WASHINGTON–A Congressional panel examining Hurricane Katrina claims handling heard a colleague accuse insurers yesterday of “massive fraud.”

The accusation came from Rep. Gene Taylor, D-Miss., who has been among the insurance industry's most vocal critics since Hurricane Katrina.

Rep. Taylor, who recently settled a suit against State Farm over his own claim, made his attack on insurers before the House Financial Services Subcommittee on Oversight and Investigations. After testifying, he joined the panel to question other witnesses.

Among those appearing before the committee were Insurance Information Institute President Robert P. Hartwig, Mississippi Attorney General Jim Hood and National Flood Insurance Program Director David Maurstad. All underwent harsh questioning.

In his testimony, Rep. Taylor said that insurers had committed “massive fraud” against homeowners and taxpayers by systematically assigning all damage from the storm to flooding, making the NFIP responsible for all losses.

Rep. Taylor said that insurers also took advantage of their exemption from federal antitrust laws to contact each other and devise a system to avoid paying claims. The law allows an insurer to call others and say, “If you don't pay claims, and you don't pay claims, then I don't have to pay claims,” he said. “It's wrong as all get-out and it should be illegal.”

Mr. Hartwig disputed the idea of an insurance company conspiracy to avoid paying claims, saying that companies make “every effort” to pay claims according to the terms of the contract.

In addition, he sought to explain that the insurer federal antitrust exemption under the McCarran-Ferguson Act is a “narrow” exemption that allows smaller companies to compete with larger firms. “There's no law in the land that would allow insurance companies to get together and inflate rates or not pay claims,” he said.

Mr. Hartwig said “absolutely not” when asked by Rep. Maxine Waters, D-Calif, whether such conversations could have taken place. However, he later hedged his response by saying he was “absolutely unaware” of any conversations to coordinate Katrina claims handling among insurers.

Rep. Waters disputed the industry's assertion that 95 percent of claims had been settled by the one-year anniversary of the storm. Mr. Hartwig said insurers did not include claims in that number if they felt they were barred by language in policies.

“We consider that a claim,” Rep. Waters said. “You evidently don't.”

Rep. Taylor requested in testimony that the committee subpoena two women who he said walked away from their positions as claims adjusters because they were “disgusted” by the actions of insurers. He also called for subpoenaing insurance company executives.

The representative produced several documents he said showed insurers sought to put the responsibility for Katrina claims on the NFIP.

He displayed what he said were memoranda telling adjusters not to pay claims, and an engineering report saying a home was damaged by excluded storm surge. Mr. Taylor said the report was a forgery designed to counter an earlier version finding wind damage.

Rep. Taylor scolded Mr. Maurstad for what he called an “appalling” lack of oversight by the NFIP. No other federal agency has the authority to hand out a $200,000 check, he added, citing his own experience with NFIP adjusters, without “someone looking over their shoulder.”

Mr. Maurstad responded that the NFIP “takes very seriously our obligation to pay only what is covered under the policy,” and that the agency conducts reviews of claims submitted by insurers. He added that while no one looked over the shoulder of the adjuster who paid Rep. Taylor's claim, “the file will be reviewed.”

Rep. Taylor responded that he has not seen evidence of any review by the NFIP, and has not heard from any of his constituents that NFIP personnel checked up on claims that had been paid.

Attorney General Hood, who has sued to void insurers' contract language that excludes storm surge damage from windstorm coverage, was questioned by Republican committee members.

Why, they asked, did his office seek to overturn contract language that had already been approved by the state insurance commissioner's office?

“You've got a federal judge ruling that something might not be appropriate, but you also have a state insurance agency approving the policy,” said Rep. Gary Miller, R-Calif., the ranking member of the subcommittee, adding that “it looks like there's a problem.”

The provision at issue, known as an anti-concurrent causation clause, was used by insurers to argue that they did not have to prove that wind played any role in damaging flood-damaged homes, according to Mr. Hood.

“They didn't even try to estimate a percentage that was done by wind,” he said, adding that a recent ruling by U.S. District Court Judge L.T. Senter Jr. in Gulfport had put the onus of showing what percentage of damage was covered wind or excluded water on homeowners insurance companies.

In response, Mr. Hood said the insurance commissioner, an elected official, was not an attorney, and that he did not believe the anti-concurrent causation clause would stand up to legal scrutiny in any of the 50 states.

In reaction, Rep. Waters recommended that Mr. Hood go back to other attorneys general in other states to resolve the issue.

Although they were not represented by a witness at the hearing, State Farm's vice president of public affairs, Mike Fernandez, said in a statement that Rep. Taylor's claim of a conspiracy among insurers was “absurd.”

Mr. Fernandez also rejected testimony from Mr. Hood that State Farm was the only insurer to “zero out” on home foundation slab claims. Mr. Hood's statement “we believe implies we did not pay anything on those claims. In reality, State Farm paid for covered damage on nearly 800 claims in which the foundation was all that remained after the storm,” he said.

Regarding Rep. Taylor's testimony, Mr. Fernandez said State Farm did send a memo to its claims adjusters, that “encouraged them to look for evidence of wind damage (not discourage it as Rep. Taylor inaccurately indicated).”

Concerning engineering reports used to deny claims, he said the company had a little more than 1200 cases where it used engineering reports and in 70 percent of those cases State Farm paid claims on its policy.

This article was updated at 132 p.m.