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American Morning

Road to Recovery in Gulf Coast; Lessoned Learned from Levee Breaches; Insurance Storm

Aired September 27, 2005 - 08:30   ET

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

MILES O'BRIEN, CNN ANCHOR: Good morning, and welcome back. Live pictures there from New Orleans. We're going to get to Soledad, who is there, in just a moment.
Now after everything we have seen on the Gulf Coast in the last month, one gets a sense that an enormous legal storm might be on the horizon. In just a moment, we'll look at the lawsuits over hurricane insurance claims. The whole issue is flooding, of course. Will they pay for flooding? No. The question is how do you define a flood? So what exactly are the demands? Who has the legal edge? Naturally, because this is the United States of America, this will end up in court.

Carol Costello is here with headlines and will bring us up to date on what else is going on in the world.

Good morning -- Carol.

CAROL COSTELLO, CNN ANCHOR: I will. And you know lawyers are already combing through there looking for people to file a class action lawsuit.

M. O'BRIEN: The guy I'm going to talk to, who did the tobacco lawsuit, says his phones are melting down.

COSTELLO: I talked to him.

M. O'BRIEN: So, yes, you know him. He's a character.

COSTELLO: He's an interesting, entertaining guy.

M. O'BRIEN: He's a character, yes. We'll talk to him in a bit.

COSTELLO: Yes.

M. O'BRIEN: You take it away.

COSTELLO: Good morning, everyone.

"Now in the News."

The second in command for al Qaeda in Iraq has been killed. A U.S. military spokesman confirming the man known as Abu Azzam was shot in a gun battle in Baghdad. It's believed he was responsible for supplying money to terror cells in Iraq. The announcement comes the same day that at least nine police recruits were killed in a suicide bombing. The attack taking place in Baquba in central Iraq. Dozens of other people are injured in the attack.

A Senate panel has approved $50 billion in emergency funding for the wars in Iraq and Afghanistan. The fund is part of a $440 billion defense spending bill for next year. The measure also lays the groundwork for an updated National Guard response system.

President Bush is on his way right now to the Gulf Coast region. The president left Andrews Air Force Base within the past half-hour. He's expected to get an aerial view of the Rita-battered Texas- Louisiana border. He also plans to meet with storm victims and thank those helping out with relief and recovery efforts. The trip comes one day after the president urged Americans to postpone unnecessary travel to conserve fuel.

And federal investigators want to know if a maker of a bulletproof vest knowingly put President Bush's life in danger. A whistle blower from Second Chance Body Armor testified earlier this month that the Secret Service bought some defective vests back in 2002. And some of those vests did indeed go to the president and first lady. The company says it recalled the vests as soon as the problem was discovered.

Let's head to Atlanta and get a check on the weather with Chad.

Good morning.

CHAD MYERS, CNN METEOROLOGIST: Good morning, Carol.

(WEATHER REPORT)

SOLEDAD O'BRIEN, CNN ANCHOR: So it was hot here, too, but nothing like that, Chad. In fact, it looks like, as you said, shaping up to be a very nice day in New Orleans.

We're on Magazine Street, which is a real center, a heart of commerce for the city of New Orleans. The street itself runs about six miles, you know total, in each direction. Furniture stores and antique stores and clothing stores and some food shops, as well, and some other businesses.

Here really not too much damage. I mean, Jay (ph), we can show some debris. This is kind of the stuff they are dealing with, because they didn't get a lot of water, they didn't get a lot of damage.

A much different story, of course, if you're talking about the lower Ninth Ward, New Orleans or you're talking about St. Bernard Parish. And we've been showing you some of those shots. For the folks there, they are so angry about the levee system, which is now the focus of all their anger and lots of questions, as well.

John King has a report this morning, really, a tale of two levees.

(BEGIN VIDEOTAPE)

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT (voice-over): Thirty-five miles south of New Orleans, breathtaking wetlands. The water exactly where it's supposed to be.

It's Windell Curole's job to keep it that way. This closed floodgate, one of his weapons.

WINDELL CUROLE, DIR., LAFOURCHE LEVEE DIST.: Flooding to the north of us, flooding to the east and flooding to the west. We're very fortunate that the system was just high enough to keep that flood surge out.

KING: Curole manages the South Lafourche Levee District. It looks like the tip of a finger on this map. And these days, when he looks at Rita's impact on the next parish over, and Katrina's devastation up in New Orleans, he fights back the temptation to say, "I told you so."

CUROLE: It's not time to say that. It's never time to say that.

KING: But he did warn them, repeatedly, starting a decade ago, memo after memo, warning after warning, saying a state so vulnerable needed to improve its levees, its pumps and its evacuation plans.

CUROLE: I mentioned for years that it might take a disaster to get the attention we need. Well, it happened before we could deal with the problem.

KING: Hurricane Rita's storm surge delivered this mess, this boat and waters, at one point, 6 feet above normal, all stopped by the Lafourche levee.

This is just a few miles up the road and a few steps into a neighboring parish that dropped out of the levee system back in 1968 because its leaders didn't want to pay the costs.

CUROLE: They envy where we are. Today the large portions of that parish are in water, where today we're dry.

KING: Katrina's winds caused damage here, but no flooding. Lafourche Parish was on the drier side of the storm, but it wasn't just luck.

CUROLE: We take care of those levees and they functioned exactly like they were supposed to.

KING: Curole has friends on the New Orleans Levee Board and knows they wanted improvements.

CUROLE: But others sometimes get -- and the political leaders in those other areas get distracted.

KING: City officials blame a lack of federal money. Curole can sympathize.

CUROLE: We're the kind of people that don't sit on our hands.

KING: But when his federal funds dried up, Lafourche Parish residents voted to finish the work with local taxes. The water is the lifeblood here, so Curole has little patience for those who say there was no way to predict such a catastrophic storm.

This scene is New Orleans 40 years ago. It could just as well be 28 days ago.

CUROLE: As a good businessman, the success of your business is not just looking at what's working well, but what are the threats to your business? And often, in politics, we don't look at the long-term threats.

KING: John King, CNN, Galliano, Louisiana.

(END VIDEOTAPE)

S. O'BRIEN: Such a different scene you see there -- Miles.

M. O'BRIEN: All right, thank you very much, Soledad. Back with you in just a moment.

Another storm may be heading for the Gulf Coast, this one pitting insurance companies against hurricane victims. Many insurance firms say that most of the damage caused by flooding, which is not, of course, covered by homeowners' policies.

Trial attorney Richard Scruggs, Dicky (ph) Scruggs if you like, he disagrees. He's filed major litigation against the insurance industry on behalf of Katrina victims. He joins us from Oxford, Mississippi.

Mr. Scruggs, good to have you with us.

RICHARD SCRUGGS, TRIAL ATTORNEY: Thanks, Miles, nice to be here, unfortunately, under these circumstances.

M. O'BRIEN: Yes, I know you lost your own house, as well, and we can talk about that in just a moment. But let's talk about these insurance contracts. The language is fairly clear, isn't it, if it's a flood, they don't pay? How do you get around that one?

SCRUGGS: Well, it says if it's a flood, you don't pay. Elsewhere it says, if it's a hurricane, they do pay. So one page is black, one page is white and it depends on which page you read.

M. O'BRIEN: All right, so black and white together makes a lot of gray. The insurance industry says this. We got a spokesman, actually a senior vice president for the Property Casualty Insurance Association, said, "we believe the Scruggs' lawsuit is nothing more than extortion through litigation." He went on to say the flood exclusion has been tested again and again and you're trying to rewrite contracts retroactively. A contract is a contract, right?

SCRUGGS: Of course it is. And we intend to force the companies, the good hands people, the good neighbors, to enforce these contracts and not split hairs over them. M. O'BRIEN: Let me ask you this, though, you have a fair number of people that are participating in this suit now. Getting into the four figures now?

SCRUGGS: It's well into the four figures, just in our firm alone, and it's not because we have sought this litigation. This is litigation is the last resort. Unfortunately, it's part of the business model of these property insurance companies to litigate and try to sweat the folks down to take pennies on the dollar.

M. O'BRIEN: If you win, though, wouldn't that just bankrupt the industry?

SCRUGGS: No, it wouldn't, because they've spun this risk off long ago into the worldwide markets. It might bankrupt some gentleman in Zurich, certainly wouldn't anybody in the United States. And the choice is do we bankrupt tens of thousands of American families or someone in London or Europe?

M. O'BRIEN: Well, one way or another, we're all going to pay for this, right?

SCRUGGS: Well I don't think the American taxpayer should pay for it. I think these companies ought to honor their contracts, the spirit and intent of the contract. All these homeowners, every single one of them, bought a hurricane endorsement with an additional premium. For them to now say that this was a flood, as opposed to a storm surge, is preposterous.

M. O'BRIEN: Well, yes, it certainly sounds like splitting hairs. Let me ask you this, though, philosophically, wouldn't it be better, wouldn't it be a better system if the free market just insured for flooding, in these cases, for houses, like yours, built in a risky area, and let the free market sort of dictate what the premiums would be? I guess the truth of the matter is not a lot of people could afford to live in these places.

SCRUGGS: Well the truth of the matter is people thought they were insuring against storm surge when they paid the additional premium for their hurricane deductible. Their agents told them that. The policy seems to say that.

And so if you're paying for a hurricane, everyone knows, the insurance industry, the people who live in coastal areas that are required to pay this additional premium for a hurricane endorsement, everyone knows that the principal threat to life and property there is storm surge from major storms. I mean Noah had a flood. Katrina had a storm surge.

M. O'BRIEN: Well what is the difference, though, between a storm surge and a flood?

SCRUGGS: Well hurricanes are the only things that cause storm surge. It's the only thing known to cause a storm surge. It's a well-understood scientific phenomena. Anyone who has watched your program or the Weather Channel for the last 20 years knows that storm surge is the main -- they know what that concept means. And that's what they thought they were buying insurance for.

M. O'BRIEN: All right, final thought, though, if you prevail, won't that mean that insurance companies won't bother to cover this sort of risk?

SCRUGGS: Well, it appears they're not bothering to cover it in any event. Why invite them back down here to sell more worthless paper to these people?

M. O'BRIEN: All right. Trial attorney Dicky Scruggs, thank you for your time. Good luck.

SCRUGGS: Thank you.

M. O'BRIEN: Still to come in the program, a closer look at just how dramatically Rita and Katrina transformed the Texas-Louisiana coastline.

Stay with us for more AMERICAN MORNING.

(COMMERCIAL BREAK)

M. O'BRIEN: Here you see some aerials, which give you a sense. That's probably in Cameron Parish. I don't know for sure. But that gives you a sense of the kind of devastation, just every home wiped out there.

Let's take a little aerial tour and try to get a bigger picture view. We're just still really assessing some of the pictures. Big picture here, of course, you recall the path of Rita kind of came through there, dodged by Havana and then right up through there, right along that border and on she went.

Let's zoom in on Beaumont, Texas. Beaumont, Texas, far southeastern portion of Texas. This is where the famous Spindeltop Gusher was back in 1901. That was the birth of the Texas oil industry. Lots of refineries there. Sixteen refineries remain shut. We've been talking about the implications of that. Lots of localized flooding. But as you'll recall from looking back on that path there, left side of the eye, the more forgiving side, less storm surge, so not as big a problem, generally.

Port Arthur, Texas, also a town of 58,000, hometown of Janis Joplin, also not as badly affected as those on the storm surge side, which we're going to see in just a moment.

Let's go to Lake Charles, Louisiana. That's about 57 miles to the east, as we continue on, a town of 72,000 people, a casino town. Many of the casinos slightly and sometimes completely submerged by the water right now on Lake Charles. It's those floating casinos again. And people are not invited to return there at least until October 3. Lots of flooding localized like this. Lots of problems with power outage. As a matter of fact, there is no power in the town.

Now let's move on, because I can see we're in Cameron now. That's 53 miles farther to the east, Cameron Parish, which has a total population in the parish of 10,000. This is, you know, bayou country. One of the big problems we've encountered here, you look, the damage is increasing as we go east.

Once again, now, we're on the not-so-forgiving side of the storm surge and of the storm and of the eye. Four thousand dead cattle have been counted thus far. Lots of livestock cut off by the water. In many cases, no fresh water available to them, drinking the saltwater.

And finally, let's go 13.9 miles to the east to Creole, or actually, yes, this is Creole, Louisiana, a quick stop there, really the entire town of 1,500. There is the cattle we were telling you about left in splinters.

And finally, one more stop, 115 miles downstream to Abbeville. And that, when we put that altogether, it comes up to a storm with tremendous damage. Abbeville with significant flooding. This is deep in the heart of Cajun country, all the way over toward Lafayette.

I want to point out we are now 250 miles, as you look at this damage, 250 miles from the eyewall of Rita. But once again, with that counterclockwise swirl, you can see the kind of damage that that wind, and in particular, storm surge and flooding, have caused there. Quick overview of some of the damage from Rita.

Still to come on the program, Andy Serwer's "Minding Your Business." Is Wal-Mart looking to go upscale? We'll tell you about a possible deal between the discount retailer and a well-known clothing company. Stay with us for more AMERICAN MORNING.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

DODGEY ARUNGERAN (ph), STUDENT: I saw all those kids with parents and no parents crying because they had nothing. And I was very, very sorry for them, so I was thinking what can I do to help those kids?

UNIDENTIFIED MALE: A little girl with a big heart wants the children of Hurricane Katrina to have something to love and hold. Eight-year-old Dodgey Arungeran launched a drive at her Atlanta elementary school to collect stuffed animals for the youngest victims of the storm.

ARUNGERAN: I wanted the kids to know that we have not forgotten them and here they got a lot of friends!

(END VIDEO CLIP)

M. O'BRIEN: What a sweet kid! You've got a tough act to follow, pal, I'm sorry. Whatever you have isn't going to cut it.

ANDY SERWER, "FORTUNE MAGAZINE": Boy, yes, I'm just going to go back home now.

M. O'BRIEN: Let's go to a commercial break, shall we? SERWER: You know she was a real sweetheart.

M. O'BRIEN: Yes.

SERWER: Really.

M. O'BRIEN: All right. Andy Serwer, we're talking about Wal- Mart and go figure.

SERWER: A couple of brand stores.

M. O'BRIEN: Go figure.

SERWER: Go figure.

M. O'BRIEN: Yes.

SERWER: Tommy Hilfiger meets Bentonville, Arkansas? Is this possible? Tommy Hilfiger, see you got me trying say it now, Miles, is up for sale. And published reports suggesting that Wal-Mart may be the buyer. Wal-Mart of course headquartered in Bentonville, Arkansas. They probably could use a designer name like this. No comment from the folks at Tommy Hilfiger. They have 211 stores and they also sell their wares in department stores. It will be interesting to watch that one.

Another brand story, Ask Jeeves may be giving its mascot, the butler, the boot. Barry Diller, his company AIC, owns Ask Jeeves. And at a conference recently, he said he was going to get rid of the mascot.

M. O'BRIEN: What's the point of that?

SERWER: Not that I don't like the fat butler,...

M. O'BRIEN: Ask Jeeves...

SERWER: ... Barry Diller reportedly said.

M. O'BRIEN: What, pretty soon, Microsoft will get rid of that paper clip, too. Look at that, huh?

SERWER: Yes, I mean this is -- you know I don't know, maybe it's politically incorrect to get down on fat butlers, but Barry Diller did.

Anyway, let's talk about the markets a little bit, Miles, shall we? Yesterday, stocks up a little bit, a bit of a relief rally. A little bit of Rita relief rally yesterday. This morning, however, futures are flat.

M. O'BRIEN: All right.

SERWER: And that's it. Back to you.

M. O'BRIEN: Is there like a butler's anti-defamation league or something?

SERWER: Fat butlers? I think you can...

M. O'BRIEN: I don't know.

SERWER: They don't have one, no.

M. O'BRIEN: All right, Andy Serwer, thank you very much.

Back to -- Soledad.

S. O'BRIEN: All right, Miles, thanks.

Coming up this morning on AMERICAN MORNING, business owners are coming back, cleaning up, trying to get the city ready for business, but is the city really ready to open? We'll take a look at that ahead on AMERICAN MORNING. Stay with us.

(COMMERCIAL BREAK)

M. O'BRIEN: Still to come, FEMA's failures in Katrina's aftermath. Former FEMA Chief Mike Brown set to testify before Congress this morning. What do lawmakers want to hear from him? A live preview from Washington straight-ahead on AMERICAN MORNING.

(COMMERCIAL BREAK)

S. O'BRIEN: Welcome back, everybody.

As soldiers patrol the streets here in New Orleans, homeowners are getting a second chance to get back and take a look at their homes, another difficult day ahead for the people who live there.

In Washington, the critical mistakes in the days following Hurricane Katrina. Former FEMA Chief Mike Brown is expected to be grilled this morning by members of Congress. Is the committee stacked in his favor?

And from Texas to western Louisiana, President Bush now heads to another disaster zone to see Hurricane Rita's destruction all on this AMERICAN MORNING.

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