rebuild.

COSTELLO: Yes, but most people have heard that you have to have flood insurance to pay for rising waters in your home. I mean, that's really a commonly-known thing, right? SCRUGGS: Well, not exactly, because flood sounds like something that where a river just laps over its banks. It doesn't -- except for people on the coast who know what storm surge is, it doesn't mean the same thing. It is a very unique term.

And the insurance industry knows that, and they have had their Philadelphia lawyers here carefully and cunningly draft in various confusing language in the policies, like what you just talked about. That's the reason in Mississippi the attorney general went to court against them yesterday, because the policies as written are highly deceptive.

COSTELLO: Yes, the state of Mississippi filed a lawsuit against the insurance companies forcing them to pay for damage no matter, you know, if it was caused by rising floodwaters or just wind damage.

SCRUGGS: Correct. That's correct.

COSTELLO: You're actively seeking out people to join this lawsuit. How many have joined in?

SCRUGGS: Well, the lawsuit so far -- you know, we live on the Gulf Coast and have lived there for many, many years. And we have friends and neighbors. And virtually everyone I've talked to down there wants to join in and has sought me out and essentially pressed me into service here. I'm glad to do it for them. It's unfortunate that it's going to take a lawsuit to make the good neighbors truly good neighbors.

COSTELLO: Well, you talk about good neighbors, but the insurance industry says, if all of these lawsuits are successful it will make all of our insurance premiums, every single person's across the country, go up by 40 percent.

SCRUGGS: Carol, a spokesman for the insurance industry was quoted in Reuters yesterday as saying that the insurance industry has over $400 billion in reserves this quarter alone to cover Hurricane Katrina loss. Most of this risk has been spun off into the European and worldwide markets. It won't bankrupt anyone.

COSTELLO: Yes, but that doesn't...

SCRUGGS: And they have...

COSTELLO: That doesn't have anything to do with it really if a company is profitable or not. It has to do what it says in your insurance policy, doesn't it?

SCRUGGS: You're right. And it does say "hurricane endorsement" in the insurance policy. And that has a very unique meaning. It means tidal surge...

COSTELLO: Well, let's go back...

SCRUGGS: ... and things driven by hurricanes. COSTELLO: Let's go back to my original question. If all of these lawsuits are successful, it will make each and every person's insurance go up by 40 percent. Is that fair in the long run?

SCRUGGS: You know, it's really not fair that it go up. The homeowners on the coast, who have been wiped out by Hurricane Katrina and are about to be now wiped out by their insurance company, have already paid an additional premium for that hurricane endorsement. They have collected the premium for this. And now, they are trying to, as we say, dine and dash.

COSTELLO: You've been very successful, and you've made a lot of money by suing tobacco firms back in the '90s. Why are you doing this?

SCRUGGS: I'm doing this because it's the right thing to do for my family and my friends, my neighbors, and the people who live in the area that nurtured me and where I grew up. And my own home was destroyed. My brother-in-law and my family's homes were destroyed. I'm doing this out of passion.

COSTELLO: Did you have flood insurance?

SCRUGGS: We did have flood insurance, which is the maximum you can get is only a fraction of what the homeowner's policy is.

COSTELLO: Are you doing all of this free of charge?

SCRUGGS: Probably. If the industry will do the right thing in short order, we probably will either do it at a drastically-reduced contingency fee or no fee at all if they'll do the right thing right now. But if we have to drag them into years of litigation, which is the more likely scenario, then we will have to charge some modest contingency fee.

COSTELLO: All right. Richard Scruggs, we'll check back to you to see -- well, to gauge your success. Thanks for joining DAYBREAK this morning.

SCRUGGS: Thank you.

COSTELLO: As we've mentioned, a group of Louisiana homeowners are also suing insurance companies, trying to recoup damage caused by floodwaters. They claim the flooding was caused by negligence with the levees, not an act of God, which typically is not covered in insurance policies.

According to "The Wall Street Journal," current estimates indicate private insurance losses in Louisiana may total $40 to $60 billion. And it's estimated at least 160,000 homes in the area may be unusable.

Plus, some 360,000 home mortgages, valued at $48 billion, are affected.

Joining us now is Robert Hartwig, chief economist for the Insurance Information Institute.

Good morning.

ROBERT HARTWIG, INSURANCE INFORMATION INSTITUTE: Good morning, Carol.

COSTELLO: So, it's your turn now. The state of Mississippi filed a lawsuit against insurance companies, forcing them to pay. He says he has a pretty good case, and so does Richard Scruggs.

HARTWIG: Well, we heard Mr. Scruggs, who himself bought flood insurance. In fact, flood has been excluded from homeowners' insurance policies for many, many decades. And for 37 years, the federal government itself has recognized this through the creation and operation of the National Flood Insurance Program, which is operated through FEMA.

Tens of thousands of people around the country avail themselves of this, and it was available to everybody throughout the Louisiana and Mississippi and Alabama regions.

COSTELLO: But let's say you have -- you bought your insurance policy, and you don't live in a traditional flood zone. Yet this huge hurricane hits. And clearly that caused the waters to rise in your neighborhood. Is it fair that your homeowner's policy shouldn't pay? Because there's a cap on federal help, and if people have lost their entire home, that's going to be expensive to repair and rebuild.

HARTWIG: And we have to remember that insurers will be paying up to $60 billion to repair people's homes and businesses in this area. But we have not received a cent in flood-related premiums. So, insurers have no reserves set aside to pay flood-related losses.

COSTELLO: But you know what some people think. You know, I've never used my insurance policy to pay for any repairs to my home. So, when disaster strikes, I want my money. And I know that the insurance companies are doing pretty darn well.

HARTWIG: That's right. And when disaster strikes for a type of peril you've paid a premium for, we will pay. Anyone's home who was destroyed by wind, for example, will be fully reimbursed by the insurance company.

COSTELLO: Yes, but we're talking about by water, and there's lots of it.

HARTWIG: That's right.

COSTELLO: Then why shouldn't the people of New Orleans get some money from their insurance companies to cover the loss of their homes?

HARTWIG: That's because people in New Orleans who suffered wind damage will get money from their insurance companies. But if there was a flood-related loss, the opportunity was there to buy a National Flood Insurance Program policy. COSTELLO: So, really what it boils down to is you're basically saying that the levee break was caused by the government -- the levee break was caused by the hurricane, and the reason the levees broke was the government's fault. So, why should the insurance companies pay?

HARTWIG: The point is that rising water is flood, no matter how it occurs. If there's negligence on the part of the government, then the government can be held accountable for this.

COSTELLO: Mr. Hartwig, thanks for joining us this morning.

HARTWIG: Thank you.

COSTELLO: We could debate this all day. What good?

Still to come on DAYBREAK, meet the man called the Pied Piper of the Astrodome when we come back.

(COMMERCIAL BREAK)

COSTELLO: They're calling him the Pied Piper of Akron, Ohio. His name is David Moore. He's a retired teacher and coach, was a great local basketball legend, and he wants to take 100 Katrina evacuees home with him. In fact, he's in Houston right now scouring the Astrodome, offering people a job and a new life in Ohio. And he joins us now.

Good morning, David.

DAVID MOORE, RECRUITING EVACUEES TO OHIO: Good morning. How are you today?

COSTELLO: I'm pretty good. Thanks for joining us.

MOORE: You're welcome.

COSTELLO: David, you vow you will not leave until you take 100 people with you. You got there yesterday. How were you approaching people?

MOORE: Well, actually I'm approaching them with a positive attitude. I had a booth that I set up for a moment. And I'm just letting them know. I brought brochures and literature from Akron. I'm explaining to them how we have housing set up, not just temporary, but apartments, even condos people have volunteered to rent, but give out to them. And I just got busy.

COSTELLO: You did. Our colleague, Kenneth Tucker, was watching you work the charm. He says you approached one woman, and she said, "Oh, lord!" Why is this so important to you?

MOORE: Well, you know, the way I was raised and plus the people in Akron are great people. And after watching this and watching this and making hundreds of phone calls, I said, hey, I've got to get down there and make my own initiative to do this.

COSTELLO: So, what's your success rate?

MOORE: Today is going to be a better day. I've got four possibles that's going to call me when I get back over to the Astrodome. They're going to come to the Astrodome. One guy found three people who have families in Ohio. So, I think I can almost count on five.

COSTELLO: Oh, that's good. Now, you've mentioned red tape. You went to the Akron mayor and to city officials. How did they react to your idea?

MOORE: Well, actually the Red Cross is very positive. But they said, "Hey, David, you have to go through some volunteer training." And I said, 'I don't have time for that.' So, they met with me and said, "OK, if you get them here, we'll take care of everything." And I said, 'Fine."

I went to the mayor's office. He said, "I can't officially endorse you, but you get them here, we'll make everything happen."

And being a teacher, I went to the mayor -- I mean, superintendent's office, where I know everyone, and they said, "David, we'll make a special day. If you bring them in, we'll have them in school the next day."

COSTELLO: Well, David, you're doing a great thing. And good luck to you. We'll check back to see of your progress. David Moore, the Pied Piper of Akron.

MOORE: Thank you very much, ma'am. And you have a blessed day.

COSTELLO: Oh, you too. Thanks, David.

When we come back, more headlines and a look at your travel forecast. You're watching DAYBREAK for a Friday.

(COMMERCIAL BREAK)

COSTELLO: Oh, my favorite part of the show. Our friend, Jeanne Block (ph), from CNN sent us the AAA report. Gas prices are now down 2.8 cents, Chad, to $2.89 a gallon.

CHAD MYERS, CNN METEOROLOGIST: And my gas station that I drive by every morning, they have the little digital thing that they can change immediately, 2.59.

COSTELLO: Oh.

MYERS: Oh. Almost giving it away now.

COSTELLO: Yes, by comparison.

MYERS: Good morning.

(WEATHER REPORT)

COSTELLO: That does it for us. I'm Carol Costello along with Chad Myers. "AMERICAN MORNING" starts right now.

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