This is exactly what happened in New Orleans in 2005. Here is a great link. I especially loved the very last line. No kidding. http://money.cnn.com/2012/11/12/pf/insurance/sandy-flood-insurance/index.html?iid=Lead
Forcing people to buy insurance and then not paying claims is a grand scheme concocted by insurers, banks, and executed by lobbied lawmakers. Insurance companies, some owned by banks, reap the benefits via the policy's small print. That's the stuff nobody reads and your agent never discloses. It's a beautiful piece of crony capitalism. It's really just
thievery err.. business in America.
Warren Buffet owns Geico. Like he needs some some money. Another odd coincidence. It's one giant King sized bed- and we ain't in it.
In 2005, home owners in New Orleans simply left after Hurricane Katrina and never came back. Many of their homes were complete losses and insurance companies offered mere pittances of 10 grand or so for wind damage on a 200k house needing 100k in repairs. When homeowners took insurance companies to court claiming Katrina was a wind storm- they of course- lost.
So they packed up and left. I still believe Katrina kicked off the housing collapse 12 months later. Many of those piles of rubble were still laying in the streets when I was there in 2007-2008.
To add insult to injury, those who were insured or perhaps just under insured, were subjected to the New Orleans practice of issuing contractor licenses to whoever paid the most bribe money. The greased applications flowed to the top and were processed quickly. Often those contractors were not contractors at all- but scam artists stealing from homeowners desperate to have their lives rebuilt. Once the fake and licensed contractors secured claimants money- they often did shoddy work, no work, or outright stole the money and never came back.
Homeowners were left with no recourse- of course. New Orleans officials who issued contractors licenses- covered their tracks by saying that fraudulent contractors were not their fault. Crony capitalism you see, leaks down into the smallest of cracks.
Often, I have warned people that in the new world of crony capitalism, the sole purpose of the capitalists is to take your money and fatten margins by ripping people off through various means. When you protest, they intimidate you by using front line troops like agents, adjusters, and lawyers. Governing bodies in many states are indifferent to the practice- many come from the insurance world anyway.
They do what is barely legal. That is the only bar they jump over. Doing what is morally or ethically right is simply not part of their agenda. Those virtues are un-necessary in the new world of crony capitalism.
Unfortunately, claimants are overwhelmed and intimidated by the levels of opposition they find waiting for them.
Ultimately, I think suing agents and companies for errors and omissions when selling you a policy is really your only recourse and that is often just a crapshoot. Unfortunately, insurance companies have armies of attorneys to intimidate you. They also have the added bonus of knowing that most people will give up and move on with their lives. At worst maybe they'll offer up some intermediate level compromise. They hate going to court because that costs them real money.
You are better off taking a decent case all the way to a jury of your peers. That is really your best shot because your peers may very well have had similar experiences.
For some, that is the only recourse they will have.