State Farm to Pay $1 Million to Settle Gulf Claim
On the eve of trial, State Farm agreed yesterday to pay an estimated $1 million to settle a lawsuit by a Mississippi Gulf Coast resident whose house was destroyed by Hurricane Katrina. The settlement came a week after a jury ordered the insurer to pay $2.5 million in punitive damage to a homeowner with a similar case.
State Farm and lawyers for the homeowner confirmed the settlement. They would not say how much State Farm paid, but trial lawyers not involved in the case said simple mathematics and logic suggested that the insurer agreed to pay about $1 million.
By settling the lawsuit, the lawyers said, State Farm eliminated the risk of another huge punitive award and more of the bad publicity that has been shadowing it and other insurers that have refused to pay for widespread flood damage caused by Hurricane Katrina in August 2005.
The benefit to the homeowner, Dr. Richard Tejedor, a respiratory specialist from Long Beach, Miss., the lawyers said, was that he would receive the money soon, rather than waiting through the long appeal process expected for the family who won the court decision last week.
The settlement also eliminated the slim possibility that the same federal judge and another jury of Mississippi coast residents would be less sympathic to Dr. Tejedor than the other family who was awarded the full $223,000 for which they had insured their home plus the $2.5 million in punitive damages. The trial on the Tejedor case had been scheduled to begin on Monday.State Farm settled with Dr. Tejedor as it was in the midst of negotiations to settle hundreds of other Hurricane Katrina lawsuits and reopen up to 35,000 damage claims that had previously been closed.
In an eventual settlement, State Farm is expected to pay at least $130 million. Other insurers are then expected to settle similar lawsuits and reopen tens of thousands of damage claims that homeowners' lawyers say were underpaid. That could mean that hundreds of millions of dollars more would pour into the Mississippi coast and jump-start a long-delayed recovery from the ravages of Hurricane Katrina.
Participants have said that a settlement has been close at hand for two weeks, but that final agreement is being blocked by Jim Hood, the attorney general for Mississippi. He said in an interview on Thursday that he was holding out for the best deal for Mississippi policyholders.
Jack L. Denton and William C. Walker Jr., lawyers for Dr. Tejedor had sought $5 million in their lawsuit, mostly in punitive damages. But other lawyers said federal guidelines generally limit punitive damages to 10 times the amount that a homeowner is awarded for property damage.
In Dr. Tejedor's case, his home had been insured for $260,000, he said in a deposition. But he was one of the rare residents of the Gulf Coast who had bought federal flood insurance. He received $200,000 from the federal flood program, and State Farm had paid him $13,943.65 before he decided to take the company to court.
That left Dr. Tejedor about $46,000 short. He also received $80,000 from the flood program for the contents of his home, which the lawyers estimated may have been insured for $130,000. The lawyers estimated his total loss at $96,000. They said that courts generally attempted to make a plaintiff whole and not award damages that would result in a profit.
On that basis, the lawyers estimated that Dr. Tejedor might have received a maximum of a little more than $1 million from State Farm — the $96,000 plus up to 10 times that — or $960,000 — for punitive damages.
"I'd be very surprised it if was less than 10 times the net loss," said Richard F. Scruggs, who is leading the group of lawyers in talks with State Farm to settle hundreds of cases.
But Randy Maniloff, who represents insurance companies, said State Farm probably settled the case for less than the maximum. "Otherwise," he said, "why not just go to trial." At the same time, Mr. Maniloff said, State Farm would want to avoid the publicity of a trial and the possibility of a punitive award that could drive up its costs in the global settlement talks. The Tejedor case was not a part of those talks.