State Farm Settles Katrina Claims in Mississippi
State Farm, the nation’s largest home insurer, reached an agreement today with Mississippi officials to pay hundreds of millions dollars to thousands of homeowners in the state who have been unable to rebuild in the nearly 17 months since Hurricane Katrina swept across the Gulf Coast.
Lawyers for the insurance company and Jim Hood, the Mississippi attorney general, completed the last details of the settlement in a meeting in Jackson, the state capital, this afternoon.
Then lawyers for State Farm and Richard F. Scruggs, who represents hundreds of storm victims and played a key role in drafting the settlement, flew to the coastal city of Gulfport to seek endorsement of the plan by a federal district judge, L.T. Senter, Jr.
Judge Senter has suggested that he would like to see a global settlement, and some participants in the talks say the first money could begin to flow to storm victims as early as next week.
A settlement could help jump-start a recovery along a 70-mile stretch of waterfront that was mauled by high winds and surging floodwaters.
Among the homeowners who will benefit from the settlement are Senator Trent Lott and Representative Gene Taylor, both of whom lost their homes in the storm and were denied payment by State Farm.
Under the agreement, State Farm would pay an initial $130 million and perhaps several hundred million more by the end of the year, depending upon how many policyholders request that their claims be reopened. About 35, 000 homeowners along the Mississippi coast are eligible.
Today’s agreement does not apply to Louisiana, where the destruction was even greater, and where lawyers and insurers say no settlement talks have taken place.
Insurance executives expect other carriers to follow the lead of State Farm in settling lawsuits in Mississippi and permitting policyholders to reopen damage claims. Those settlements could add several hundred million dollars for rebuilding.. Since Hurricane Katrina hit in 2005, companies have paid $5.3 billion for damage to more than 330,000 homes in Mississippi and $10.3 billion for nearly a million homes in Louisiana. But State Farm and other companies balked at paying for the concentration of losses along Mississippi’s Gulf Coast and in New Orleans, contending that their policies did not cover damage from flooding. In many cases, the insurers also argued that their standard coverage against wind damage was nullified for homes that were battered both by surging flood waters and the high winds of the hurricane. Thousands of residents in coastal Mississippi and in New Orleans sued their insurance companies.
Lawyers for the storm victims had worried that the insurance companies would fight every case through the courts and that it would take years to resolve the coverage disputes. But the insurers became tired of being called insensitive and uncaring about the victims of Hurricane Katrina.
In the first jury trial on the hurricane damage a little more than a week ago, Judge Senter said State Farm failed to prove its case and the jury ordered the company to pay $2.5 million in punitive damage to a couple in Biloxi. The judge also awarded the couple the full value of their insurance policy, $223,000. State Farm had maintained it owed them nothing.
“Every insurance company wants to settle these cases as fast as possible,” said the general counsel of another big insurance company shortly before the jury’s decision. “No one in our business likes to hear, over and over, how the big insurance companies are mistreating the poor homeowners.”
Randy J. Maniloff, a lawyer at White & Williams in Philadelphia who represents insurance companies, said bad publicity had been a big factor in State Farm’s decision to settle. “They spent 80 years building up a brand,” he said, “and the adverse publicity from these lawsuits has been clearly doing damage to the brand. It just flies in the face of their portrayal of themselves as good neighbors.”
Indeed, according to people close to the talks, it was State Farm that first suggested settlement talks in a telephone call early last fall to Richard F. Scruggs, who was representing hundreds of storm victims .
Mr. Scruggs, who came to prominence by filing lawsuits against the tobacco industry, worked out the main points of the settlement with State farm lawyers and two weeks ago, he and the company reached an agreement in principle. But the attorney general of Mississippi and George Dale, the Mississippi insurance commissioner, expressed reservations. Both officials, who are up for reelection in the fall, said they wanted to make sure that homeowners got the best possible deal. Mr. Dale said it was also important that any agreement not be overly burdensome for insurance companies. The sticking point in the agreement had been over the framing of a few sentences that would end a criminal investigation by Mr. Hood into State Farm’s handling of the claims after the hurricane. Mr. Hood had convened a grand jury last week that began hearing evidence against State Farm.
State Farm had insisted that Mr. Hood drop the criminal case, which it contended was unjustified. State Farm also demanded that Mr. Hood abandon a civil lawsuit against it and other insurers.
In the agreement, State Farm said it would pay $80 million to settle 640 lawsuits filed by homeowners after Hurricane Katrina and reopen, on the request of homeowners, up to 35,000 other damage claims. The insurance company agreed to pay at least $50 million more on the previously closed claims.
Participants in the talks estimated that, in addition to the $150 million, State Farm could pay another $250 million to $600 million under the terms of the settlement. The participants said State Farm insured about half of the estimated 70,000 homes along the coast whose owners filed claims for damage.
In the settlement of the 640 lawsuits, State Farm agreed to pay the full insured value for 300 homes that were swept away with nothing left behind but concrete slab foundations and tangles of debris. Those homes were insured for $69,700 to $2.34 million. The owners of the other 340 homes, with varying degrees of damage, are to receive an average of $124,400.
In the review of closed claims, homeowners may accept a new offer from State Farm or insist on binding arbitration in hopes of receiving more money. Storm victims are also free to ignore the settlement and file separate lawsuits against State Farm. But few are expected to do so.